Business Executives and Private Company owners do you know that you may be missing out on growth potential while allowing your cash reserves to sit in a stagnant Bank Account? Let me show you “How Warren Buffett Grows Cash! This investing tactic is so incredible the growth rates will always out pace any bank account and their stagnant interest rates.
Warren Buffett has shared he has used Dollar Cost Averaging as a investing tactic. Reinvesting cash profits from Dividends and also other passive income profits or quarterly checks back into a index funds. He does this instead of allowing the cash profits to be stagnant in a Bank Account. Which is compounding GENIUS!
“Dollar Cost Averaging”
According to Investopedia’s Website Description: “Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price of a security.”
The above video reflects “How to do the Math of Dollar Cost Averaging.” The Benefits and advantages of Dollar Cost Averaging your way over time into a Index Fund far outweigh trying to time the market. It’s a fantastic way to invest. And I had to share this Investing Tactic.
I hope you found good value from this Wednesday Post. I am seeing the market continue to cause chaos on WallStreet from the obvious market recession.
Godspeed.
JS
THIS IS NOT INVESTMENT ADVICE. ONLY HIGHLIGHTING A FAMOUS INVESTOR AND HIS TACTICS FOR OUTSIZED GROWTH. THIS SHOULD NOT BE INTERPRETED AS PROFESSIONAL INVESTING ADVICE. YOUR PERSONAL INVESTMENT ADVISOR OR FINANCIAL ADVISOR PROFESSIONAL IS ONLY ABLE TO OFFER INVESTMENT ADVICE. Thank you.
Today’s post will be fairly quick about Pooled Investments, Unit Investment Trusts “UIT’s”, Open End Funds, Closed End Funds, thier Management companies, ETF’s Exchange Traded Funds and REIT’s.
On my road to obtaining my Series 65 Investment Advisors License I have been learning and polishing my skills within Investment Funds. Today’s post is a quick need to know for Investors who have been curious and have been search for more detailed information about Pooled Investments? What are their uses, and how they work and more? Today’s post is what you have been searching for!
Unit Investment Trusts
In U.S. financial law, a unit investment trust is an investment product offering a fixed portfolio of securities having a definite life. Unlike open-end and closed-end investment companies, a UIT has no board of directors. A unit investment trust UIT is one of three basic types of investment companies. The other two types are open-end funds (usually mutual funds) and closed-end funds. Exchange-traded funds (ETFs) are generally structured as open-end funds, but can also be structured as UITs.
Open End Funds
Open End Funds are usually recognized as “Mutual Funds” and used as Pooled Investments. According to the SEC Website:
Mutual funds generally sell and purchase their shares on a continuous basis, although some funds will stop selling when, for example, they reach a certain level of assets under management.
Investors purchase shares in the mutual fund from the fund itself, or through a broker for the fund. Investors cannot purchase the shares from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market. The price that investors pay for mutual fund shares is the fund’s current net asset value (NAV) per share plus any fees that the fund may charge at purchase, such as sales charges or loads.
Mutual fund shares are redeemable. This means that when mutual fund investors want to sell their fund shares, they sell them back to the fund or to a broker acting for the fund. Investors sell their shares at the current NAV per share, minus any fees the fund may charge at redemption, such as deferred sales loads or redemption fees.
Mutual funds are registered with the SEC and subject to SEC regulation. In addition, the investment portfolios of mutual funds typically are managed by separate entities known as investment advisers that are also registered with the SEC.
Mutual Funds are also SEC Registered Securities and traded on the Open Primary Stock Market.
Closed End Fund
Closed End Funds are also known as Closed End Investment Management Companies like Blackstone, Morgan Stanley, Vanguard typically offer their funds to Accredited Investors and Institutional Investors. According to the SEC Website:
There are many varieties of closed-end funds. Each may have different investment objectives, strategies, and investment portfolios. They also can be subject to different risks, volatility, and fees and expenses. Fees reduce returns on fund investments and are an important factor that investors should consider when buying shares.
Exchange-traded funds (ETFs) are SEC-registered investment companies that offer investors a way to pool their money in a fund that invests in stocks, bonds, or other assets. In return, investors receive an interest in the fund. Most ETFs are professionally managed by SEC-registered investment advisers.
