Kenyantykoon's Blog
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before investing in income bonds…
Posted: March 31, 2010, 7:24 pm by kt
I have not done anything on bonds for a long time. The last thing I did on them was the post on how investors analyse bonds.
This post will concentrate on income bonds and whether they are any good as investments so if you are new to the bond investing, I would suggest that you read through this linked article on understanding bond investing.
These bonds are also called adjustment bonds and are basically they what you get when you cross a normal [straight] bonds and preferred stocks.
This means that they will have the following characteristics;
-first off, these income bonds have longer maturities than normal bonds and sometimes are even referred to as long term investments.
-on the maturity date, the income bond holder has the undisputed right to have all his initial principal paid to him but the interest payments will only be paid to him if the company had enough cash to pay up. This means some safety for his hard earned cash and this alone serves to attract value investors to them and avert other investors because when you look at it, there is actually very little promise of payment of invested capital.
-because of the fact that they do not have to pay interest requirement to bondholders unless the cash is available, they are used by an issuing company to raise badly needed cash and to avoid receiverships and consequent bankruptcies. This is why other types of investors other than value investors are averted to them because the risk of loss is always ever present.
-in some issues if the interest payments are bypassed, they are not accumulated to the next payday. This in itself is a major disadvantage of income bond investing that an investor has to take into consideration.
-in the indenture, the interest requirements are to be paid to bondholders when company earnings allow so this means the probability of loss of interest by the investor is always an issue. This is where they are similar to preferred stocks because in the case of preferred stocks, directors can decide whether or not to pay interest payments. If the interest payments are not paid a default will not ensue making these income bonds very advantageous to issuing companies.
-These income bonds are rare but there is a possibility that they will be more available since in they come with a tax loophole for the issuing company offering more tax savings than preferred stocks(I happened to mention about the savings in the preferred stock post.
this linked article explains fixed income bonds from a different perspective.
So basically these are income bonds for you. You will find them an interesting option if you, like me, are inclined to value investing. We like troubled issues because in some cases, these is where you can get good issues selling at a large bargain because the management was not paying enough attention to the numbers.
It is also the best place to apply the oracle of omaha’s advice that ‘’be greedy when others are fearful and be fearful when others are greedy” in that when they are running away from the income bonds of troubled issuers, run to them and analyse them more carefully.
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important financial ratios in stock analysis
Posted: March 30, 2010, 9:50 am by kt
Of late I have been moving deeper and deeper into stock and bond analysis, like how an investor analyses a bond, how an investor analyses a stock, documents needed for stock analysis, not to mention all the types of stocks and bonds and liquid investments for investors.
In this post we look at a list of all the ratios that all investors should know how to calculate for any given security. Knowing these ratios will help you in knowing the bargain issues. [it would be better for your understanding for you to take some time to read thorough the linked posts above]
I will not go into in-depth explanations on what each of these mean and how they are used… not now anyways.
These important financial ratios include;
P/E ratio or price earnings ratio- this is the company’s total market capitalization(market cap) dividend by its total earnings for the last 12 months. In other words, it is the price paid per share relative to the company’s earnings per share. It is always a figure like 10 or 74 etc
Market capitalization.- This is not exactly a ratio. It is the product of the number of shares in the hands of investors and the current market value of each share. This ratio is used in categorizing companies by their size ie, small cap, mid cap and large cap companies
Assets turnover- net sales or revenue divided by total assets, used to see how well the assets are used to make money for the business and so the higher this figure the better
Return on assets- net income dividend by the end-of-year total assets and then the figure multiplied by 100 to make it a percentage
Return on equity- calculated by dividing the financial year’s after tax, after preferred stock dividends and before common stock dividends income by the book value. The bigger this figure and the faster is it growing the better because it means that the company is becoming more efficient with available resources
Return on capital invested[ROIC]- calculated by (net income after taxes)/[total assets-cash in hand-non interest bearing liabilities]. It is another efficiency test for the company
Current ratio- simply current assets divided by current liabilities. It is used to measure a company’s liquidity and its short term financial strength, it will look something like 5 or 5x meaning that the current assets are five times the current liabilities
Coverage ratio- the number of times that a company’s expense is covered by the earnings
Interest coverage- used to measure the company’s ability to pay interest on outstanding debt like corporate bond interest etc. Equal to [earnings before interest and taxes for a fiscal year]/interest payments for the same period. The higher this figure the better because it will mean that the revenues very easily cover their financial obligations n times over
Total debt/equity or gearing ratio. This measures a company’s stability. It is equal to total liabilities of the company/total shareholder’s funds. The higher this ratio the more the interest payments the firm is to pay in future as it means that the company has borrowed a whole lot of money.
