Personal Investing Advice

To the average investor, “correlation” once seemed to be one of those “little known, less cared about” ideas. But in today’s increasingly connected global financial system, correlation takes on a whole new importance. Witness how our entire credit and financial system teetered on the brink of collapse when one market, the sub-prime credit market, started tumbling out of control.

Bear with me for just one short academic moment.

In the world of finance, correlation is a statistical measure of how two securities move in relation to each other. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are uncorrelated.

In real life, perfectly correlated or uncorrelated assets are rare; rather you will find securities with some degree of correlation. For investors trying to build diversified portfolios that improve returns while reducing risk, correlation is not a good thing. In fact, it is a very bad thing. High correlation amongst investments means that as one goes up (or more recently) down, all the others move right along with it.

Unfortunately, the interconnectedness of global markets has led to a very high level of correlation between assets, not only among equities, but across most asset classes that, on the surface, don’t seem like they should be all that correlated. According to The Economist, March (more…)

Gold coins have gone up a great deal in value in the last couple of years and since they are now so expensive, there are a few things you should watch for when making your purchases. With the advent of the internet, you are not limited to the local coin dealer anymore. This can give you the opportunity to get better prices on many coins, but also may introduce a few more things for you to think about when buying your gold coins.

1. Whether you are buying from a bricks and mortar dealer or buying online through a website or and auction site like EBay, check the reliability of the dealer first. For a store, at least check with the local Better Business Bureau. If the dealer is a member of the Professional Numismatists Guild (PNG), that is a big plus. For an EBay auction, check the seller’s feedback rating. If it’s very low, or there are many negatives, think twice (and a third time) before spending a large sum with them. Even if the feedback seems good, look closer, some people will buy or sell a number of very inexpensive items to build up their ratings, then jump in selling big ticket items. On large ticket items, ask if the seller will agree to use Escrow.com. They act as a middleman in the transaction and the money doesn’t pass to the seller until the buyer is satisfied with the item. There is a charge, which the buyer would be expected to pay, but its well worth it when big money is changing hands.

2. One of the biggest problems buying collectible gold coins is grading. Your idea of an MS65 may be different than the dealer’s. Many coins have a huge gap in value between grades. Avoid the issue by buying only coins that have been graded by one of the third party grading services. Make sure that you only accept the major services (ANACS, NCG, PCGS, NCS, ICG) grading, there are some lesser known grading services whose grading may be suspec (more…)

In order to check or verify whether the financial crisis is over (on Wall Street) one might listen to worlds’ most influential investors, like Warren Buffet. Or shouldn’t one do so in this case?

The problem that I have with information that comes from the US is the high amount of “sales” and “marketing” in the content. Now I know that it is very hard to be objective, but in the financial world, it is sometimes nice-to-have a solid and objective opinion from a guru. More in a situation where it is hard to find rational and objective data that will tell what the status really is.

Someone I would normally trust is a guru like Warren Buffet. The man has become rich and famous becuase of his investment approach. He is one of the richest men. As he is still leading a large investment fund, he should probably know.

“The worst of the crisis in Wall Street is over,'’ Buffett said today on Bloomberg Television (1).

Now this really worries me.

I’ll try to explain.

When I listen to information from the US I tend to subtract a percentage of what I would call “marketing noise” or “sales bias” from the message. I know the US culture is sales oriented most visible in “the American dream” where everything is possible. But as a European I’m often more skeptic about things.

Perhaps the best example of such a sales biased message was pronounced by The president of the US to start the War on Iraq. More simpler examples are available too. But on average I would call the sales bias an inclination towards an over-optimism in the best of senses and without judging this phenomenon.

But from the other side of the Ocean, my skepticism remains. Especially on this topic: the stock market. not because of my interest in it, but much more, because I think to know more about this market than about the situation in IRAQ and the Middle-E (more…)

Unlike many other forms of speculation, investing can actually be fun and it is a great way to plan for your family’s financial future. Investing money into areas like real estate, online, stocks and shares are just a few of the many places where this is carried out on a daily basis. For the careful investor any one of the many areas can make money, sometimes sooner rather than later. While the subject is very large, the information listed here is for guidance only and further information should be sought before you jump-in with both feet.

The stock market is a great place to make money, and if you intend on doing this with stocks and mutual funds, it is highly recommended that you first carry out some research on the companies you wish to invest in. The stock market can be a great way to make money, sometimes very quickly but these sorts of gains are generally made by people that know what they are doing and short term risks can be involved. If you are after long term security with huge financial gains then you will most likely look at real estate as a way to ear money. Many people buy homes that need upgrading and this is a way to buy them at a knock down price but it should be remembered that to sell on a house for a profit requires a little more than just a coat of paint.

There are however, many factors that should be considered before any attempt is made to invest in real estate; this is not the case with the next option. Probably the fastest growing way is through trading online and it’s amazing how easily you can work your finances online, and make money without even leaving the house. Anyone trading online can first check the companies they are interested in, their growth and performance for example before they decide to invest with them, all of which can be done quickly and easily. While many people make a decent profit doing thi (more…)