Tag: Profit

All profit trading related articles are found here. Educative, informative and written clearly.

The Barbell Portfolio – Strategy Of A Balance

The barbell portfolio holds only short term and long term bonds and generates fixed income. A flattening yield curve situation is the best time to use this strategy, while a steepening curve is harmful to the strategy.

The barbell portfolio was invented by bond traders. The strategy means to hold safe short-term bonds and riskier long-term bonds. Put them together and that is the barbell portfolio. This also means that you are betting on both sides. But your barbell portfolio gives you protection since you have extremely safe short-term bonds. Yes, they will provide you with less profit but the profit is compensated from the other side of your portfolio – by long-term bonds that are extremely risky but provides a great profit.

Building a barbell portfolio, you will give your investments a balance that can run you through different circumstances, even extreme ones. The barbell portfolio is a very simple investment allocation actually. But the barbell portfolio is heavily weighted on two ends, just like a barbell. This concept is easy to understand and we want to explain it by using bonds. You can create this kind of portfolio with cash and stocks, also it can be a nice substitute to a 60/40 stock/bond portfolio.

How to structure barbell portfolio

Let’s say the short-term bonds are risk-free. But you will not earn a lot by holding only them. To have a profit you must add something riskier to your portfolio. So, you can do it by holding long-term bonds. You see we are not considering mid-term bonds. There are long-term bonds to provide the yield to your portfolio.

Yes, they are the riskiest but also give the highest returns.

The idea of this kind of portfolio is to bypass and avoid the risk on one side of the barbell portfolio and to do it as much as possible but to put more risks with long-term bonds.

For every investor, the risks diversification is one of the most important parts. So how to do that with a barbell portfolio? For example, you can build it if one half of your portfolio is in bonds with 5 years maturities and the rest is in bonds with 15 years maturities. The point is to put weight on both ends of your portfolio. But it hasn’t to be equal weight. it can be turned in one direction or another. Of course, it depends on an investor’s vision and yield demands.

You have to pay attention to the bond barbell strategy. It isn’t a passive strategy. You will need to monitor short-term bonds and adjust them frequently. Also, the other end with long-term bonds should be adjusted from time to time because of their maturities shorten. Some investors will just add new bonds to replace the existing.

Barbell Investing

It is all about aiming to balance risk in your investment portfolio. For example, if you put bonds on the left end of the barbell portfolio you might be faced with rising interest rates. So, the value of the bonds could decline. In order to balance the weight, you can replace them or part of them with, for example, with dividend-paying stocks, or some other ETFs. This left side has a great role. It has to protect your wealth so the savvy investor will always choose low-volatile and low-risk assets for the left end.

The right side’s role in your barbell is to give you high profits. That is your financial goal. So you can add some aggressive stocks there instead of long-term bonds.

The barbell strategy is actually a simple investment allocation. Two ends, two sides of your portfolio are designed like opposite ends. What you have to do is to allocate your capital between safe and aggressive sides. Some experts recommend holding 80% treasury bonds and 20% stocks.

Some may ask why to diversify like this. Here is why. Let’s say you have invested 100% in different stocks. Yes, you have a diversified portfolio but you are, at the same time, 100% exposed to downside risk and you are at risk to lose all your capital invested.

But if you build a barbell portfolio with 80% bonds and 20% stocks your downside risk can arise on your risky part of the portfolio. That is 20% of stocks. But the point is that the majority of your portfolio will be in safe investments. Moreover, bonds will give you interest too.

Why use this strategy?

Because it can lower risks for investors. At the same time, it can provide exposure to higher yield bonds. Higher yields will compensate for the higher interest risk rate. So that is the first benefit. This strategy allows investors to have access to higher yield long-term bonds. The other benefit is that this strategy reduces risks because the short-term and long-term bonds’ returns favor being negatively correlated. In other words, when short-term bonds are doing well, the long-term bonds will have difficulties. When you hold bonds with different maturities it is more likely to have less deadfall risk. Let’s say when interest rates grow, the short term bonds are rolled over and reinvested. Of course, at a higher interest rate. That will compensate for the drop in the value of longer-term bonds. Opposite, when interest rates are lower, the value of the longer-term bonds will grow. Simple as that.

But remember, it’s so important to manage the weight of both ends. And to do it actively. The contrary will never produce long-term returns. If you notice that the assets on one end of your barbell portfolio somehow look expensive you have to change it and balance by leaning toward less expensive assets on the other end. Well, if the prices are expensive on both ends, you will need to reduce overall portfolio risk.

Is there any risk?

Yes, interest rate risk no matter do you hold both long term and short term bonds. If you buy the long-term bonds while the interest rates are low they may lose value quickly when the interest rates increase.

An additional risk of the barbell strategy comes from the investors’ limitation, this portfolio doesn’t include intermediate-term bonds so you will not have exposure to them. And we all know that intermediate-term bonds give better returns than short-term bonds. Yes, they are riskier but not too much. In comparison with long-term bonds, intermediate-term bonds will offer a bit lower returns. That is the downside of the barbell portfolio because you don’t have an opportunity to earn on these returns.