Working capital per share- this measures a company’s liquidity. Calculated by subtracting current liabilities from current assets and then dividing the answer with the total number of shares outstanding (shares in the investors hands)
Earnings per share- total profits of a company divided by the total number of the company’s shares. In most cases, if this figure is growing it means that the company is growing. But investors are warned in financial books not to base their investing on only this value and that it should not be so high.
Dividend per share- total dividends paid to shareholders for the previous financial year dividend by the number of common stock outstanding
Book value per share- a company’s book value divided by the number of shares outstanding. BTW the book value is a company’s total assets – total liabilities-intangible assets like goodwill
Cash flow per share- operating cash flow- preferred stock dividends and the answer is dividend by the total number of shares outstanding
cash per share- indicates the amount of cash in the firm as compared to the number of shares outstanding. Calculated by [cash + marketable securities]/number of shares outstanding
Dividend yield- this is calculated by dividing the total dividends paid out by the current price of the stock
Dividend payout ratio or payout ratio- ratio of dividends paid out by the company to the company’s earnings in a financial year
Pre tax profit margin- net profit before taxes divided by net sales
Total debt/ total capital ratio- this one shows the proportion of a company’s debt to its total capital. It is used to measure the company’s capital structure and financial solvency
Leverage ratio(assets/equity)- this is the total assets of the company divided by the total shareholders equity. It is a measure of the company’s leverage ie the degree of utilization of borrowed money. Highly leveraged company’s place themselves in a bad place like danger of receivership or bankruptcy if they cannot pay their debts
Other key pieces of information include
Float- this is the total number of shares of a company that are available for the investing public
Shares outstanding- number of a company’s shares that are in the hands of investors
Sales(both domestic and foreign)- the amount of money in whatever currecy that the company has made is selling it products
Research and development as a percentage of revenue.- Research and development in a company uses money so this ratio tries to measure the amount used in R&D as compared to revenues in a financial year.
Gross profit margin- calculated gross profit/sales *100=x% meaning that for every dollar(rupee, shilling, peso euro whatever)generated in sales, the said company has 20 cents left to cover basic operating costs and profit
EBITDA margin- the initials mean earnings before interest taxes depreciation and amortization. It is used to measure a company’s operating cash flow using its financial documents like the income statement and the like. It is calculated by adding depreciation and amortization back to pretax income
These are the most important ratios that the investor looks into in the actual stock analysis. I will be adding more to this list as time goes by and form a life dividend financial dictionary
(you may want to bookmark this page )
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tax evasion and tax avoidance explained-updated
Posted: March 26, 2010, 11:53 am by kt
This is an update of a post that i did some time back, i just got some now info so i thought of cleaning it up
We have all heard of those stories about high fliers, CEOs and movie stars facing a very long time in prison because of failing to pay their taxes. Most of the time, it is normally tax evasion but there is a legal way of paying less taxes and it is called tax avoidance. This post serves to enlighten my readers on the difference between the two.
What is tax evasion??
Basically tax evasion is where a person unlawfully reduces the amount of taxes that they are to pay up by either understating his taxable income (the percentage of a person’s income that is to be taxed), manipulation of tax law, adding tax deductions (exemptions for the tax payer to pay less tax) that do not apply to him or just refusing to pay the taxes, transaction using cash so that no paper trail is left for the taxman to follow, stating your assets in another person’s name, having debts and receipts like stock dividends paid through other people’s names, keeping double records for a business: one doctored for the taxman and another accurate one for business continuity, demanding tax refunds that you are not liable for, businesses understating their sales, using illegal tax shelters etc. All this and others that people use to pay less taxes
This is criminal and those that are unlucky to be caught or don’t have the government in their pockets get prosecuted and imprisoned or fined.
