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Hedging 2008-02-07 08:51:00 Hedging is a way of reducing some of the risk involved in holding an investment.There are many different risks against which one can hedge and many different methods of hedging.When someone mentions hedging, think of insurance. A hedge is just a way of insuring an investment against risk.Consider a simple case. Much of the risk in holding any particular stock is market risk; i.e. if the market falls sharply, chances are that any particular stock will fall too.So if you own a stock with good prospects but you think the stock market in general is overpriced, you may be well advised to hedge your position.There are many ways of hedging against market risk. The simplest, but most expensive method, is to buy a put option for the stock you own.It's most expensive because you're buying insurance not only against market risk but against the risk of the specific security as well.You can buy a put option on the market which will cover general market declines and/or you can hedge by selling fin ...

Money Markets 2008-02-07 08:51:00 Money Markets are the financial markets for short-term borrowing and lending.This contrasts with the capital markets for longer-term funds.The need for money markets arises because receipts of economic units do not coincide with their expenditures. These units can hold money balances — that is, transactions balances in the form of currency, demand deposits, or NOW accounts — to insure that planned expenditures can be maintained independently of cash receipts.Holding these balances, however, involves a cost in the form of foregone interest. To minimize this cost, economic units usually seek to hold the minimum money balances required for day-to-day transactions.They supplement these balances with holdings of money market instruments that can be converted to cash quickly and at a relatively low cost and that have low price risk due to their short maturities.Economic units can also meet their short-term cash demands by maintaining access to the money market and raising funds there whe ...

The Price/Earnings to Growth (PEG) Value Ratio 2008-02-07 08:51:00 The PEG (Price/Earnings to Growth) ratio is a tool that can help investors find undervalued stocks. It's not as well known as its "cousins," the P/E and P/B ratios, but is just as valuable.When used in conjunction with other ratios, it provides investors a perspective of what the market thinks of a stock's growth potential relative to Earnings per Share (EPS) growth.The PEG ratio compares a stock's Price/Earnings (P/E) ratio and its expected Earnings per Share (EPS) growth rate.If the PEG ratio is equal to 1, it means that the market is pricing the stock to fully reflect the stock's EPS growth. Which is "normal," in theory, because the P/E is supposed to reflect a stock's future earnings growth in a rational and efficient market.If the PEG ratio is great than 1 it could indicate that the stock is overvalued or that the market expects future EPS growth to be greater than what is currently the consensus number.Growth stocks typically have a PEG ratio greater than 1 because the inves ...

Stocks: Understand what You Buy! 2008-02-07 08:50:00 "There is nothing more frightful than ignorance in action!"Johann Wolfgang von Goethe (1749 - 1832)I don't really know how cars actually work ...Not really!I know how to drive them, but if you asked me how they work, I would not really know how to definitely explain it.That small technical limitation on my part doesn't stop me from knowing whether XYZ Autos is a quality company or not. I don't understand the cars they make, but I do understand XYZ Autos. Moreover, that understanding is critical to making a decision about the value of their stock.There are many good and objective ways to value stocks and improve your finances. These involve looking at various financial ratios. However, one of my simplest rules for investing is that you always must understand what you are buying!Haramis - Stock Brokers - Do You Have a Question? This is by no means original with me. It is a basic part of fundamental analysis!How deeply you must research in order to understand a company before you inves ...

Structured Bonds 2008-02-07 08:50:00 Structured bonds are so called because they originate from a combination of two elements:A. A fixed income security, with maturity ranging from a few months to several years, with a coupon payable periodically or at maturity.B. A contract determining the coupon or value of capital at maturity, in accordance with the price trend of one or more financial parameters, such as stock market indexes or combinations of indexes, shares or share portfolios, common funds, exchange rates or raw materials.Structured bonds are suitable for all investors who, in this way, are able to change the return or risk on their portfolios in ways which would otherwise be impossible or extremely difficult to accomplish direct on financial markets.Through financial engineering, it is possible to adjust structures to meet the requirements of prudent savers or more speculative investors and to capture precise market trends.If you would like to invest in stocks, without running the financial risk of losing your cap ...

The Art of Investing in Art 2008-02-07 08:49:00 Art as an investment avenue has been considered an interesting and profitable alternative, but it is also extremely risky.With uncertain stock market returns and interest rates at their lowest in decades, nervous investors are now considering alternative investment avenues. Some of them are hoping to find solace in alternative investments such as fine art, wine and even stamps.These alternative investments' performance is alluring. Indices tracking the performance of high-class art have held up well in the recent economic slowdown, while art-auction houses report record prices.Art as an object of investment has been debated for long. However, in the age of 20% returns on stock markets and a long bull market, the concept of art as an investment option was passed over.But the corporate scandals, stock market losses and low interest rates have helped it to re-emerge. In one of the niost prominent examples of art investing, British Rail pension fund invested 2.9% of its portfolio in the 1 ...