Well, the main risk of the barbell strategy lies in the longer-term bonds. They are more volatile than their short-term bonds. As we said, you will lose if rates rise and you choose to sell them prior to their maturity date. If you keep the bonds until the maturity date, the fluctuations will not influence negatively.

The worst scenario for the barbell is when long-term bond yields are rising faster than the yields on short-term bonds. That is the steepening yield curve. The bonds that make up the long end of the barbell drop in value. So, you may be forced to reinvest the profits of the lower end into low-yielding bonds, to balance the portfolio.

But the flattening yield curve, if yields on shorter-term bonds rise faster than the yields on longer-term bonds you will earn. That is an advantageous part of the barbell strategy.

Bottom line

The benefits of the barbell investing strategy are numerous. Firstly, you will have a better diversification of your investments. Also, you will have more potential to reach higher yields with less risk. If interest rates are falling all you have to do is to reinvest at lower rates when the maturity date of that bond comes. In case the rates are rising, you will have the chance to reinvest the profits of the shorter-term securities at a higher rate. Since the short-term bonds mature frequently, that will provide you the liquidity and adaptability to solve emergencies.

27th January 2020
Leveraged ETFs – How to Trade, Guide, Tips and Strategies

(Updated October 2021)

Two times leveraged ETF is a vehicle calibrated to 200% or double the gain or loss of the price movement

Did you come across something called a leveraged ETFs? What is leveraged ETF and how it is different from other ETFs? We found a lot of questions like these thanks to visitors to our website. We’ll try to make this closer to you especially if you are a beginner in this field.

Let’s take time to jump in and explore these somewhat new securities.

Firstly, leveraged ETFs aren’t for long-term investors.

When you are buying a leveraged ETF, you must know that you have to make short-term trade. As we said, it isn’t a long-term investment. For newbies, a short-term trade lasts from one day to several weeks, not longer. Don’t try to buy a leveraged ETF for a long-term investment.

They became one of the most successful varieties of ETFs in recent times. So, we can easily say that leveraged ETFs are a novelty. However, they can be difficult innovation. Well, they are not either good or harmful, all you need is to know them better to be able to trade. Here are some basics about leveraged ETFs.

Let’s say the traditional ETF tracks one security in its underlying index, 1:1. As a difference, with leveraged ETF, you can strive for a 2:1 or even 3:1 ratio. A leveraged ETFs use financial derivatives to magnify the returns of an underlying index.

Leveraged ETFs are possible for the Nasdaq 100 and the Dow Jones Industrial Average, for example.

Where is the advantage?

Leveraged ETFs can help you to capitalize on the short-term momentum of a particular ETF. The main question is how to add leveraged ETFs into your portfolio?

For example, the trader is assured that a particular stock will drop. And trader is shorting that stock. Besides, shorting stocks are bought on margin and the trader has to borrow the money from the broker. That is leverage.

With leveraged ETF, you don’t need to buy the securities on margin, since it allows you to amplify your returns by multiples of over 1 up to 2 or 3 times. That depends on the ETF product you are trading. The amount of leverage will depend on your experience or temperament. Some less-experienced traders will choose lesser leverage, for example.

But be aware, they are designed to return three times the inverse of the S&P 500 index. So, if the S&P 500 drops by 1%, this fund should rise by approximately 3%. And contrary, if the index rises by 1%, this fund should drop by about 3%.

Leveraged ETFs have the aim to outperform the index or stock they track.

Also, there are inverse leveraged ETFs. They give multiple positive returns if some index decreases in value. They operate the same as normal inverse ETFs but designed for multiple returns.

Leveraged ETFs are not suitable for beginner’s portfolio

Please, don’t make a mistake. Yes, it is fascinating to have amplified returns but you should never add leveraged ETFs into your long-term portfolio. By buying them as a long-term investment you are making a foolish decision. To repeat, leveraged ETFs are not investments, they are speculation. Don’t mislead yourself.

Moreover, the payoff may not be as bright as you predict. So, they are risky. You will have to pay management fees, brokerage commissions, taxes on capital gains.

Leveraged ETF surely has its purpose for short-term investing. For example, you can use it as a hedge to protect a short position. Yet, long-term investors should be careful with leveraged ETFs.

Definitely, when things are going fabulous, leveraged ETFs are excellent investments. Over the first 6 months in 2017, the S&P 500 has returned a bit over 10% but the 3 times amplified leveraged ETF has returned approximately 30%.

But, think about what happens when the market turns down. For example, the S&P 500 falls by 10%. A leveraged ETF tracking the index could fall by approximately 30%. Just think about these figures.

How to make success in trading leveraged ETFs

As experts recommended, start with small if you aren’t experienced enough. When your portfolio becomes larger add more shares. There will be more risks, of course. But you will diversify your trades. Some elite traders recommend starting with an account of $25.000 minimum. Less isn’t recommended due to trading ability and margin rules for smaller accounts. Moreover, a smaller amount may cause conflicts in your decisions. You’ll need space to make them.

Further, trade when the sentiment is low. It is the best opportunity to profit. Set a stop-loss to, let’s say, minus 2% or 2.5%. Follow the trend and enter the winning position. If your profit goes up, sell some of your winning positions. Do it on spikes. If you reach 2% of profit very quickly, sell half of your shares to move stops up to breakeven. This can be a no-lose trade.