It can be argued that once in a while a person may be unable to pay taxes and this can be dealt with leniency but the problem comes when it is done over and over again by people who definitely know what they are doing and there is a motive behind it like CEOs reducing expenses so that their companies can report higher returns at the end of the financial year, or when highly paid lawyers are used to manipulate the law for the corporations
I assume this is enough about the illegal tax evasion and now for tax avoidance
What is tax avoidance??
In contrast, tax avoidance is the legal minimization of the taxes due to a person using established financial tools and laws and whatever else that it lawful. Some of the instruments that a person can use is municipal bonds because interest on these is not considered taxable income, using tax shelters, trusts, using all the tax deductibles lawfully due to the individual, using tax planning opportunities like estate planning, salary reduction plans, shifting assets to family members that do not need to pay taxes on the income(this is a permanent shift compared to the illegal temporary shift in tax evasion) and a myriad of other things some of which are covered in this article, changing your country of residence to a tax haven like the famous Monaco etc
Wikipedia has a little more to add on both tax evasion and tax avoidance.
I had briefly mentioned tax avoidance in the tax credit post so you might want to re-read it for better understanding.
Tax avoidance is also referred to as tax mitigation or tax minimization or tax planning so let this not confound you.
My dollar plan recently did a post on 13 tax deductions that you wouldn’t want to miss and i thought that i should link to it to give you guys more examples on this advantageous aspect of taxation
Tax law being what it is(it is super duper complex in this part of Africa), it is important that you talk to a tax lawyer or a tax advisor so that you get to know all the tax deductibles due to you instead of breaking the law to get something that you could have got legally.
If this has not been understood or there is something that you would like to add, the comment box is all yours
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UNDERSTANDING THE BASICS OF MORTGAGES
Posted: March 25, 2010, 5:31 pm by kt
This post will be outlining the basics of how mortgages work. This is sparked by the previous post about equipment trust certificates where I happened to mention that these types of corporate bond are similar to the working of mortgages.
It just figures that like with all things financial you should first understand how these mortgages work before getting that mini mansion in Runda .
A mortgage is in essence a long term loan given out by a financial institution like a bank or a mortgage lender (called the mortgagee) to a person(called the mortgagor) with the property itself as the security. When you the mortgagor fails to make the required periodic payments interest included, the mortgagee seizes the property and you loose all the payments that you made. On the flip side after all the payments plus interest are made, the ownership of the property is legally turned over to you and finally you can call yourself a bona fide home owner.
There are several types of mortgages i.e.
-fixed mortgage loans where the periodic payments are fixed all through the lifetime of the mortgage, also called the conventional mortgage
-adjustable rate mortgage loan where the periodic payments fluctuate depending on a number of variables
-non conventional mortgages
-home equity mortgages- mortgages where the home is the collateral
-subprime mortgages- a type of mortgage designed for those who cannot afford to make the payments on a conventional mortgage and so this one is designed so that the principal is not to be paid until a couple of years into the loan payments
-interest only mortgages- as the name implies, you will only be paying the interest on the mortgage and because of the lower payments, you can build up enough cash reserves to pay up the remaining balance minus the interest in some stipulated time in the future
-reverse mortgages- with this one you must be past 62yrs of age and you must live in your home. They are basically used to borrow cash with the property as the collateral but they are not the best because of the high interest rates involved
-balloon mortgages-
And many many others. Its just like all the types of stocks that I have handled in the past
When getting a mortgage, there are a few major things that are stipulated in the contract
*principal- this is the total amount of money that you borrow from the bank or mortgage company to pay for the house you desire so much
*interest- the extra amount the lender charges you for giving you the loan
*real estate taxes- part of these taxes are added to your monthly charges
*home owner’s insurance- you will have to buy insurance for the house to protect yourself against hazards like fire, theft, extreme weather etc
*term- this is the time period for the mortgage i.e. the time over which you the mortgagor is expected to pay up all the monthly payments. Because homes are expensive, this term is normally very long like 40 years long in some cases. The shorter the term, the higher the payments because there is a fixed amount of cash to be paid over a short time.
