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Is the trend your friend? Investing in the Up or Down Cycle

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When you talk to stock market experts, one thing that they will tell you is that the economies of countries all over the world are linked much more closely together, to the point that they can easily impact one another.

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No longer do you have to think about just one economy if you are going to invest in something. You have to look at all of the trends, the news from the entire globe, and you have to consider how each story or event is going to play into each other. Only then can you make investments that are going to be successful.

Contracting Markets: Expanding Markets

For example, a failing economy in one part of the world might mean that more people are out of jobs. Consumers do not have extra money to spend on luxuries, on products or services that they do not need. All of their money has to go towards rent, food and other necessities that they cannot live without, while they spend their time trying to find new jobs. Can you imagine how the luxury goods market has been impacted in Greece, for example?

If you have invested in the stock of a company in your country that produces luxury goods, you might see their stock plummet. Were they making most of their money on exports, sending the goods to well-to-do people overseas? They may be based near your home, but their market could be everywhere else. When that dries up, they are going to lose a lot of domestic sales, even if the international sales keep going well. Or vice versa.

Taking Greece, as our example, the market for premium quality olive oil produced by local growers might contract as home consumers are hard pressed, and prefer to choose smaller amounts or cheaper brands; but export markets might welcome new olive oil for their salads or pizzas!

Depression vs. Recession: History Repeats

This is something that happened during the Great Depression in the United States, after the stock market crash at the end of the 1920s, and it happened again – though to a lesser degree – in the recent recession. When the economy was down, people were losing their jobs and their homes.

They stopped spending money on luxury goods from other countries. They held onto their savings or lived off of them. The economy is just starting to come back now, but a lot of luxury companies in other countries suffered simply because America was not doing well. And America is still one of the biggest markets in the world for exporters in Asia & Europe.

Does this spell opportunity?

Well, let’s take a look at some recent upcycle/downcycle stories. Did you buy Microsoft at $25 recently? If not, you’d be looking at a missed opportunity at an easy 40% upswing. However, if you had plonked your cash down for Lululemon stock, you might be sucking on lemons right now as they’re stock crashed nearly 50%.

And yet in those two stories, there are two vastly different products serving vastly different markets and in vastly different phases of the companies’ lives.image

Microsoft’s Rough Patch

Microsoft (NYSE: MSFT) has hit a rough patch with its consumer products division. Its new Windows 8/8.1 has not received much popular support despite being a nice OS; consumer staples are getting old; and repeated failures in Mobile have all challenged the ‘old’ dog. And wow! Have you seen those clunky Surface Notebooks? OMG.

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However, new upcoming products are getting good buzz. Business & Services are going gangbusters… and (let’s face it) Microsoft just isn’t cool right now. Is this a good contrarian play? Perhaps…

Lululemon: SeeThru Performance?

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Lululemon makes wonderful & popular quality Yoga & Sports Clothing for women (and men). (NYSE: LULU)

But botching a product redesign, consumer complaints, mishandling of their customer relations, a CEO switcheroo, and the P/E multiple got sliced in half.

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Have their products suddenly gone from hot to not? Or is their customer message as see-through as their Yoga bottoms? Clearly the market is voting one way on Microsoft and the other on Lululemon. But when it comes to the final weigh-in, will Mr. Market be right?

As an Investor

… you need to know how this cycle works so that you can decide when to buy and when to sell. If you sold your shares before the recession, you got the most out of them. If you then bought them back after prices plummeted, you could have made a lot of money in the upcycle, as things turned around.

Love to hear your take on this: What are you voting for? What are you weighing?

The World of Investment Banking: Trading, Investing or Managing?

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For new and experienced investors alike, the best place to start with managing your money and investing it wisely is by asking investment bankers, who are specifically trained and experienced in the investment world. The insight, experience and technical knowledge they can provide will help turn your investment into a profitable one.

What is Investment Banking?

Experience investment bankers will have expertise in a broad range of areas, including investments, stocks, mutual funds, money bonds, hedge funds. They will also be informed about recent macro-trends, changes in the economy and industry developments. You can also expect many investment bankers to be specialized in one area.

Leading financial experts like John Studzinski Weforum will tell you that one of the biggest determinants in how well your stocks will perform is knowing as much about them as possible. This means researching potential start-up companies and corporations before investing, and keeping a close eye on them to monitor growth patterns and change. By keeping up with what’s happening with investments, you will be able to react sooner if you need to sell a stock, or purchase more of it.

Different types of Investment Banking

Investment banking is usually made up of three components: sales and trading, asset management, and the obvious one, investment banking. The services these three components provide as follows:

Investment Banking: this usually refers to corporate and commercial finance, and offers advice and assistance with investment transactions, including using capital to acquire or merge a business, or to sell or divest part or all of a business.