Read a lot about ETFs and leveraged ETFs and test some free trials to find the accurate one. Do your own homework, it is the best way.

Always monitor leveraged ETFs on a daily basis. If you have to use a limit order on a position it is reasonable to sell your position since you can’t follow market makers strictly. If you want to turn trade, it is better to trade traditional ETFs. that will give you less profit, but more freedom. For leveraged ETFs, you will need to sit and look at the screen or phone almost all day long. Trading isn’t for everyone, at all. That job can be addictive. Take a break from time to time but don’t give up. If you made some mistakes, keep in mind why, when, what caused them. And learn how to avoid them.

And buy when the ETFs are positive.

Disagreements

The leveraged ETFs are new and still developing, and the disagreements will change as time goes by.

Yes, they will provide you 2 times bigger returns but not always.

The typical fault is that leveraged returns are on a yearly basis. This is false. They provide multiplied returns on a daily basis. So, don’t look at the index’s yearly return of say 2% because the leveraged ETF will seemingly not have a return of 4% per year. Rather take a look at the daily returns during the year. However, something is more important. The multiple returns don’t mean you will have multiple profits. You may have multiple negative returns also.

Leveraged ETFs are high-risk due to their design. Also, some index-tracking malfunctions may occur as well as some other limitations.

Bottom line

These the most attractive ETFs in the market today have a great advantage of using. Traders can overcome some of the risks through diversification and leveraged ETFs are very suitable for that. Still, they are still adjusted for stocks only. Therefore if the stock market falls the ETFs will fall too. Anyway, you can enhance your trades if you spread the risk across other assets besides stocks. It’s easy to find ETFs assets like currencies, bonds, or commodities. That will help you to improve your portfolio diversification buying power (the last mentioned is for really aggressive traders).

Leveraged ETFs are new products but they are providing more choices to manage risks and take profit.

They are a good option but what if you don’t want to enhance your buying power if the bear market is in play? That would require short positions to take advantage of the downside potential in the market. A leveraged ETF could be a great answer in this situation, also.

9th January 2020
The Average Stock Market Return

The stock market average return of 10% is exactly that – an average, while the returns for any particular year may be lower or higher.

The average stock market return was about 10% annual for the past almost 100 years. But when we take a look at any year particularly we could notice that the returns weren’t always average. And that is the truth about the average stock market return, it is average rarely.

Historical data shows the average stock market return is 10% but when you look at year-to-year it can vary. For example, this rate should be reduced by inflation. Inflation can vary too let’s say from 2% to 3% which is a regular rate.

But when we talk about investing and investors we usually think about long-term investments. To be honest, the stock market likes long-term investors. They are keeping their investments five or more years.

Keep in mind: the stock market’s returns aren’t average and could be far from average. For example, over the past 80 years, you could find that the average stock market return was from 8% to 12% only several times. Due to the volatility of the stock markets, most of the time the average stock market return was higher or lower. So, returns can be positive even when the market is volatile but the average stock market return will not rise every year. Sometimes it will be lower sometimes higher.

What is the average stock market return?

The average stock market return actually is about 7%. If we take into account the periods of highs, for example, the 1950s the returns were up to 16%. But we had the negative returns of 3% in the 2000s.

For example, from 1998 to 2018, we had an average stock market return of 6.88%. The lower return came from the enormous loss in the market in 2008.

But, over the last 50 years, the average stock market return was 10.09%.

The stats may help here, the Dow Jones – by May 25, 2018, the average annual return was 5.42%. On January 6, 2012, a 25-year period ended with an average return of 7.55% per year. But if we look at data from the beginning of 20 century, the average stock market return was around 4.3% respectively.

On the other hand, the S&P 500 index had average returns from 1957 through the end of 2018 about 7.96%. But, the average annual return from its inception in 1926 through the end of 2018 was about 10%. Last year, 2019 was great with a return of 30.43%. If we include dividend reinvestment, the S&P 500 return was 33.07%.

How to calculate the average return on stocks?

The average return on your stocks’ portfolio should reveal to you how well your investments have run in a particular period. This can also help you to predict future returns. Remember, this measure isn’t the annual compound growth rate.

So, to calculate the average return on stocks you will need to calculate the return for each period. The next step is to add returns together and divide the result by the number of periods. That’s how you will get the average stock return.

Calculate the average rate of return

Firstly, what is the average rate of return?
It is the percentage rate of return that is expected on an investment but compared to the initial cost.

The formula is quite simple. Divide the average annual net earnings after taxes or return on the investment to get the average annual net earnings and then display in percentage.

The average rate of return formula = (Average Annual Net Earnings – Taxes) / Initial investment x 100%

Here is the explanation of what we did:

Firstly, determine the earnings from stock for a particular period, let’s say 10 years. Now, you have to calculate the average annual return. Do that by dividing the total earnings after 10 years by the number of years.

Further, if you have a one-time investment, find the initial investment in the stock. If you want to calculate for regular stock investments, take the average investment over life.

And finally, divide the average annual return by initial investment in the stock.

Also, you can do all of this and get the same result if you divide the average annual return by average investment in the stock but expressed in percentage.

