The magic of Compounding and a few ideas on saving

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Albert Einstein

You have probably heard the saying: “When you don’t work, your savings will work for you”. There are number of benefits to saving money. In its simplest form some of the benefits can be listed as below:

  • It creates some independene
  • You are not stuck when the rainy days arrive…
  • It allows you to take advantage of good buying opportunities (from cars to properties or businesses – don’t foget cash is king!)
  • You allow for an enjoyable (and perhaps early) retirement
  • It just feels good and reduces your stress levels (the more savings you have, the less financial woories you have).

I’ve always found saving as a neccesity to become wealthy rather than an option. It created incredible opportunities for me to buy things that couldn’t be bought by just levearing. I am currently working (as a volunteer Mentor) with Princess Trust, a UK based charity that helps younger people aged 13-30 to find work or more importantly to start their own enterprises. This could be a very simple business (from a grocery shop to more skilled business such as computer repair shops or website design consultancy, etc.). When I talk to younger people and talk about savings, the number one complaint is almost always the same: “I am not earning enough to save anything.” I don’t normally take this as an excuse and explain to them that every little helps…

Saving $100 a month over five years, based on net interest of 5% a year – if interest on savings accounts return to respectable levels once the recession has abated – mounts up to $6,962.30. Because you earn interest on your interest each year, returns are compounded and therefore better than you might expect. For example, save the same amount over 10 years and your savings rise to $15,848.14! In some parts of the US, you can buy a foreclosure property for this money and start renting it…Not only you will receive the rental but also the property will add value over time as well…which will enable you then leverage to buy more property and hence more rental income. Double whammy! (Rule: money pulls money!). The US Annual personal saving rates can be seen in the graph below:

savings

There is an interesting chart published by Business Insider (below). It emphasizes the impact of compound interest, and the importance of starting early. Saver Emily, represented by the blue line, starts saving the exact same amount as Dave (the red line), but begins 10 years earlier. Ultimately, she contributes around 33% more than Dave over the course of her career, but ends up with almost twice as much wealth as he does! (Rule: Start saving as early as possible!)

Saving compound

Another very interesting chart (that is published by Business Insider again) is how much you need to save to get to $1M at retirement.

savings monthly compound

For all those younger followers out there, I hope this can give you an idea of how important saving can be. There has been never a better time to start saving than now.

I hope it helps.

MT

Why I shorted ZINC – Horsehead Holding Corp.

Horsehead Holding Corp. (ZINC) is the parent company of Horsehead Corporation, producer of specialty zinc and zinc-based products.

Following ZINC for some time but when I saw 2 negative revisions in the past few weeks and its current year earnings consensus has moved lower over the last 30 days, I thought there may be more trouble down the road…

I’ve also expected an offering at some stage (to be honest not this quickly – thought some PR on the way first) but it once again confirms how desperate things have been for ZINC. Yesterday evening (after hours) ZINC announced that it has established an at-the-market (“ATM”) equity program under which the Company may offer and sell, from time to time, shares of its common stock having an aggregate value of up to $50 million through Stifel, Nicolaus & Company, Incorporated, as sales agents….

Apart from the company itself the overall outlook for the Zinc as a material is not great at the moment (hence a stronger short arguement). Zinc metal market prices have been under pressure since September, falling 18%  to a low of $1,981 per tonne (from $2,416). The Zinc is in over-supply at the moment and expect falling prices in the short term. Infra structure projects in China was fuelling Zinc’s growth but as China is slowing down it is more bad news on the horizon for ZINC….

I am not intending to keep my short for a long time, I will cover soon to pay myself and move on before the longs show interest…

ZINC  Capture2

 

Trading IPOs – What to look for

IPO = Initial Public Offering. If the company has never issued shares to the public directly, it is known as an IPO.

I particularly like the IPO plays and made some serious money from them. I own and opeate a Venture Capital business which helped many tech companies in Europe that eventually floated them in the UK’s AIM and also ISDX markets.

So What to look for in a successful IPO:

Timing

Timing of the IPO is everything. If you have a company that sells a fantastic product but currentrly there is no market place for it then that IPO is doomed. We have seen early cloud service provider IPOs with great products that came to nothing because the time was not right. The people were not using cloud services and did not know what cloud actually is. So ‘Timing’ and market acceptance and knowledge is the key to a successful IPO.

Market Leader

Most successful IPO companies are already market leader in their sector. The niche sectors tend to be performing better. If the company is already struggling with the competition and not the market leader or shortly becoming a market leader than it will be a good short after the initial run (if there is any)

Board of Advisors, Agents and Underwriters

The companies with strong board of advisors and IPO agents tend to do better because they know how to sell their offering. Always check who the advisors are and their performance.