*amortization formula- this is the repayment formula that the mortgage lender comes up with so as to spread the payments over the term to make them sufficiently bearable.
Apart from the insurance and interest on the mortgage loan, there are so many other fees that are involved making this a major financial obligation. These fees are covered in this “how home mortgages work” article so it makes no sense in repeating them. But they are quite a bundle.
With this in mind you can start actively shopping around for a mortgage and not be confused with the jargon because the object of the post was to demystify mortgages and help get you out of that seat.
As with all other industries imaginable there are predators in the mortgage business that manipulate people and downright steal from them using misinformation and taking advantage of the inexperience of first time home owners. So before you go to a mortgage lender, the lifedividend people beg you to please do your research and do your shopping before getting in bed(so to speak) with any lender. Make sure you are getting what you deserve no less.
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what are equipment trust certificates??
Posted: March 23, 2010, 2:58 pm by kt
Equipment Trust Certificates are an investment vehicle that I have never mentioned or posted about before, mainly because they do not feature much in this website(i am very much inclined to stocks, bonds and rock solid investment funds). I just find it worthwhile for readers to know all the major investments available for them apart from the conventional stocks, bonds and mutual funds
This post will be dealing with a type of bond so to fully grasp everything, it would be better if you first read through this linked article on understanding bond investing
Basically equipment trust certificates are instruments used by companies mainly airlines and railroads to acquire expensive equipment. Let’s say that a shipping company wants to buy a container ship or an airline wants to buy a big plane. They may have many options of financing the purchase and an E.T.C just one of them. What happens is that a third party arrangement is set up (called a trust) that manages everything. A trust certificate is sold to the investors as an evidence of the agreement and all the terms of the contract like the fact that the lease payments are to be diverted to the investors, time periods etc. This third party trust then leases (its like a long term rent) the aircraft, ship or whatever to the company and the payments that this company makes are diverted to the investors through this third party trust. After all the payments are made in the given time as stated in the trust, the company receives legal ownership the plane or ship etc and the whole thing ends there. Even if the company was using the object, it wasn’t legally theirs and in the case of a bankruptcy the company stands to loose the payments already made and the object of their desire(so to speak) but in the flip side, they don’t pay taxes for it because technically they don’t own it as yet.
So in a sense it is just like a mortgage.
I first read about this investments in Benjamin Graham’s security analysis and apparently they were used in financing the purchase of railway equipment but now these equipment trust certificates are now used in a wide range of industries like airlines, shipping, road transport, generally transport companies needing high cost movable equipment.
Something else that is worth saying about these ETCs is that they are a form of secured corporate bonds-( read more about this here) and the investors’ principal is protected by the issuing company’s assets. In the case of bankruptcy these investors(bondholders) are legally entitled to receive first right to the company’s equipment and get their money back.
As for the maturity period it is intermediate to long term like 1 to 15 years sometimes above this
Generally these are equipment trust certificates for you. Something that I have come to realize with investing and life in general is that you never get the whole picture until you get into the activity itself. So when you decide to invest in these trust certificates, the terms could be different to what you have read here.
Do you have anything else to add or correct or whatever?? The comment box is all yours
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other factors to consider in stock selection
Posted: March 22, 2010, 6:06 pm by kt
Of late I have been delving into the details that an investor should look into when selecting securities to put his money in. I did a post about the financial documents that an investor has to read to make an informed decision, I did a post on the types how an investor analyses a stock, and yet another on how an investor analyses a bond. There was also another important concept to consider called margin of safety.
In line with the most recent of investing posts, I am going to do one on other things that a value investor has to consider when making investment decisions.
General stability of the company- in value investment circles, this is measured by the maximum decline in per share earnings (how much each share earns) in any of the past say 7 years, or any figure that you please as against the average of the three preceding years i.e. you have the per share earnings of a company going back 7 years from now. Take the average of the earnings of the preceding 3years and use it to measure how far the earnings have decreased or increased in each of the last 7 years. Increase or no or little decline is favorable.
