New sign-up members also get a free hat!

I live for these types of Contests! :)  If you’ve been a reader of my blog over the past few months, you know I’m always talking about investing.  Every-time I see one of these contests, I always think, “hey, easy money!”  Problem with my style of investing, I go for of the long term, return compounding investment.  Buy the right stock at the right time for the right price.

Head over to Mywallst.net and take the rookie challenge!  You can find my profile at ‘www.mywallst.net/Desty’.  They have a friends feature, so we can all get together and share investment tips, strategies, and of course, help me think up ways to spend my $1000 prize money after I win.

See you there, make sure to wear your free hat so I can recognize you!

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First problem in researching the company, their web page has some serious issues. It consistently locks IE up, most of the time only showing the top banner. Twice the page above the fold loaded before locking IE up. One thing that shouted out at me when it did load those two times did give me pause: Google AdSense. One thing I learned from basic affiliate sales, when directing traffic to a landing page, you don’t want to give anyone another choice to leave your site; you want all links to be in your site or towards the sale itself.

From what I could gather in those two above the fold page loadings, the owner of the site, one Gary Giardina, designed the site himself. After some Google powered research, I found another site for Earn By Loaning, this site ran by someone else. Due to the various amounts of sites listed on Google searching for keyword ‘Earn By Loaning’, it appears that the Earn By Loaning company has its own affiliate program, which isn’t good or bad, just makes me even more leery.

On the reviewed site, I could not find more information as to the offered return on investment, or anything about the owner of the site.

I, personally, would suggest you learn some basic investment strategies before seriously checking into EarnByLoaning.

This was a sponsored review

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1. Use a dividend reinvestment plan to dollar cost average the dividends back into the stock.
2. Separate the dividend income into a cash pool to reinvest into a different asset.  Does not need to be stocks, can be business investment, real estate, etc.  This tactic increases the velocity of the investment into and funnels it into targeted investments where the entry to the asset can be controlled.

A difficult choice. A tried and true tactic for investing over the long term (dollar cost averaging) going against an investor’s need for ROI (return of investment) and the continuing need to have his money working and bringing a return (velocity of money).

Dollar Cost Averaging

Dollar Cost Averaging is an automated approach to investing. You invest your weekly / monthly amount of cash into your chosen stock on the exact same day, regardless of price. High, low, price doesn’t matter, the theory is that on average you will buy on low price days along with high price days and that will even itself out; as such, you will buy lesser amounts when the price is high and buy more of a stock when the price is lower. Throw along with that dividends being reinvested, you have your money working for you; since you’re using dollar cost averaging, you don’t care how much the price will be when those dividends are reinvested, it will even out. The effect of the dividend reinvestment is akin to compound interest; the effect is the same, your money makes money that in-turn makes more money and continues the cycle. It’s a very powerful force and the longer it continues, the more powerful it becomes. It’s the reason why a young person can make small investments, they compound over time, and create a large amount of net worth.

The Velocity of Money
The Velocity of Money is a tactic where the investor, after the asset grows either through capital appreciation or dividends, takes out the amount equal to the initial investment in order to invest that capital into another venture. Now the investor has his initial investment back and in another investment while the original asset still exists free and clear; the original asset is now “free” and can then use compound interest and dividend reinvestment to grow. The main goal of this strategy is getting that ROI and still having an asset remain. An example of this can be found in Real Estate. A rental property is bought for $100,000 ($20,000 down) and after 10 years has its value doubled to $200,000. The investor refinances, pulls out his original $100,000 to invest somewhere else, and still owns the house. Not only was the investment free from a dollar amount point of view, but the investor made a VERY nice paper profit of $100,000. An example in the stock market is to not reinvest dividends, but to redirect them into another investment until the amount of dividends harvested equal the original investment, afterwards dividend reinvestment is the smart choice to allow compound grow the take hold.

What Do You Want Out of Your Investment?

Dollar cost averaging and the velocity of money are, in the end, tactics. Tactics are tools used within different strategies. Dollar cost averaging is used in a long term strategy. Velocity of Money is more of a short term strategy with a predefined exit in mind.  The pure investor’s primary concern is how long will it take to get his investment back; once the investment capital is returned, then it’s time to look for profit. 

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It’s better to invest as a business than as an individual.

There are several advantages to just being a business.  If you’re running a serious business, you should already be operating as a separate legal entity, such as a C corporation, a S corporation, a LLC, a LLP, etc.  This turns the income of the business into business income instead of personal income. 

That is the key. 

Personal income is taxed first after it’s earned.  Only 401k, flex spending plans, medical insurance, etc are taken out before taxes.  You earn, get taxed, and get to spend the rest. 

A business doesn’t work like that.  The business earns, spends, and gets taxed on the leftover.  Mind you, for the business to spend money and not get taxed on it, it has to be a legitimate business expense.  Investing isn’t a business expense, per say, but it is income you can work with before taxes.  Also, a business is taxed at a lower level than an individual who makes the same amount of income.

Now, why would a business want to invest?  The same reason as a person invests:  to make more money with the money they already have.  A business that is well run and makes excellent returns on capital spent has three options when it comes to profits:

1. Reinvest into the business.  Unless the business it at its apex, there’s always new markets to get into, new R&D projects to fund, new ways to expand.
2. Reward shareholders with a dividend.  Profits go back to the owners of the company.  If you don’t mind the double taxation (once at the business level and again at the personal level), most shareholders like actual returns on their investments.
3. Invest profits in other companies.  The company wants to increase it’s income over a long term window will look to stable, bedrock type companies to invest their excess capital.  A perfect example of this is Berkshire Hathaway.  This link goes to their 2005 annual report.  Skip to page 16 in the .pdf file to see the amount of equity investments Berkshire is in.

