Effect of Currency Fluctuations on US Dividend Investors?

As you may or may not know, currency fluctuations significantly affect US dividend investors.  In fact, in a recent survey conducted by the Pennsylvania-based AvantGard Company, it was discovered that fifty-nine percent of the 275 people that participated in the poll stated that currency fluctuations resulted in a  loss or gain of at least five percent in the past year ending in March 31, 2010.  These numbers are up forty percent when they are compared with the previous year’s survey.

“The majority of corporations are in the business of doing business, producing and manufacturing, not hedging currencies,” said Paul Bramwell, a senior vice president of Treasury solutions at the AvantGard unit of SunGard in Connecticut. “A lot of companies were caught unawares by volatility.” continue reading rest of the article….

Selling Shares of BP with Changes in its Fundamentals

100422-G-8093-004-Deepwater HorizonThe oil spill from BP’s offshore platform has been in news since last week. I do not have any first hand idea of the ground realities. Based on news media and reports, as of today, the oil spill continues unabated, with many different estimates of rate of flow of crude oil in the sea. To me, this is an indicator that nobody knows how serious or trivial this crude oil spill is. There are no signs that in will stop in near future.

The news agencies government organizations have been showing that potential short term damage and long term impacts would be very significant (to local population and local businesses). At least for now, BP has also mentioned that it will pay for clean up and considers itself partially responsible. In short, BP is on the hook for cleanup, irrespective of what are the ground realities and technicalities.

According to one estimates, it is expected that BP will be liable up to $6 billion for clean up, $ 1Billion for litigation, and $3 Billion for compensation, and $4 billion in lost revenue. This is a total of $14 billion. I am not so sure if these estimates are in the ball park. However, it gives some idea on the scope of the financial impact. continue reading rest of the article….

Dividend Investing: Two Common Questions?

Whenever I have a conversion about dividend investing, I get few different types of questions. It is very natural for people to ask questions. What is interesting is often these questions can be grouped into following two:

  1. If any dividend stocks in your portfolio become overpriced, do you sell?
  2. How many number of stocks do you need in a dividend portfolio?

Selling a dividend stock when it is overpriced? This comes from the thought process that say any of my dividend stock is overpriced by 1.25x or 1.5x. In that case, it is likely that the dividend I expect in 10 years, I may get by selling the overpriced stocks. Why wait for that long for dividends to trickle in? continue reading rest of the article….

Understanding Risk and Return Characteristics

riskIn general, there is school of thought that if risk is higher, then probability of “returns are also higher”. On many occasions almost all investors would have used this interpretation. This is only true to certain extent, it is a partial truth. It is incomplete.

What gets missed is that higher risk (or the complexity) does not mean “higher probability” of higher returns. The implied meaning is “probability of those higher returns” is much lower. The point I am trying to make is, understanding risk-return is not that simple. Taking higher risk definitely means higher return, but the probability of those higher returns is smaller, or lesser.

I was doing some research on Indian equity market index to understand it little better so that I can increase my allocation. In the process, I came through an interesting paper on Scribd which explains my above risk-return interpretation with an example. It is only four pages so you can read it pretty quickly. Focus on Table 1 and Figure 1 which quantifies this interpretation. You may ignore that that it is for Indian equity market. continue reading rest of the article….

Buying a House But Not for an Investment

1180382_houseWe all do not need to be told that US economy is passing through a turbulent phase. Talk to any individual who has slightest interest in economy and/or investment process, they will tell you the housing is the root cause of our economic malaise. One would imagine that everybody would learn from past mistakes (i.e. particularly mortgage practices) and hopefully do not do repeat it. Sometimes I do not get that feeling, and many times who will feel stakeholders have different objectives and hence knowingly they keep repeat it. continue reading rest of the article….

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