Sales and Trading: if you want to sell a stock, buy a stock, or trade a stock? This area of expertise at your investment bank is where you’ll go for any type of stock management, or simply to check on the happenings in the stock market.

Asset Management: manage existing assets, such as private or commercial property, here. Seek capital for your assets or acquire additional assets here as well.

Tips & Advice on Dealings

When doing business with investment banks, there are some things to keep in mind.

First, know that there are large and small investment banks, with many smaller investment banks making actual investments themselves. But regardless of their size or whether or not they manage stocks, all types of investment banks can assist you with managing your stocks and shares.

Depending on your investment needs, you’ll either work with an analyst or an associate. An analyst will take care of helping you determine what to invest and where, and for businesses, analysts can assist with putting together pitches and models. An associate is a level higher than an analyst, and will help you out with more complex financial transactions, such as business mergers or acquisitions.

All investment banks have vice presidents, a senior vice president, and a managing director, but unless you are an extremely valuable client, you will rarely have interaction with these "higher ups".

Lastly, make sure that you understand the terms & conditions BEFORE you sign a deal. And if they are too complex, too wrapped up in legalese, you will need help to determine the veracity of the contracts. Don’t be afraid of doing this, after all you should…

Trust But Verify

After the financial crisis of 2007-8, you may have read that investment banks may have engaged in trading against their clients, that investment banks sold inappropriate products, or otherwise acted against their clients’ best interests.

The only suggestion that I can make is that you should keep up to date with your investments and not be afraid of querying, checking, double-checking and otherwise managing the investment managers to make sure they are doing their job. While it might be difficult to avoid second guessing the professionals, and you don’t want to micromanage them (that’s not what you’re paying for), you must still be in charge of your money. After all, whose money is it? It’s not theirs.

Investment banking is something you’ll want to look into if you’re concerned about being able to support yourself after retirement, about managing your estate & wealth, or developing your business investing.

Credit Cards, Friends and PayDay Loans: Which would you use if you were short of cash?

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There are indeed many ways that we simply throw good money away. In my previous post, I outlined seven ways that I have successfully thrown money away over the years. These are the ones I remember! I’m sure there are dozens more that I could think of. There are of course some ways that you can avoid events spiralling out of control, but each of them needs some self-control in that they all have inherent benefits, costs, and risks. But for short term personal loans needed urgently, there aren’t so many options. Credit Card #1

The Credit Card: This is perhaps the easiest way to borrow money, it’s available and easy to access. Just stick your card in the ATM, enter your password, retrieve. Then wait for the bill at the end of the month. The costs though are in the interest rates charged from the date of the loan, ATM fees and perhaps a worse credit score. Worse: this may not be an option if you are nearing your credit limit. The last thing you want do is incur late payment penalties on your Credit Card or overage penalties when you break your limit. In fact, having a safety limit for errors in billing is a good idea. Don’t run your credit card at 100% of your limit! friend next door

The Friend at Work or Next Door: Again an easy option, and one which will rarely attract interest payments as friends are ‘helping each other’. Typically, you’ll hear people saying things like “I had an unexpected emergency. Can you lend me a few hundred dollars until payday?” Most friends will oblige for a ‘friend in need’… and that’s where the problems begin. You can’t pay it back on payday, then you begin to feel embarrassed to see your friend. Every time you see him or her, you feel guilty thinking “I have to pay you back, but I can’t”. Others report that lending money to a friend or borrowing from a friend impacts the relationship. Things never seem quite the same, because money entered the equation. I stopped lending to friends after the problems it caused.

payday The PayDay Loan: A more recent entrant to the informal loan are the payday loans – a short term loan that is designed to bridge or cover the cashflow problems. With this facility now provided on the Internet, the application procedure could be quite quick and easy. Often these companies will provide next business day payment electronically. The payments are due (depending on the conditions of the loan) on the next pay day. The catch: it isn’t free. It’s not necessarily cheap either with fees that can run quite high. Most importantly, though, they are designed as short-term loans to cover short term problems. The fees and interest rates can be expensive, if these products are treated incorrectly. In some cases, though, clients become dependent on these kinds of loans; and can rack up large debts because they fail to read the fineprint or stick to their end of the bargain (the APR rates would make your eyes pop if you were borrowing for 12 months).

Personal Emergency Fund Each of these three methods allows you to get a small amount of cash to cover a cashflow crisis. Each of them has obvious benefits, costs and negative factors. Whichever you decide to use, there’s no doubt that setting aside a little money for your own personal ’emergency fund’ is probably the sanest, cheapest and most effective solution in the longer term. But that won’t help much if your bank account is flashing $0.01 right now. What do you do when you need to borrow some cash fast? Where do you go? What are your good or bad experiences? Do let me know!