Some ETFs are passively-managed funds that seek to achieve the same return as a particular market index (often called index funds), while others are actively managed funds that buy or sell investments consistent with a stated investment objective.
ETFs are not mutual funds. But, they combine features of a mutual fund, which can only be purchased or redeemed at the end of each trading day at its NAV per share, with the ability to trade throughout the day on a national securities exchange at market prices. Before investing in an ETF, you should read its summary prospectus and its full prospectus, which provide detailed information on the ETF’s investment objective, principal investment strategies, risks, costs, and historical performance (if any).
REAL ESTATE INVESTMENT TRUSTS or REIT’s
REIT’s are also pooled investments. Real Estate Investment Trusts are a “EQUITY SECURITY” and the Shares are whole shares and never fractional shares. However REIT’s are not classified like Mutual Funds. As the Investors of REIT’s typically only receive “INCOME” from their investment in the form of Rent and Mortgage Income. REIT’s are traded in the Open Stock Markets. That Tax is attractive to most and REIT’s usually have low management fee’s since they are Passively managed Assets.
Pooled Investments are all required to offer investors access to a Prospectus. And Pooled Investments are Regulated under the Securities Act of 1933 and the following Securities Act of 1934. Some are Private Investments and some are Initial Public Offerings. However this post today will not dive deeper into these topics. Later on I will writer more about IPO’s and Private Placement Memorandums and more. Stay tuned I will also be “NET ASSET VALUE” the formula to calculate Net Asset Value per share and more.
Becoming a Investment Advisor Arizona & Kansas City
I do hope you learned a little today by reading up on Pooled Investments, I am working hard towards obtaining my Series 65 NASAA Investment Advisors License and feel it’s my duty to educate other Investors and qualified individuals about the different investment opportunities out in the market place.
Thanks for stopping by and reading some of my required Investment Advisor Information I must digest. Godspeed. JS
Just like with any profession there are professionally instructed leaders of industry and amateurs. That is the same for Investing. But you should know that if you are not read up on the latest value investing procedures or if you haven’t formed your own personal checklist before investing in a Company or stock? You likely are make big mistakes along the way. But with today’s post on “How to Calculate a Stock or Company’s Intrinsic Value?” This will begin giving you a foundation or basic education to thrive and become successful in Investing.
I see so many people who do let emotions control their investing strategies and future. They are bound to lose almost everything. It’s just like If your a player in the Stock Market using only your gut and other people’s money? Your a borderline Criminal, Moron and most likely a gambling Day Trader at best. And should be taken behind the Building strung up by your ankles smothered with cheap grape jelly packets from the cafeteria and left for the Bears. These day’s Quants run the show. But there is good news! This post is for the bonafide new up and coming Investors wanting to reach that next elite level in Investing. If you have ever wondered where the like’s of Warren Buffet, Seth Klarman, Howard Marks, and other Value Investing Legends get there super secret knowledge from? This post is definitely going to provide you with a foundation of how to Calculate Intrinsic Value of a Stock or Discounted Cash Flow (DCF) of a Business.
So stay tuned…This is a post you do not want to miss. Even if it is Mathematics and heavy Calculations.
Hedge Fund Managers
If you plan on opening your own Hedge Fund Shop in the future or if your a Everyday Sophisticated Investor that plans on using Calculations and Mathematics instead of Gambling and Speculating? Your going to want to lay a foundation around Value Investing using Benjamin Graham’s teachings and procedures. So it’s absolutely vital you read Benjamin Grahams “Intelligent Investor” Book. Question. What makes a Hedge Fund unique to calculating a Stock or Companies Intrinsic value or Discounted Cash Flow? Well for starters Hedge Funds typically focus on trading on the stock market. But before I begin explaining Hedge Funds in depth like so many Financial personalities around me “I have extreme ADD sometimes.” LOL So maybe I should keep on track.
What is Intrinsic Value?