Let’s take the example of a stock that is likely to generate returns of 10% per year after taxes and for a period of 3 years.

The initial investment $10.000
First-year’s net earnings $1.000
Second-year net earning $2.100
Third-year net earnings $3.310

Use formula

The average rate of return formula = (Average Annual Net Earnings – Taxes) / Initial investment x 100%

After 3 years your initial investment will be increased by 64% or you will have $6.420 more in your account.

What does this mean for investors?

As always, computing dividends is important and you have to account for them. If you reinvested received dividends, even better. That’s compounding on compounding!

The truth be told, those who have stayed invested in stocks have largely been rewarded.

The understanding of the concept of the average rate of return is important because investors make decisions based on the possible amount of return expected from an investment. Based on the average rate of return, you can decide will you enter into an investment or not. Moreover, the return is used for ranking the stocks and ultimately you will choose per the ranking and include them in the portfolio.

In a few words, the higher the return, the better is the stock.

But let’s examine one different case of the average stock market return.

Let’s say your initial investment is also $10.000 but (this isn’t easy to say) in the first year you lost 20% of the initial investment. That’s bad news. But in the second year, you gained 20% of the initial investment. Oh, how nice it is!

Yes, nice but your gain is zero.

(-20+20) = 0

What do you think? Do you still have your $10.000? Things never move in that way.

Here is why.

When you lose 20% of your initial investment you ended up with $8.000. Right? That amount became the amount of your investment. On that amount, you gained 20% or $1.600. So, after two years you have $9.600 in your hands and you are short for $400 compared to your initial investment of $10.000. You lose money and your return isn’t zero. Your return is minus and you will need more gains in bigger percentages to cover that loss.

The stock market average return isn’t misleading. That is how you have to calculate it.

Or to calculate CAGR.

Bottom line

This means that investors MUST have a financial plan and investing strategy.
There are no guarantees for big gains in the stock market and never were. The average return of 7% or 10% is great if you are a long-term investor. It is reasonable to expect a good return on the current stock markets if you reduce your enthusiasm when the good times come.
That’s nice, you’re making money. But, when stocks are jumping, remember that not so good time may come. Especially keep this in your mind over the bull market cycle.
You can get the average return only if you buy and hold but not if you trade frequently. Even a few percent per year can produce nice gain over the years.

3rd January 2020
Civeo Corporation Could Be Good Turnaround Stock

Civeo Corporation is a spin-off the Oil States International.
It is a US accommodation service and multinational corporation. It is a spin-off of Oil States International and a public company listed on the NYSE

by Gorica Gligorijevic

Civeo Corporation is publicly traded on NYSE under the ticker name CVEO. According to the current price, it may never be so cheap. What we think is that this stock could easily be a great opportunity for investing. How does it come? Well, when the stock is cheap as this one is just a small sign of good news can send them flying.

What we are talking about is the Civeo Corporation stock is turnaround stock. It had happened before, this particular stock made 115% profit in 1 month. This stock is ready to give some of the highest returns. How do we know that? Well, as we said just a small sign appeared recently. Investor Carl Icahn bought a 9.9% stake. That is a sign of a turnaround. The most interesting thing with this stock is that you will receive the 4.7% dividend while waiting for a turnaround.

If you buy this stock now it is possible to double its value very soon. This stock can perform very well in 2020 as being an incredible buy.

Market Cap $162.547M
Current price $0.9587

Why invest in Civeo Corporation stock?

Turnaround stock investing is a real source for investors. Hence, when you notice that some stock has a great probability of return within a year.

Civeo ( CVEO) reported third-quarter revenues of $148.2 million, a net income of $4.5 million, and an operating cash flow of $23.6 million.

Civeo Corporation delivered a third-quarter adjusted EBITDA of $36.2 million. It is up 62% compared to the previous year, and also, there is a free cash flow of $20.3 million Also, the reduced leverage ratio from 4.26x to 3.52x on September 30, this year.

The company completed the acquisition of Action Industrial Catering which provides the company’s presence in the Integrated Services and Western Australian markets. Moreover, for the fourth quarter of 2019, Civeo awaits adjusted EBITDA $19.5 million to $23.5 million. For the full of this year, Civeo Corporation is expanding adjusted EBITDA guidance in the range of $98.0 million to $102.0 million. Civeo is reducing its 2019 capital expenditure guidance to a span of $33 million to $37 million.

“We are encouraged by the Company’s achievements this quarter and we will continue to focus on operational execution, revenue diversification, free cash flow generation, deleveraging our balance sheet and winning new work as opportunities present themselves,” said Bradley J. Dodson, Civeo’s President, and Chief Executive Officer.

Civeo Corporation company

Civeo Corporation is the foremost provider of hospitality services. But also has notable market positions in the oil operations in Canadian and the Australian. Civeo gives full solutions for accommodations of workers with long term and temporary lodging and gives food services, full housekeeping, power generation, communications systems, and logistics services. Currently, Civeo Corporation operates a total of 30 lodges in Canada, Australia, and the U.S., with approximately 31,000 rooms.

Why invest in turnaround stocks?