How does a business determine which of these three options to exercise with their excess cash?  Generally it goes down this order of questioning:

1. Which would produce a greater return, reinvesting capital into the business or investing in an outside business?
2. If investment inside or outside the company isn’t practical, there is a limit to retained holding before the tax considerations say to distribute the capital to the shareholders via dividends.

This is the Warren Buffett philosophy of business investment [aff] but I try to run my own businesses along the same lines.  If it’s good enough for Buffett, why not good enough for me?

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At the end of last week, the stock market took a beating.  Stock prices fell almost across the board.

I’m happy.  Only way I could be happier is if the prices fell further.

No, I’m not ready to get a bunk at the loony bin.  It’s simple.  The market was due to a correction.  Basically a correction means that the market was either under, or, as in this case, over priced and needed to be fixed.  Too many people buying a driving stock prices up creates an artificial price relative to the company’s actual value.  No matter how long it takes, there always is a correction.

Now, why is the stock market taking a beating a good thing?  Easy.  Stock prices are lower and you can get better deals on your favorite stock.  Think of it as a sale for stocks.

Let me give you an example, and I’ll use one of my own stock positions to show it.  Let’s get something straight from the start first:  I am not saying you should buy this stock!  It is a stock that I own, researched, and believe is a good investment.  I have a long term position in it and do not see selling it anytime soon.

Frontline Ltd (FRO) is a oil tanker company.  They haul oil from the oil producing companies to refineries in other countries.  Earlier this year I bought in at $35.63 per share.  Before the correction, FRO was trading just over $50 per share; as of Friday afternoon, they were down to $44.90.  (FRO Stock Chart) It’s a good start, but based off my research I don’t plan to buy any more shares until it goes below $37 per share; in my opinion $40 is a fair price for the stock, but I like to buy on sale.

If you have some stocks that you own and thought, until the correction, that they were good stocks you have to ask yourself.  Has anything actually happened to the company that caused the share price to fall?  Was there any bad news or was the lowering in share price just due to the sell off Thursday and Friday?  My suggestion is that if you still think the company is a good one, a sound investment, wait.  Wait till mid-day Monday or Tuesday to see how the stocks are going.  Usually Monday’s are when everyone jumps back in after a big correction, but make sure that you’re at the rock bottom before you start buying again.

Buy stock of a quality company when prices are low.  If the company is good, you can’t miss!

If you don’t buy stocks but are interested, if you look at the sidebar to your right you should see a referral ad for Sharebuilder.  Google AdSense has allowed me to pick and choose what products I can refer instead of just getting whatever product their contextual software shows up.  I chose to promote Sharebuilder for one very simple reason: I use it.  I’ve been a customer of Sharebuilder since 2000 and love it!  It’s created for those just getting started in stock investments and don’t have much money.  Normally, when you buy stock, you must buy a full share of stock; not with Sharebuilder.  Sharebuilder allows you to buy a percentage of a share of stock if you don’t have enough for the entire share.  For example, FRO is trading at $44.90 but say you only have $25 per week to invest.  Sharebuilder will allow you, for a $4 per stock fee, to invest the $25 to buy just over half of a share!  You get full benefits of owning that part of the share: dividends (equal to the percentage you own), and voting rights.  Check out Sharebuilder.  It’s free to join and there are no inactive fees.  You can’t lose!

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“In my experience there’s no such thing as luck.”

Sure, there’s luck where you’re walking along and find a $100 bill.  Beyond blind luck like this, everything else is opportunity, not luck.  Opportunity comes to everyone.  Many times people aren’t looking and therefore aren’t prepared for the opportunity, and opportunity slips through their fingers.

Have a set area of knowledge and experience, know what that area is, and watch carefully for any and all opportunities.  In business, a majority of opportunities come in the form of being able to expand the business.  Knowledge and capital are vital in being able to take advantage of these opportunities.  In my personal businesses, I have a set pool of capital that is built upon 50% of net income JUST INCASE an opportunity comes my way.

Here’s an example of where I wasn’t able to take advantage of an opportunity.  As mentioned in previous articles, I take 10% of my gross business income and put it into investments.  Last year my investment strategy involved keeping my investment capital constantly invested so it could maximize its returns.  A contact of mine from a separate investment had recommended a foreign mining company as an investment.  From my research, it had three things going for it.

• It was a copper mine.  China, at the time, was buying as much copper as possible to expand its industrial base, so copper prices were increasing.
• The stock paid a decent dividend.  I was on the lookout for dividend paying investments.  In my investments, I don’t look for capital gains, I focus on a nice percentage yield.
• For reasons that I wasn’t able to determine, but other investors in the stock confirmed, the price per share had a pattern that allowed for the price to increase, you sell, the price falls, you buy back in on the cheap, repeat the process.

With my next income for investments, I split the funds up into 4 different investments; the other three I had been in for two years and knew they did well.  I didn’t invest as much as I could have into the mine company.  Of course, after that the stock took off!  It climbed from the low $60’s and hit the low 100’s where the stock was split 2:1 and the price fell back down to $60.  Right now, the price is back over $100.  I knew the investment was a good one; the stock was priced below the book value, and I really wanted to buy it.  Due to the stock split and the increase of price, my initial investment has increased over 400%!  I wish I could have bought more back then…

Keep your options open.  Be in a position so when opportunity comes knocking you can grab it by the ears and hang on tight!

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