The intrinsic value of something is said to be the value that that thing has “in itself,” or “for its own sake,” or “as such,” or “in its own right.” Extrinsic value is value that is not intrinsic. Many philosophers take intrinsic value to be crucial to a variety of moral judgments. STANFORD BUSINESS ENCYCLOPEDIA
If your going to understand Intrinsic Value of a Business or Stock you need to understand that the Market is just voting for the day what they price is of a Stock. It doesn’t actually value the company. We use Intrinsic Value to evaluate and make a opinion to analyse if the Company or Stock we are looking at is undervalued and a bargain. If it is not a bargain and not undervalued? Then we keep looking. What is the formula to calculate Intrinsic Value? Before I answer this basic question you must know I highly recommend you read Benjamin Graham’s “Intelligent Investor” Book. It’s Warren Buffett’s bible of sorts. But first we need to lay out to terms.
Intrinsic Value Formula and Margin of Safety. These Topics are incredibly important for making a educated and professional judgement on a company’s future. And knowing if it is worth investing in.
By the way did you miss Berkshire Hathaway’s 2022 Annual Meeting? WATCH & READ HERE!
How to Calculate Intrinsic Value of a Business?
Click For Link To Website
#1 – Intrinsic Value Formula of a Business
Mathematically, the intrinsic value formula of a business can be represented as,
where FCFEi = Free cash flow to equity in the ith year
FCFEi = Net income i + Depreciation & Amortisation i – Increase in Working Capital i – Increase in Capital Expenditure i – Debt Repayment on existing debt i + Fresh Debt raised i
r = Discount rate
n = Last projected year
Since this formula is mathematically difficult for ADD individuals like myself who struggle with on the page formulas. I would like to make this as easy as I am able for you. Here are a few videos that go in depth. Watch the Videos below to explain the calculation and models in action. This will begin giving you a foundation to grow.
BENJAMIN GRAHAM’S INTRINSIC VALUE CALCULATION MODEL EXPLAINED
Watch this Video below for a in depth explanation by this legendary Value Investor who is Charlie Mungers Bridge Playing Side Kick Mr. Mohnish Pabrai. Mr. Mohnish Pabrai is sincerely a fantastic guy. Mr. Pabrai has been very generous with the lessons and information he gives to up and coming Value Investors/Academics. And for this reason I need to list him in my blog. The way he lay’s out all his information and lessons makes it digestible and simple to newer people like us. His resources for all Value Investors is a must see, and you should watch his Youtube Channel and Videos. 100%
Discounted Cash Flow Model
When evaluating a Company’s (FCF) Free Cash Flow currently and for the next 10 years you need to include a Average Growth Rate and also consider what your “IDEAL” return rate is that you want to include within the DCF Model. For a more easier way of explaining this I need you to watch this video below. It will give you a better understanding of “How to calculate the DCF of a Company”.
Margin of Safety
In conclusion of today’s post it seems like it would be worth it to include what I had touched on earlier, “Margin of Safety”. If you are a Hedge Fund Manager or Value Investor, or everyday Accredited Investor knowing and calculating a Company’s Intrinsic Value is incredibly useful when analysing if it is a Investment you want to make. However even though you do find the Value of a Stock or Company you need to add an extra layer of Safety to the strategy before deciding to invest. The way you do this is by adding a Margin of Safety. Benjamin Graham’s Book will give you more info on this. But if your really a Pro? You will likely want more of a tactical explanation, strategy and guidance. So I highly suggest you read Mr. Seth Klarman’s “Margin of Safety”.
To end this chapter of todays very long post, it’s ideal if I say this in conclusion. Even though you may calculate the Value of a Company or Stock? You must make a educated professional judgement if the company warrants a long term investment. Many everyday investors don’t have the temperament nor experience within Value Investing to make these correct calls. But with time and learning to be Risk Averse by, with and through failures? You will learn. I wish you all happy hunting and I do hope you learned a bunch from today’s post. It’s long over due. And let’s make something clear up front.
This post is just a short taste of what Calculating Intrinsic Value is all about. The topic and subject is so deep and wide this post is nothing compared to the expertise out there in the market. If you are a Beginner or moderate investor? Please find a mentor and study the greats/legends like Warren Buffett, Charlie Munger, Bill Ackman, Mohnish Pabrai, Howard Marks, Seth Klarman and others. Then you will begin to see “How to use this post as a spark of which direction you should go to invest in your education, experience and financial gain.”