First of all, they may never be cheap again. By investing in turnaround stocks you may score double or triple-digit gains. How? The beaten-down stocks with real value will survive and provide a profit despite the overall market because they are driven by key developments in the company. And, the most important, turnaround stocks can run independently of the markets.

The turnaround stocks may be hidden for the majority of investors. Hence, you must have a focus on several key criteria. The company must have a stable focus on businesses and be able to recognize and drop all profitless ventures. Such a company makes changes in management with successful turnarounds.

In the past, such a company completed a turnaround plan that gave clear, real direction to employees. Also very important to be noticed, the company must have several great shareholders who will support the turnaround attempt. The company has to be a trustworthy brand. All of these are guarantees that stock will have a great turnaround. It’s up to us to recognize the potential and buy on a bargain.

When you notice all these indicators, it means you have got the opportunity to buy a great turnaround stock. It is time to put some of your money into stocks that give excellent value and powerful management. Yes, they are still beaten down but is it fair? This particular stock is ready for a big return.

13th November 2019
How to profit from The Stock Market Plunging?

By Guy Avtalyon

The stock market is plunging but will it crash or not is still unknown. It isn’t easy to predict the stock market crash because it occurs suddenly. The point is to be prepared for such a scenario and here are several ways on how to do so.

I don’t want to frighten you, but we have to talk about the stock market plunging.

The volatility of the markets is back again. Actually, the market is plunging. That is the data from the first six days in October. The S&P 500 has dropped a total of 83 points. Now it is almost 115 points lower than in September. Having this in mind, the trade war and the inverted yield curve, also, let us know how not to speak about a recession.

The stock market is plunging

These gaps are standard. For the last 70 years, there were 37 corrections in the S&P 500. If our counting is good that is almost every second year. And mentioned drops were about 10%. Now, we have 5% and such were more common in history.

This is the price we have to pay for long-term wealth making. So, you must understand that long-term investors have an advantage against the short-term since they would infrequently experience continuing damage from stock market corrections. Time and patience, wait for a bull market rally. It will nullify the correction in the stock market. Anyway, the point of long-term investing is to buy and hold. Hold on to your stocks, that is the key to winning in the long run.

I warned you how difficult this year can be. But when investors’ fears overwhelm the market and the stock market is plunging, there is still something you can do.

Is a safe-haven stock right move?

Yes, you can thrive during the stock market correction if you buy safe-haven stocks. For example, buy gold. The gold is a store of value, so it is a safe-haven asset.

The truth is that you will not gain a lot of profit by holding gold for a long time. It is a physical commodity, there is no dividends. So think about buying a stake of shares in some companies that produce the jewelry or anything of gold instead. Also, a good choice is to buy shares of mining. This is also a suitable alternative when the stock market is plunging and getting lower.

Stocks with low volatility

Companies that provide constant profits, pay a dividend, and have low volatility can be very beneficial when the course in the market turns. Some of them will give you yield much bigger than the yield of a 10-year Treasury bond, for example. Find some company with the old fashioned model of business. Yes, it can be boring but in the long run, it is excellent. The point is to survive the market plunging.

Basic goods and utilities as a safe investment

Buying stocks of some companies that produce cleanser or hygiene is an excellent choice. People will always need to be clean and they will buy these products no matter how deep the crisis is. Also, stocks of energy companies. They are not low-cost but they are eternal. Even more, these defensive basic-need stock can grow in a volatile market.

What to do when the stock market is plunging?

Many things in the markets depend on risk tolerance. Your investment portfolio is based on risk tolerance. The main problem with the stock market plunging and when it crashes is that they are coming suddenly, no one can be sure that the crash will come and when, or the market will recover. Market crashes happen quickly, there is no warning. The problem with investors’ risk tolerance is that is very hard to adjust it depending on circumstances, especially during the bear market. You’ll be emotional, panicked, you will be encompassed by fears. To avoid all of these, take care of your portfolio structure. You should hold liquid assets, such as cash, bonds. When the market crash occurs you need a through-out scenario to avoid losses. Liquide commodities will provide you that.

Being an investor means you have to put your feelings away. You have to make your decisions separate from them.
Investing is magnificent. But life is also.

During the bear markets, even trivial corrections can be remarkably dangerous. But at the same time, bear markets will offer you great moments. The point is to know what you want and where are looking for. But Warren Buffett thinks about bear markets as buying opportunities. The trick is that in such market periods the stock prices of large companies are going down. When that moment occurs watch in your favorite stocks. The time will do the rest. You should buy it when others are selling.

15th October 2019
How To Profit By Investing In Bad Companies

2 min read

You don’t believe it is possible. Profit by investing in bad companies sounds pretty stupid and naive. But it is possible.

To be more precise, sometimes it is possible to make notable investment returns by buying the stocks with minimum chances. The key is to recognize the companies which will grow in the future.

There is some math behind. The point is to make a difference between business and stocks.

Let’s be more clear!

For example, you have some money aside and want to invest in some cheap stocks. But you find two similar companies in the same industry, say gold.

Company ABC is a large one. Gold is currently at $100, its exploration and other costs are $60, that is a $40 profit. Not bad.

Company XYZ is a disastrous business. It’s exploration and other costs of $90, which is only $10 in profit at the current gold price of $100.