General growth of the enterprise. Another very inportant factor in stock picking. This should not be explosive over a really short time because a company whose growth and earnings increase in biblical proportions, like growth stock have the tendency of falling away in the same fashion(am thinking the tech bubble in the nineties). It is better to invest in companies that have satisfactory growth record over a given time say 7 years and have shown fairly good performance in bad times(this are mostly blue chip stocks)
Profitability- a lot of profit is always an attraction to investors since they are mostly followed with high annual growth rates in earnings per share. This is more often than not a show of the general strength or weakness of the company. The company has strong fundamentals if the profitability goes on for a fairly long time. Lets be real, there is no way that you will want to pick stock that is and has been unprofitable for its investors
Good financial standing- This will be brought out in the analysis of the company’s financial documents. A good consistent financial standing is always a requirement in an investment stock. An investor’s criteria for this financial standing can be a ratio of 3 to 1 for current assets to current liabilities, meaning that the liabilities of the company are covered three times by the current assets
The stock price variation over the given period- an investor is inclined to stocks that have had a favorable increase in price over a given period over those whose prices have remained stagnant or have fallen for no good reason
Dividends- If the company gives them, an indicator of the favorableness of the company is whether these have been awarded to the investors consistently in the past without fail. The company should be particularly favorable if this dividends were also continued in a very bad economy like in the past recession. Companies that continued their dividend payments while others were failing should be given some consideration.
The industry that the company is in- there are some industries that are more are more poised for more profit than others and while this is something that the investor has to consider, he must mot spend too much of his time looking for the next big thing since there is no way of really predicting what will happen in the future and so he should concentrate on things that are quantifiable.
So those are the major factors that you should consider before you invest in any stock and they have worked out very well so far.
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THE RECEIVERSHIP EXPLAINED
Posted: March 19, 2010, 11:06 am by kt
We have all heard of a company going insolvent but most of us never really know why investors make such a hullaballoo about them. Well I can assure you that they are not chicken littles yelling “the sky is falling” because a receivership is quite a serious issue for the owners and shareholders and this post will show you just that.
What is a receivership/insolvency??
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UNDERSTANDING HEDGE FUNDS(real life scenario)
Posted: March 17, 2010, 11:25 am by kt
One of the major reasons why i started this site was to make financial news easily understandable. This was because there was a time when i used to go through the financial pages of the wall street jounal, CNN money or the new york times and wonder why people were making so much noise over things that very few people understood.
So in explaining financial concepts in a simple language(i really try hard to make this stuff easily understandable) i assume that readers start seeing sense in the financial pages.
So i was reading though the wall street journal and found this post on hedge funds increasing in popularity and i remembered that i did a post explained how this hedge funds work(here is the hedge fund working post). So i assume that someone who does not know what hedge funds are, after reading my post will easily understand what Brian low is talking about.
After reading through my post explaining what hedge funds are, do you find it easy to understand the wall street journal article in hedge funds??
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HOW TO KILL YOURSELF IN THE STOCK MARKET
Posted: March 15, 2010, 11:31 am by kt
The easiest day to put a noose around your neck in the stock markets and it is called short term investing, popularly known as day trading.
Basically this is where an day trader(this is what they are called) hopes to make money in the selling of various securities, be it stocks, warrants, stock options after having bought them at a lower price. The biggest difference between this guy and other investors is that he only holds the securities for hours at a time and not days or months or years like other real investors
While a large number of people do engage in this dangerous game, there are a few things that they do not consider;
Sometimes a trader may buy a value stock in the morning in the hope that the price will increase by a few points in the course of the day but the opposite happens and the stock’s price decreases. Because the trader wants to reduce the paper losses has already incurred, the will desperately try to sell the secutities at any price, even if it it lower than the price he bought them at.
This difference in the price he bought the stock at and the price he sold at is called market impact. While in that trade, the loss may not be so significant that is causes his death, this small losses pile up over time and in the grand scheme, a large loss is incurred. Those pennies and dimes really add up.
In another scenario, a day trader can be desperate to buy shares of the next big startup and this end up offering a higher price for the stock that the current price so as to lure sellers to part with it. This market impact will is a small loss that will pile up over time and will happen each time you desperately buy or sell shares desperately trying to get into “the next microsoft”
This i got from Benjamin Graham’s the intelligent investor that when one gravitates towards day trading than to investing, the turns long term gains into ordinary income. This also contributes to your demise because ordinary income is taxed higher than the long term gains. I will not put figures here because the tax rates vary from country to country.