Market Conditions

Altough it is not always the case, if the first day of the IPO is on a bad market day, the growth of the stock can be limited. Think about the market psychology…

The First Trading Day – What to look for

The very first day of the IPO is the most raw form of the stock price. There are no historical charts to look for, there are no resistance or support values, there are no short interest (yet) – basically this is when intraday technical analysis becomes most valuable. There are number of important factors that will affect the price on the first day. The most importants are the number of shares offered to the public (float) and the valuation range of the given company. The smaller the float  the more volatile the price will be. This is a simple supply and demand equation. If an IPO is priced relatively conservatively (i.e. below or similar to other companiues from the same sector with the same size), demand could be higher, and vice versa. Based on the actual demand in the marketplace, the IPO price can also be raised or lowered in the days leading up to the offering.

One of the biggest advice I can give you is: ‘NEVER CHASE!’. Only pay for what you think its worth not the other way around.

In the first day trading, I generally look for a range to form after the initial 15-20 minutes. This enables me not to clash with the early investors (the ones that bought pre-IPO and they now might empty the tank!). So after the first 15 min, if the price is holding, it is almost always a very positive sign.

Once we have more data on the charts and range starts to form, I start to use my own technical analysis on 1 minute and 5 minute charts with extreme risk management (expect volatility).

Don’t forget, if you are chasing an IPO just for the sake of it or because of the hype, you might pay big for it. Always have a plan before going into an IPO trade (in fact in any trade) and execute your own plan and don’t let others to decide the price for you.

I hope this helps

MT

For Information: Top Ten Global IPOs (From Investopedia)

1. Alibaba Holdings Group (NYSE:BABA), a diversified online ecommerce company based in China, went public on September 18, 2014 at a whopping $21.8 billion. Four days later, underwriters exercised an option to sell more shares, bringing the total IPO to $25 billion. Although technology companies traditionally list on NASDAQ, Alibaba chose the New York Stock Exchange for its debut and used underwriting primarily from Credit Suisse.

2. ABC Bank, otherwise known as the Agricultural Bank of China (listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange), is one of China’s five largest banks. ABC Bank went public on July 7, 2010 at an initial offering raising $19.228 billion. The follow-on greenshoe offerings from underwriter Goldman Sachs Asia brought the total to over $22 billion.

3. ICBC Bank, or Industrial and Commercial Bank of China (listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange), went public on October 20, 2006, fetching a total of $19.092 billion. At that time, ICBC Bank was the largest mainland Chinese bank and the third large Chinese bank to go public.

4. NTT DoCoMo (NYSE:DCM), a Tokyo‑based telecommunications player, went to the public market on October 22, 1998, raising $18.099 billion. Underwritten by Goldman Sachs Asia, this IPO launched NTT to the third largest market cap for a Japanese company.

5. Visa Inc. (NYSE:V) rounds out the top five. This debit and credit card processing company entered the public market on March 18, 2008, and raised $17.864 billion—no small feat during a global financial crisis. It is the largest IPO for any U.S.‑based company.

6. AIA (OTC:AAIGF), a Hong Kong-based investment and insurance company, was offered to the public on October 21, 2010. It raised $17.816 billion and become the third Hong Kong-based financial company on this top 10 IPO list.

7. Enel S.p.A.(OTC:ENLAY) listed on the New York Stock Exchange on November 1, 1999 after it raised $16.452 billion. This Italian company competes in the gas and electric market in Europe and the Americas. It is the only utility company on the top 10 IPO list.

8. Facebook (NASDAQ:FB) was one of the most-hyped IPOs in history. It listed on May 1, 2012 and raised $16.007 billion. This social media technology company’s launch was riddled with trading issues and questionable information-sharing accusations. Nevertheless, it still became the largest technology IPO in U.S. history.

9. General Motors (NYSE:GM) debuted on November 17, 2010 after emerging from a bankruptcy filing one year earlier. This U.S.-based car manufacturer raised $15.774 billion in its initial public offering.

10. Nippon Tel (NYSE:NTT) is a Tokyo-based telecommunication provider. This is the oldest IPO on this list. The company raised $15.301 billion on February 9, 1987.

Read more: Top 10 Largest Global IPOs Of All Time (BABA,V,DCM,FB,GM,NTT,ENLAY,AAIGF) http://www.investopedia.com/articles/investing/011215/top-10-largest-global-ipos-all-time.asp#ixzz3oRwNHv7R
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