Which one to choose?

The logical answer would be ABC but the wrong one.

Let’s assume the hypothetical situation.

The price of gold suddenly rise in the market, and the current it is $300, for example.

Let’s see the numbers for those companies.

Company ABC offers $240 in profit.

$300 gold price – $60 in expenses = $240 profit

Company XYZ offers $210 in profit

$300 gold price – $90 in costs = $210

But here is where the math has the greatest influence.

Company ABC earns more money for any reason, its profit rose 600% from $40 to $240. But, compare it with company XYZ which grew its profit 2,100%.

Moreover, there is a phenomenon

It is very reasonable to assume that company XYZ will experience a multiple expansion, meaning added increase. The possible final result: company XYZs stock price is raising exponentially more, much more than the stock price of company ABC.

What to say? Company ABC is maybe a healthier business, but company XYZ is better as a market choice.

How is possible to profit by investing in bad companies?

This is recognized as operating leverage.

Operating leverage describes a company’s level of fixed costs in comparison to its revenue. Companies with high operating leverage have large fixed expenses. They are obliged to cover them as first. If fixed expenses are exceeded, the revenue will fall. Such a situation may cause great difficulties for the company, from large cuts to lower profits, even bankruptcy.

You can find companies with high operating leverage in almost all sectors and industries. Gold miners, airlines, crude oil companies, are some examples. Actually, you may find these companies where the business has enormous changes in revenue. You will notice enormous profitability fluctuations. That comes because fixed costs can’t always adapt as quickly as the market value.

But you have to know that investing in bad companies carry a lot of stress and risk. Investing in some of these companies can make you rich but it is almost impossible for them to provide you a constant profit.

It’s easier to invest in some solid businesses with steady profit and dividend. You should avoid headaches.

You would like to read How to Become A Trader or Investor in Just 10 Minutes

15th September 2019
How to Calculate the Loss and Profit
2 min read

(Updated October 2021)

It is always useful to discover the percentage rise or drop. That is called profit and loss.
To calculate profit and loss we have to make clear some terms involved in the calculation.

We will use the stock as an example.

* Cost Price ( CP): The price at which you buy a stock is the cost price. That is the amount paid for purchasing stock.

* Selling price (SP): The Price at which you sell a stock is the sales price. That is the amount received when a stock is sold.

* Profit (also the gain): You get a profit when you sell a stock at a price higher than its cost price. You will like to sell your stock at a higher price. CP < SP

* Loss: If you sell a stock at a price lower than buying price, then you caught a loss. CP > SP

The percentage of profit or loss is always calculated on the cost price.

The formula for profit is

Profit = SP – CP

The formula for loss is

Loss = CP – SP

Let’s calculate the percentage of loss and the percentage profit. Percentage Loss and Percentage Profit are calculated based on CP

Profit% = (Profit/CP) × 100

Loss% = (Loss/CP) × 100

For example, one trader purchased a share of stocks for $1.000 and then sold it or $1.250.

What is the profit and profit in percentages? Is it 3%, 15%, 18%, 20%, 25%?

OK, this is basic.

The words “purchasing” or “buying” are indicated as CP, cost price.

In our case, CP is $1,000.

The trader sold the stock at $1.250.

The word “sell” is indicated as SP, selling price.

In our case, SP is $1.250.

We can easily find the profit. It is SP – CP, so

profit = $1.250 – $1.000 = $250

Don’t miss this What Is APY and How to Calculate it

Now, we have to find the profit percentage.

The formula is

[(profit)/CPx100]

so

[(250/1000)x100] = 25%

Our trader made a 25% profit in this transaction.

But what would happen if our trader sold the stock at $800?

CP is $1.000

SP is $800

loss = CP – SP

loss = $1000 – $800 = $200

or

[(200/1000)x100] = 20%

The trader’s loss is 20%.

Calculate the Loss and Profit in Percentages
- Divide the amount that you have profited on the investment by the amount invested. To calculate the profit, subtract from the price for which you sold the price that you initially paid for it.
- Now that you have your profit, divide the profit by the initial amount of the investment.
- The last step, multiply the number you got by 100 to see the percentage difference in the investment.
If the percentage is negative, you have lost on your trading. If the percentage is positive, you made a profit on your trade.

By calculating the profit or loss you are actually estimating the change. Our calculation is based on the relationship between the selling price, and cost price. The difference shows if we are making a profit from the transaction or will we have a loss.

You would like to READ: Gordon Growth Model – Mathematics of Trading
6th September 2019
Short Selling For Profit

What to do with stocks when the price starts to decline? Bet that a stock will fall more.

By Guy Avtalyon

Short selling for profit is a trading strategy that attempts to profit from an expected decrease in the price of a security. Basically, a short-seller wants to sell at a higher price and buy at lower.

How does short selling for profit work?

Let’s you are a trader and you have some information that some stock will decrease in value by the expiration date. Ofc, you don’t hold that stock but you can borrow it from a broker. For example, you borrow 100 stocks at $10 market price. And you open the position, meaning you want to sell them at market price by their expiration date. And you succeed. Then you close your short position and sell your borrowed stocks for $1,000. But before you give back that 100 stocks to your broker you are betting that their price will decrease in value before the expiration day. That happens. Now, you are buying these stocks at a lower price, it is called covering the short position.