Something else that will cause your death in day trading is the costs. Each transaction has a fee and so each time you trade a fee is deducted whether you make cash or not. So it goes without saying that the more you trade the higher this transaction fees and the less returns you take home.
So this post generally shows why value investors like Warren Buffett are for value investing meaning analysing the stock, analysing the bonds and scrutinising all the companies financial documents before buying even a single security.
On the other hand there are those that swear that day trading is profitable like the webmasters in this linked site. Personally i am averted to anything remotely speculative in investing.
Do you agree with my point of view when it comes to day trading??
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DOCUMENTS NEEDED IN SECURITY ANALYSIS
Posted: March 12, 2010, 9:43 am by kt
This post will be dealing a little on bonds so to understand it better, it would be nice if you read through this linked post on understanding bond investing
When one wants to seriously invest in stocks, one just doesn’t google “best media hyped stocks for 2009” and the first option that comes up is what he/she will put his money in. No. That is when the work begins because the has to find the stocks that have the best chance of giving him returns that will satisfy him in that they will compensate the work he did in finding them.
So this begs the question; how does one find a good stock. There is but one answer. Due diligence. An investor has to look through numerous financial records of public companies looking for those that suite the requirements that he has set. This post will not deal with these requirements per se but on the documents
These financial records that the investor looks at are;
The financial statement. This consists of
1.The balance sheet- which show the financial position of the company as at the closing date(a single day). That is why the heading is always “as at dd/mm/yr” it is a detailed record of what the company owns (its assets) both tangible like machines and furniture and intangible like goodwill and its liabilities(what it owes) that include bank loans, debts incurred in running of the business etc.
2.The income statement/profit and loss statement/statement of revenue and expense- as the name implies, it show the earnings for the period covered (financial year). You may have noticed that they are always entitled “for the year ended dd/mm/yr”. It is not always year because some companies issue these results quarterly so basically, it is for the financial period ended. They contain sales, non operating income, gains and losses from all the various business transactions, depreciation and depletion of assets, income taxes, dividends paid, etc. it basically shows how cash flows through the business.
The prospectus- This document is used by companies offering securities for sale. It basically describes the business and how the proceeds from the sale of the securities(IPO) will be used, the company’s market cap, everything that you would want to know about the directors like their contacts, resumes, amount of shares each hold etc
The interim statements- these include the company’s earnings only for less than that company’s financial year.
Conference calls from C.E.O.s. some companies have regularly scheduled conference calls where the CEOs talk about the companies present standing to the shareholders.
These are the four major documents that an investor needs to know how to analyse but this is not the end of it there are so many other sources of information that an investor can go to find more information.
This include;
Periodic reports to public agencies- they are just like financial statements but more detailed
Statistical and financial reports
Requesting specific information from the company. If the shareholder still cannot find information he is looking for from the above sources, then he should contact the company and ask for it since technically being a stockholder means that he owns part of the business and thus entitled to most of the information pertaining to the business.
Pro-forma statements-but alert investors normally ignore them because they are kinda useless. What I mean is that companies misuse them and mislead their shareholders. Initially they were meant to provide investors with a better picture of long term growth by removing short term non recurring expenses but now they also include normal expenses like shareholder’s dividends, costs of mergers and acquitions. So to avoid being thrown off, the investor should not take it seriously.
I wanted to keep this post really short (something that I have failed to do) because in the near future, I will redo it in vivid minute (and disturbing detail).
Are there any other documents that any investor out there uses in stock analysis for his stock portfolio?
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HOW AN INVESTOR ANALYSES A BOND
Posted: March 10, 2010, 10:57 am by kt
This is a post primarily about bonds so to understand it well, it would be nice if you first read though this linked article on understanding bond investing
In all aspects of life there is a modus operandi to be followed and this goes without saying in value investing. While there is always the option of throwing away your hard earned money in any media hyped stock or bond, the results may not be as good as when you sit down and do your homework on a security before investing in it.
I have covered an overview on how stocks are analysed and this page will look at how bonds are analysed by value investors.
