The Budget

January 9, 2012 Leave a comment


Wikipedia defines Budget as a financial plan and a list of all planned expenses and revenues.

From the definition above, the word budget simply restrict us from spending our money freely. However, for those who have a large income they generally assume that it is not necessary to have a budget plan since, the household expenses easily fits in. People with healthy income flows only do a budgeting when they are planning to buy or start something that needs huge amount of money.

For me, the right attitude about budgeting will lead us towards financial freedom. Actually, budget has only 2 elements, Income and Expenses. Easier said than done, but sticking to ones budget plan needs a hard discipline.

To create a budget plan, every source of income should be write down so that we can have an idea of the exact earnings coming every month.

The next step is to write down all expenses made. These expenses should arrange according to priority to get a clear picture on where the income is going. Essential expenses like foods, house rentals, children school fees, clothes, insurance etc. should not be compromise in any situation. Less priority expenses like dining, shopping, vacation, entertainment was also a part of our household, but in case that income inflow is low we can completely remove them from the list. Normally, this kind of expenses mess up our budget plan if not kept under control.

A simple budget plan will help us see the clear picture of our finances. In the Philippines, the husband is the bread winner and the wife manages the household budget, so it is important that they both understand their income flow and overall expense.

Of course, any amount left from this financial planning can be put into a savings or investment. As I said before, every amount we save or invest will serve as a stone foundation to our financial freedom.

*******************************************************************

About these ads

Filed under Financials Tagged with , , ,

Investment Tip : Expect Surprises and Don’t Panic

December 1, 2011 Leave a comment


Investment Tip : Expect Surprises and Don’t Panic

The good thing about investing in Stock and Bond Market is that it is full of surprises. And, the surprises it brings were either a series good or bad. So, handling these good and bad situation will be up to each investors behavior.

Have you ever heard of the word “Cockroach Theory”. The theory goes like this “The first cockroach you see is probably not the only one around; there are likely scores more that you can’t see.” Actually, this same theory is applied on investment which means that the first big positive and negative surprises from a company is unlikely to be the last.

Intelligent investors should expect good and bad surprises to be repeated. Of course investors will be happy for a series of good surprise, but when a series of bad surprises comes his decision making will be put into test.

For me, successful investing is not all about exceptional intelligence but it is rather the proper temperament. Intelligent and calm investor will not easily succumb to the selling frenzy when bad news comes, but rather looks on the fundamentals of the stock his holding.

There were times that market were selling mainly due to sentiments without considering the fundamentals, and this kind of situation offers opportunity for an intelligent investors, but spells disaster for a panic one. If this series of bad sentiments keeps on coming, the intelligent one is happy accumulating more stock position, but the panic one loss every opportunity.

Surprises either good or bad is part of the investment world, so it is only wise to expect more of it, don’t panic and watch out for the opportunity it can bring. If you could keep your heads up when negative surprises comes (while other losing theirs), you will be ahead in this game of making wealth.

********************************************************************************************

Filed under Investment Tagged with ,

Financial Independence or Social Status

November 10, 2011 2 Comments


Which would you choose, Financial Independence or Display Your High Social Status?

For many, displaying their high social status is some kind of achievement. Of course, there is no reasons in the world not to get proud if you are driving a brand new luxury car especially, when you see others (like your neighbor or office mate) driving a second hand car.

The truth about displaying high social status would somehow expensive and unreasonable. Example : Driving a luxury car from home to work would yield the same result as driving an average car. Since, it’s main purpose is to get you to your work or where ever you want, these 2 cars bring you there. (Unless, the average car will only make a halfway from your destination.)

Most of the time, caring too much for a  social pride ends up in a Financial disaster.

Why Financial disaster? Imagined maintaining a golf club membership, drinking expensive coffee every afternoon or morning break, and other expensive activities that doesn’t  yield any.  If you are on the middle income level, these bad spending habits will surely bring you to deep credit card debt.  Since pride is at stake, getting a credit loan would somehow the last resort just to maintain a high social status.

Actually, a financially independent people have a little space for envy even if they saw someone buying new things (like luxury cars, hi-tech gadgets and others).  They have this simple old rule “If you don’t need it, don’t buy it.”

For me, displaying your social status would not mean that you are financially healthy, unless you are one of those with hundreds of millions or billions of dollars  net worth. People with stable financial status do not need to show how much is their worth, but instead knows the significant value of the things they owned.

**************************************************************************************

Quote :

The millionaires motto “You aren’t what you drive”. – Anonymous

Filed under Financials, Inspirational Tagged with ,

Stocks Fundamental Measurement / Analysis

November 6, 2011 Leave a comment


Investors uses these fundamental analysis to select and evaluate stocks.

These measurements were useful in determining the companies current worth and how the market values the stock.