Let’s say, the price of your borrowed stocks declines at $6 each.

You sold them at $1,000, bought them at $600. Return 100 stocks to the broker and you pocket $400.

(100x$10) – (100x$6) = $400

The risk in this kind of trading is literally unlimited because the price may rise and rise to infinity.

But, the profit can be huge, also. The previous example showed a short-selling for profit. Well, by using short selling you may gain loss too.

Example of making loss while using short selling.

The vice versa case is when stock price increase in value during the time while you are holding them.

Let’s say their market price rose at $14 each and you are holding 1oo stocks. The equitation will be

$1,000 – $1,400 = – $400

You borrowed those stocks at a $10 market price. But despite your expectations, the price increased which means you made a wrong bet. But you have an obligation to return those to the broker, hence you have to buy them back at that higher price. In this transaction, your loss is $400.

Short selling for profit is a method for traders to benefit from a drop in a stock’s price.

Short selling is only possible by borrowing stocks. The problem is they are not always available because when they are you may be faced with a crowd of other traders that already massively trade them.

Is short selling for profit risky?

The short-selling for profit can be risky and questionable. When a huge number of traders choose to short some stocks, their actions will make a great influence on the stock price. With such big traders’ interest, the price will decline sharply. That is not a good situation for companies. Their market value decreases. Sometimes the markets forbid short-selling, especially during the economic crisis.

As I said, short selling is risky for plenty of reasons. You can make a great loss if the stock price increases instead to decrease.

The other reason is that the sharp increase in selected stock may cause traders to cover the position all at once. Moreover, short-covering usually force the price to go up. Then you have a situation that more and more short-sellers are covering their positions and such stock is grasped in a so-called short squeeze. So, like a chain of unfortunate events, right?

The main purpose of short selling for profit is when you borrow the stocks from the broker to sell them instantly and buy them back at a lower price. And return them to the broker. When the whole process is finished you should profit from the difference in stock price.

Risks of short selling

Short selling involves a magnified risk. When you buy a stock you can lose only the money that you have invested. For example, if you bought one share at $300, the maximum you could lose is $300. Stocks can fall to $0 and that is the maximum, there is no stock that may fall below zero. The maximum in your potential loss will stop at your initial capital invested.
In short selling, you can potentially lose an infinite amount of money. Stock can increase its value for an infinite time to an inconstant price. So, you’ll have an infinite loss.
For example, let’s say you enter a short-selling at $200, and suddenly the stock price increases by 300% to $800. You’re obliged to buy the stock back and return them at $800, essentially losing 400% of your capital. actually, you are in incredible debt.

Just be careful when you bet against stock price.

16th August 2019
Don’t buy stocks on a dip

Many say the strategy is to “buy a dip”, but can it really lead to success? There are so many opposing opinions.

By Guy Avtalyon

Don’t buy stocks on the dip says UBS Group AG. It is a Swiss multinational investment bank. While analysts at Goldman Sachs Securities Division advised: “Buy bitcoin on the dip” for stocks it is a straight way to a loss.

“Buy the dip” was a good plan for the bull market, but analysts at UBS addressed to stock investors:

“A world where leading indicators are accelerating is generally one where a correction in equities is an opportunity for investors and ‘buying the dip’ gets rewarded. In contrast, today’s backdrop with PMIs (purchasing managers indexes) in the low 50s and rates arguing for further declines often results in buying the dip being a losing proposition,” addressed strategists Francois Trahan and Samuel Blackman, in a Tuesday.

This announcement is quite strange because dip buyers are still making a profit.

The Dow Jones Industrial Average DJIA, +1.44% increased more above 370 points Tuesday. This increment came after the U.S. said it would pause imposing tariffs on some imports from China.

The S&P 500 SPX, +1.48% climbed 1.5%. The Dow is depressed 2.2% for the month, and the S&P 500 is 1.8% below in comparison to the previous month.

Trahan and Blackman have a different interpretation of the current market conditions.

What is buying on a dip

It is a losing proposition.

They said the historical records covering the last nine economic cycles, reveals that buy-the-dip works the best when leading economic indicators, like PMIs (private mortgage insurance), are accelerating.

The analysts said that buying-the-dip had a virtually excellent history. They call it the “risk-on” period. However, it is followed by the “risk-off” period. When PMIs fell under 50, labeled the “risk-aversion” period, dip-buying has poor benefits, they said.

Don’t buy stocks on a dip the analysts said

They said that defining the period of the cycle is just one piece of a three-item checklist. They also explained the perfect risk-reward scenario. It happens when the “risk-on” period is followed by interest rates, that carries an increase in the price/earnings ratio, so the earnings opportunity is promising.

Today, the potential dip buyers are 0-for-3, they explained. In other words, we are witnesses of the “risk-off” period, but the companies earnings opportunity has declined.

They also estimated interest rates.

They were looking at yields with an 18-month lag.

Their conclusion is: “the path laid by interest rates 18 months prior to today shows that there is now tightening in the pipeline, and it’s more likely we experience multiple contractions than expansion in the months ahead.”