The Federal Reserve raises it’s Benchmark Interest Rates by half a percentage point which is the most aggressive action since the US is facing highest inflation rates in 40 years. Behold a new term for most? “Quantitative Easing”
After much anticipation, fan fare, and business news speculation due to rising costs within the market and easy access to cheap margin debt? The Fed convenes and finally comes out and say’s “It’s time to raise the Fed’s Interest Rates.”
The last time the Fed Raised Interest rates were in 2018. Quantitative Easing is now working by pushing more money into the economy by way of the Central Banks buying more Government Bonds through individual banks which lends money to businesses and individuals.
Ok! But What does raising the interest rates mean? After yesterday’s press conference, the Federal Reserve’s Chairman Mr. Jerome Powell began informing the Press and the Finance community. Today’s Information and Report from the Good Reporter Mr. Jeff Cox, The Business News Editor of CNBC. FULL ARTICLE
“The Federal Reserve will begin to Raise Interest rates by a half a Percentage point per the markets anticipation. When asked, The Fed’s Chairman Jerome Powell had to say about this historic increase?
“Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring it back down,” Fed Chairman Jerome Powell said during a news conference, which he opened with an unusual direct address to “the American people.” He did touch on the burden of inflation on lower-income people, saying, “We’re strongly committed to restoring price stability.”
Furthermore the Feds Chairman say’s, “The American economy is very strong and well-positioned to handle tighter monetary policy,” he said, adding that he foresees a “soft or softish” landing for the economy despite tighter monetary policy.
It’s likely according to the Chairman Powell’s opinion and comments on this interest rate hike, “Their will be many Fifty 50-Basis Points rate increases are coming soon. But likely not more aggressive than that.”
When you stop and consider how the Fed will begin raising the Interest rates in detail? It will look like this. They will start by raising the Interest rates by Half a percent in the first stage. Then raise again to the Three Quarters range of a Point. Then another quarter percentage of a point, Equaling the Full 1.0 percentage point. The video below demonstrates the numbers in detail.
With all the free flowing margin debt that has been free flowing for years? It makes sense the Fed is wanting to take the steps and transition raising the debt interest rates instead of a sudden hike. This ensures markets are not suddenly impacted to the point of panic. Rolling out stricter policy for a soft landing on the American People and Investors. This also begins to address the Inflation that is beginning to be out of control. But here are some more in depth facts from the report.
In conclusion we will need to sit back and see how things begin to work. It’s never easy to accept the Party’s over with easy free cash. But as time moves on I have a suspicion the market wont rise above what the market can handle. That is just my 2 cents
In addition, the central bank outlined a program in which it eventually will reduce its bond holdings by $95 billion a month.
This undoubtedly is the largest rate increase since the fed relaxed rates in 2000, and the inflation of American Debt has pressured the Fed to begin the process restricting Debt Rates.
Fed Chairman Jerome Powell underlined the commitment to bringing inflation down but indicated that raising rates by 75 basis points at a time “is not something the committee is actively considering.”
Thanks for reading todays Post on this Historic Event we have all been anticipating and speculating on for quite some time. If you have anything worth the time to add? Please comment below,
If your anything like myself? You want to attend the Berkshire Annual Meeting if you can. Today’s meeting did not disappoint. Warren Buffett and Charlie Munger put on a show that we in the Finance and Business space will be dissecting and analyzing for decades.
Since I am certain you do not want me continuing with my ridiculous interference. Without further ado, Here is today’s Meeting from CNBC.
Berkshire Hathaway Shareholders Meeting 2022 LIVE STREAM
Did you catch my article on Finance Models? (CLICK HERE)
The two Oracles of Omaha Nebraska, Charlie Munger and Warren Buffett.
Investing is Simple. The lesson’s stacked up from Both Mr. Buffett and Mr. Munger are this. Invest in things that will be around a long time. And invest in the things we love. Like See’s Candy, and Coca-Cola. That’s great advice and advice I live by. I hope you got a bang for your buck visiting my short post about the Annual Meeting today. Thank you for dropping by.