1.First of there is to be the realization that bonds are not for safety [as I have suggested in earlier posts-hey i am also learning ] but investments with limited returns. The investor in essence gives up yield for more safety of hard earned principal. This is because there are also a lot of risk associated with this investment as seen in part of this article.
2.An investor should focus the bond part of his portfolio on bonds with returns higher than high grade bonds(their yields are always very low because the are more or less very safe from default) with a lower risk of loss of principal that is not as high as those of high grade junk bonds. This makes sense to me because it mean that one should also be just as concerned with the returns as with the safety of principal.
3.Avoid companies with a high credit risk. This risk comes from them being inherently unstable (financial, management etc) and having too much debt relative to their income. A combination of these two can erode the margin of safety i.e. the number of times that the interest payments are covered by earnings. This is independent of the size of the company because even a large company with too much debt relative to their cashflow means that they are very much prone to hard financial times during upheavals.
4.when analysing individual bonds there are a lot of things to include in the analysis like the industry that the issuing company is in, the quality of management, the number of times that the interest payments to bond holders are covered with the earnings, financial structure, sources of cash, value of the business and such things should weigh heavily when considering to invest in a bond.
5.The very popular buy and hold method of investing should have no real basis in a value investor and he/she should give the securities a very long hard look from time to time and assess whether they are still fit to hold after reanalyzing all the aspects of bond investing as mentioned above. She must not sell or buy because of market fluctuations or anything that fickle.
6.Market timing must have no place in the investors analysis unless it is favored by all these other factors. What I mean is that if after a fundamental analysis of all the things that are analyzable(what is mentioned above) then he can use market timing to buy the very attractive bonds at a price lower than what he was originally prepared to pay. Market timing should not follow interest rates of other temporary unpredictable things
7. Finally to avoid the inevitability of defaults (when a company cannot pay the interest payments or the principal back to the investors because of financial difficulty meaning that the investors lose everything), he must diversify his bond investing and avoid junk bonds unless his diversification is good enough to handle the danger of default of these very risky issues
Basically this is basically how anyone can analyse a bond and thus pick superior ones for his portfolio(this beats just following market trends). In the near future I will revisit this post with figures and everything.
As you can see there is a lot that goes into bond investing just like i showed you with the stock analysis post. And I haven’t even said anything about the analysis of the financial structure of the companies….
(this is the life of a value investor)
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THE NEW FACE OF KENYANTYKOON’S BLOG
Posted: March 6, 2010, 1:09 pm by kt
This is the new face of kenyantykoon’s blog. i moved from wordpress.com to wordpress.org and had to map the incoming links from kenyantykoon’s blog to lifedividend.biz.
I think that these new sites look more professional and it will be easier to be taken more seriously by you my dear readers.
It is still kenyantykoon’s blog and my new unsername is kt, only a leaner meaner version of me and the site.
I hope the migration has not been too much of an inconvenience.
KT’s NOTE
i was having a little problems when working out the kinks and most of the site was offline but we are live again.
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WE ARE MOVING TO WORDPRESS.ORG
Posted: March 6, 2010, 12:46 pm by kenyantykoon
Finally it is time to move this blog from wordpress.com to wordpress.org. I am changing everything from the domain to the username the themes. Am talking the whole package. The website may be completely offline for a few days as the new changes take effect. The new domain will be lifedividend.biz and the spinoff will [...] -
WHAT THE HECK IS DOLLAR COST AVERAGING??
Posted: March 3, 2010, 9:23 am by kenyantykoon
Many investors have heard of this investing strategy or have been practicing it unconsciously. This post serves to enligten investors and prospective investors on exactly what dollar cost averaging is and why value investors are so fixated on it. All investing formulas should be taken with a grain of salt and this is no different [...] -
WHAT EXACTLY IS CAPITAL STOCK??
Posted: March 1, 2010, 9:44 am by kenyantykoon
I have come across this financial term many times when reading through investing books and various financial pages but have never really had a clear cut definition of what capital stock is. So after some research, this is what I came up with. To understand this very well we first have to briefly look at [...]
Blah blah blah
Fish cakes
Alas a fish cake.
Yet more fish cakes
Guess what ... yeah ... fish cakes.
The end of the fish cakes