Multiple expansion points the readiness of investors to pay more for a dollar of earnings. And they pointed out that the risk/reward for buying the dip “extremely poor”.

As you can see, analysts from Investment bank Goldman Sachs has advised investors to capitalize on the new dip and buy bitcoin.

The bank stated that its short-term target for bitcoin is $13,971. It also suggested to investors to buy Bitcoin on any dips in the current situation. But, don’t buy stocks on the dip, says UBS Group AG.

There is a difference.

15th August 2019
Bear Market profit! How to Make the Profit on the Bear Market?

2 min read

The bear market is here. Now is the time to focus on how bad this bear market can be. But also, how can you make a profit during the Bear market period. The questions exploded, and negative consequences are extensive and serious. But it isn’t impossible to make the profit over the bear market.

The investors and advisers are still focused on holding stocks. That means they are not prepared for the destructive emotions that come from this panic-crash.

How they could be when is the time of the bear market and their goal is to make the profit?

Hopefully, the market does not drop.

But there is a considerable risk now. Maybe the best philosophy is to be prepared for a disaster than to count that the worst will not happen.

Yes, we know. The Bear markets are brutal when they hit. That know any stock investor who was invested in stocks during 1973–1975, 2000–2002, or 2008.

The very first fact is that fortunately, bear markets tend to be much shorter than bull markets. If you’re properly diversified your portfolio, you can get through this period. And not to have much damage.

How?

If you are an agile investor, bear markets can provide opportunities to boost your portfolio. It can lay the base for long-term wealth.

Here are some ways to make bear markets very profitable.

First of all, don’t let yourself down, even when the market is down. Stay calm and focused.

The big truth is that in the bear market, the stocks of all companies tend to go down. Where is the catch? How to make some profit from this?

Bad stocks tend to stay down. Yes?

But good stocks tend to recover and back on the growth path.

So, the strategy is clear.

If the stock of a profitable company goes down, that is a buying opportunity.

Remember this!

Let’s say a few words about the second opportunity during the Bear market.

You have to look at the dividends! A dividend comes from a company’s net income. It is an important fact. Contrary, the stock’s price is determined by buying and selling in the stock market.

Say the some company’s stock price goes down but the company is strong yet, still earning a profit, and still paying a dividend.

It is a good opportunity for those seeking dividend income.

If you are one of them, you have to buy.

A bear market comes in tough economic times. It reveals who has too much debt to deal with. But also, who is doing a good job of managing their debt.

We are talking about the bond rating.

In this circumstance, the bond rating becomes valuable. The bond rating is a picture of a company’s creditworthiness.

The ratings of AAA, AA, and A are considered kind of investment-grade. The lower ratings are Bs or Cs.

A rating of AAA is the highest rating. This mark signifies that the agency believes that the company has achieved the highest level of creditworthiness. Therefore, it is the least risky to invest in.

If you find a stock whose company has a bond rating of AAA, that is good to buy!

Using ETFs with your stocks can be a good way to add diversification and use a sector rotation approach. Different sectors perform well during different times of the slump and flow of the economic or business cycle.

Do you remember the rule: Never put all eggs in one basket.

So, rotate your sector.

Bear markets are tough for good stocks. But they’re brutal to bad stocks.

When a bad stock goes down, it often goes into a more critical decline. Because more and more investors look into it and discover the company’s shaky finances.

What you have to do?

Short it?

Going short is a risky way to bet on a stock going down. If you’re wrong and the stock goes up, you have the potential for unlimited losses.

A better way to speculate on a stock falling is to buy long-dated put options. That gives you the potential to profit if you’re right but limits your losses if you’re wrong.

During the bear market, you can make the profit by using the margin. It can be useful. Using the margin is wisely, it can be a powerful tool. The great tactic is o acquire dividend-paying stocks after they’ve corrected.

A margin is using borrowed funds from your broker to buy securities.

Keep in mind, you don’t like to use margin before the stock corrected or declined.

Using margin when the stock is high and it subsequently falls, can be dangerous. But using margin to buy the stock after a notable fall is less risky.

Buy call option if you want to make the profit during the bear market!

Well, it is about speculating, not investing. Remember, a call option is a derivative, and it has a finite shelf life; it can expire worthless if you’re not careful.

The good side of a call option is that it can be low-cost to buy. And it tends to be a very cheap vehicle at the bottom, when is a bear market. This is your chance!

If the stock price sink, but the company is in good condition, betting on a rebound can be profitable.

How can you still make the profit?

For example, you can write a covered call option. Also, you can write a put option to generate income.

But the most important is to stay calm when the bear market starts. That will provide you with more chances to make the profit.

If you don’t plan to retire ten years from now or even more, a bear market shouldn’t make you nervous.

Good stocks will survive bear markets. After that period, they’re ready for the next bull market.

So, try not to get quickly out of stock. If you want to make the profit on the bear market territory.

Just keep monitoring the company performance for growing sales and profits. If the company looks fine, then hang on. Keep collecting your dividend and hold the stock.

This bear market had a fairly recognizable trading picture. We had the opportunity to see it before.

So, be patient and take your advantages!

Risk Disclosure (read carefully!)

19th December 2018