  1. Earnings per share

(
http://overseaspinoyinvestor.wordpress.com/2011/09/26/stocks-fundamental-measurement-eps-earnings-per-share/
)

  1. P/E Ratio or Multiple

(
http://overseaspinoyinvestor.wordpress.com/2011/09/28/stocks-fundamental-measurement-pe-ratio-or-multiple/
)

  1. Dividend Yield

(
http://overseaspinoyinvestor.wordpress.com/2011/09/29/stocks-fundamental-measurement-dividend-yield/
)

  1. Price to Sales (P/S) Ratio

(
http://overseaspinoyinvestor.wordpress.com/2011/10/01/stocks-fundamental-measurement-pricesales-ps-ratio/
)

  1. Price/Book (P/B) Ratio

(
http://overseaspinoyinvestor.wordpress.com/2011/10/02/stocks-fundamental-measurement-pricebook-pb-ratio/
)

  1. Net Profit Margin

(
http://overseaspinoyinvestor.wordpress.com/2011/10/04/stocks-fundamental-measurement-net-profit-margin/
)

  1. Return on Equity (ROE)

(
http://overseaspinoyinvestor.wordpress.com/2011/10/06/stocks-fundamental-measurement-return-on-equity-roe/
)

——————————————————————————————————————-

Quote :

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. – Warren Buffett

****************************************************************************

Filed under Investment Tagged with , , ,

Invest With Less Worry

October 18, 2011 Leave a comment


Do you know why there are lots of people afraid to invest in the stock or bond market? I think the best answer for this question is that they worry too much. Think of this, rich people become wealthy because they owned something that creates wealth. This wealth creating instrument were maybe in form of investment, business or other source of passive income.

If this wealthy people worries too much by asking themselves “What if the companies that I invested goes bankrupt” or “What if bad economic condition comes and wipes out the price of the stocks I hold.” Would you think they will achieved their goal of becoming rich.

Actually, these “what if” mindset holds back our potential success story. We are living in the world of uncertainty and we don’t know it, yesterday was uncertain, today is uncertain, and tomorrow for sure will be uncertain. But if we are going to succumb to these daily worries, we will not move on.

So I think you got the logic now, if you are too worried or afraid to get your feet wet on investing, you are also afraid to walk through the path of wealth. Investment is not only for tough people with huge wealth and exceptional intelligence, it is for every body with dreams of becoming free from their financial bondage or from their wage slave job.

Just think of this, every amount that passes through our hands is a seed to our financial future. However, if we will not plant this seed it will not yield anything. We should not give second thought “to failure or worries”, once we made our choice we should take control of it, and soon we will realize that we are getting closer and closer to our ultimate goal.

——————————————————————————–

Quotes:

It doesn’t matter where you are, it matters where you are going. – Anonymous

********************************************************************

Filed under Financials, Inspirational, Investment Tagged with , ,

Investing Is Fun

October 12, 2011 1 Comment


I said before that  investing is so unfamiliar to many people that when you speak of the word “INVESTMENT”, you are so closed to considered speaking another language from the 2nd moon of the planet Saturn. (I just made this up, actually nobody knows the language spoken in the moon of Saturn.)

Honestly, before I ventured the world of Investment, I think of it as a subject of the rich and only a wealthy people could explore and enjoy the wealth it could offer.

After understanding that you don’t need a huge amount of money just to get your feet wet on investing, I first ventured the exciting world of stock market and bond investing thru mutual fund. Of course, my 1st year was full of worries, before I become familiar with trading stocks. For me, investing is somehow a mixed emotion of fun and frustration. It is fun especially when you are making money but, it becomes a frustration if you are losing it. I guess the choice is still within ours to view it us fun, or succumb to the burden of frustration.

Actually, many people view investing as an additional burden or an extension of their wage slave job. The investment stress brought by studying numbers, always on the lookout, confusion and worries would somehow reduce the enthusiasm of every investor.

So, how do we make investing fun?

Let us view investment as a game of treasure hunt. When looking for an investment opportunity or scouting for stocks with good business fundamentals, just think of it as game of treasure hunt in which you are looking for a wealth that your stock pick or investment choice will bring. Isn’t good to think that you enjoyed stock picking because, you treat it with fun rather than work. Normally, this mindset stimulates and creates opportunities for our financial growth and the same time improved the quality of our life.

The truth about this “Investing is Fun” mindset is neither right nor wrong, but I am pretty sure that it will bring us to our Financial Success. The choice is still ours, we could choose to have “FUN” or “FRUSTRATION” in Investing.

The road to riches is not an easy destination to be reached, but it should be a journey to be enjoyed. Making money through investment is good, and enjoying it at the same time yields twice.

*********************************************************

Filed under Financials, Inspirational, Investment Tagged with , , , ,

Stocks Fundamental Measurement : Return on Equity (ROE)

October 6, 2011 Leave a comment


Stocks Fundamental Measurement : Return on Equity (ROE)

Return on Equity – shows the rate of return to share holders by dividing net income to the book value. Some investors consider this as the ultimate measure of a stocks success. It measures how efficiently a company uses its assets to produce earnings.

Bigger is always better for this number because it means that the company is making a lot of money from the investment that shareholders made. For me a good number for ROE is anything above 13%.

Again the right ROE number will still depend on every investor decision making process. Also, like all other metrics, this fundamental measurement is best applied in comparing companies on the same industries. It may also be more meaningful to look at the ROE over a period of the past five years, rather than one year to average out any abnormal numbers.

With the convenience of internet, it is now easy to look for this ROE numbers in the internet. Actually, almost all the stocks fundamental numbers is a click away from the internet

Websites like “Bloomberg” could easily provide us the ROE numbers of each stock.

********************************************************************

Filed under Financials, Investment Tagged with , , ,

Stocks Fundamental Measurement : Net Profit Margin

October 4, 2011 Leave a comment


Stocks Fundamental Measurement : Net Profit Margin

A company’s net profit margin is determined by finding the net income as a percentage of revenue.

Formula:

Net Profit Margin = (Net Income/Revenue) x 100%

Where:

Net Income = Revenue – Total Expenses

In simple math, if the company make 1000php and pays 800php in expenses. Its net profit margin is 20%.

Let’s Compute:

Net Income = Revenue – Total Expenses = 1000php – 800php = 200php

Net Profit Margin = ( 200php / 1000php ) x 100% = 20%.

For this metrics, the higher the company’s net profit the more it is profitable. Normally, a high profit margin will tell us that the company’s management is good at controlling cost (or expenses). Actually this is great because for every peso saves from any unnecessary expense is a one more peso of profit for shareholders.

High net profit margin is the foundation of companies that dominate their industries. When the economic problem comes, companies that are able to maintain a high profit margin will likely to survive.

Actually, this fundamental not only tells us about the stocks stronger bottom line, but it also tells us that its management team is well ahead of their competitors.

***************************************************************

Filed under Financials, Investment Tagged with , , ,

Stocks Fundamental Measurement : Price/Book (P/B) Ratio

October 2, 2011 2 Comments


Stocks Fundamental Measurement : Price/Book (P/B) Ratio

The Price/Book ratio compares the stock price to how much the stock is worth if the company is liquidated. Value investors look for some other indicators besides earnings growth and so on. And one of the metrics they look for is the Price to Book ratio or P/B.

Example:

Company A is trading at 80php.

Take Company A property like office equipment, company vehicles, product inventories and other things that can be brought to any local business auction for liquidation. The auction yields 5000php amount of money. If Company A has outstanding shares of 50, then it has a book value per share of 100php (5000php/50shares).

The computed 100php book value per share is the book part of the P/B ratio.

To get the P/B, get the ratio of the current stock price to the book value. In our case, if Company A is trading at 80php then, our P/B ratio is 0.8 (80php/100php).

The P/B ratio of 0.8 is good. If the P/B is less than 1, it means that you are paying less for the stock than its liquidation value. This is good, because if the company goes bankrupt you can still get your money back.

If the P/B is more than 1, it means that you are paying more than stocks liquidation value.

Anyway, a lot of crucial information about a company’s asset is not reflected in its book value. A thorough and careful scrutiny in the company’s income statement should be made before committing your cash into any stocks.

*****************************************************************

Filed under Financials, Investment Tagged with , , ,

Stocks Fundamental Measurement : Price/Sales (P/S) Ratio

October 1, 2011 Leave a comment


The Price/Sales Ratio compares price of the stock to its sale revenue. To determine the stocks P/S, simply take the company’s market capitalization (stock price multiply by outstanding shares) and divide it by the most recent 4 quarters of sales revenue.

Example:

Company A has a market capitalization of 2000php and it sold goods worth 1000php for the last 4 quarter. Company A has P/S ratio of 2.

So, what does this P/S ratio mean? It means that investors are paying 2php for every peso worth of product it sold. A stock with low P/S ratio is a good bargain.

Maybe you will say that it is the profit you want, and you care less about its sales. Actually, this is the common objection in using the P/S ratio as stocks fundamental measurement. However, just think about this? Sometimes, companies earning were manipulated by different kinds of accounting rules.

But with the sales revenue numbers, there is not so much numbers to adjust. It’s the plain, old and simple logic that whatever you sold will be your sales revenue.

**********************************************************

Filed under Financials, Investment Tagged with , , ,

← Older posts