The savingandinvesting.com blog

New Video: V2D. Illustrated Shortcomings of the P/E Ratio (and other ratios)

2011-09-15T09:09:00.000-07:00

The P/E ratio has numerous shortcomings - some of which relate to how earnings are calculated, and some of which relate to the nature of looking at one year's data (as the other ratios like EV/EBITDA and P/Sales) do as well. This video illustrates in brief issues that relate to looking at one year of data.

New Video: 10C. Gross Margin, Operating Margin and Net Margin

2011-09-15T09:08:00.000-07:00

This video looks at the Income statement in a bit more detail - and in particular, looks at the gross, operating and net margins and what they can tell us about how the company makes money, its efficiency, and how these margins can be used to compare companies.

New Video: The Illustrated Leverage Example

2011-08-05T15:35:00.000-07:00

This video illustrates how leverage works when debt is used to augment our own capital (the equity) to purchase an asset.

New Video: The Illustrated Cash Flow Statement Example

2011-05-22T13:16:00.000-07:00

We have uploaded a new video - this video illustrates how the cash flow statement look and what it shows through an easy-to-follow example.

New Video: The Illustrated Balance Sheet Example

2011-05-15T08:39:00.000-07:00

This video provides a sample Balance Sheet and illustrates the components of the Balance Sheet and what kinds of things can happen on the Balance Sheet.

New Video: The Illustrated Income Statement Example

2011-05-02T11:36:00.000-07:00

This video goes through an income statement - what it typically looks like, what information it captures and how it can be affected for example by a change in revenues.

New Video: The Illustrated Compounding Example

2011-04-23T09:50:00.000-07:00

We have uploaded a new video - on Compounding - that shows with a very simple example how compounding can work in practice.

Saving and Investing Workbook published

2010-10-23T03:02:00.000-07:00

We have pleased to announce that we published a workbook based on the original 'Saving and Investing' Book - the workbook covers all of the materials and more through 937 questions with answers and explanations. It is a very comprehensive book structured in the same away as the first one that covers a huge amount of material that one should know with respect to saving and investing.

New UK tax saving guide today: Property Capital Gains Tax

2010-10-22T02:09:00.000-07:00

Taxcafe has published a brand new tax saving guide today:

Property Capital Gains Tax
by Carl Bayley

This guide contains dozens of NEW capital gains tax saving strategies and is essential reading for ALL property investors and second home owners.

Subjects covered include:

* The new capital gains tax rules announced in the June Budget.
* How to reduce your taxable income and pay CGT at 18% instead of 28%.
* How one property investor could save over £30,000 by doing exactly that.
* How your spouse or partner can now save you almost £18,000 in capital gains tax every year.
* How one couple could save £167,000 in CGT and £40,000 income tax by following the strategies in this guide.
* How your children can help you avoid capital gains tax completely.
* How trusts can be used to safeguard children’s properties.
* How to convert heavily taxed income into leniently taxed capital gains.
* Main residence elections - How to enjoy a tax-free second home.
* How unmarried couples can have two tax-free main residences... plus the traps to avoid.
* How one property investor will pay £29,180 less tax per property by using a company.
* The new Entrepreneurs Relief rules - How to pay tax at 10% and save up to £1.8 million.
* How one investor with a £200,000 profit will pay just 4% tax after living in the property for only a year.
* Plus lots more...

Kindle/Ebook Version available

2010-09-25T06:55:00.001-07:00

An e-book version of 'Saving and Investing - Financial Knowledge and Financial Literacy that Everyone Needs and Deserves to Have!' has just been published. Click on Link above to get to Amazon version - price is lower and content the same.

TaxCafe has launched 'Salary vs. Dividends' UK Business Tax Guide for 2010 (UK)

2010-09-15T04:51:00.000-07:00

TaxCafe is delighted to announce the launch today of a brand new edition of our bestselling business tax guide:

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Salary vs Dividends
by Carl Bayley
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This guide is a must read for EVERY company owner and director.

It will show you how to reduce ALL the taxes you face: income tax, national insurance, corporation tax and capital gains tax.

This latest edition is completely up to date and packed with new tax saving ideas.

Subjects covered include:

* How to choose the most tax efficient mix of salary and dividends for YOU.
* Exactly how much in tax-free dividends you can take this year.
* Using loans to directors to achieve massive additional tax savings.
* How one director will save up to £11,364 by doing this.
* How to save almost £16,000 in corporation tax by timing your income carefully.
* The best tax saving techniques for directors with spouses/partners.
* Tax saving techniques for directors with children and family companies.
* Tax saving techniques for older directors.
* Advanced tax planning strategies for high-income earners.
* Sample documentation to keep the taxman happy.
* New capital gains tax planning strategies for company owners.
* Plus lots and lots more...

New Video: Mutual Funds 5: Fees: Load, No-Load etc.

2010-09-05T05:36:00.001-07:00

Mutual funds come with different types of fees - understanding these fees and being smart about keeping the fees under control is very important given the difference that a small percentage difference in the return per year can make over the long term. Part of this relates to active versus passive management, and a part of it refers to some of the other terms that are used, and a major part of it refers to just looking at this in some detail and reading the fine print.

TaxCafe has launched 'How to Avoid Property Tax' Guide for 2010 (UK)

2010-08-26T22:09:00.000-07:00

Please note that TaxCafe has just launched the 2010 UK Property Tax Guide. The latest edition contains ALL of the tax changes announced in the June Budget, making it an essential addition to every property investor's bookshelf.

They have also just released a fully updated edition of How to Save Tax, which contains 134 pages of tax tips and is free when you purchase How to Avoid Property Tax.

Subjects covered in How to Avoid Property Tax include:

* A plain English guide to the new capital gains tax rules.
* How to minimise your CGT bill under the new rules.
* How to use trusts to get extra tax-free capital growth.
* How couples can now pay capital gains tax at just 10% on £10 million of capital gains.
* How your spouse or children can help you save more tax following the June Budget.
* How couples can save over £22,000 income tax every year.
* How to delay paying tax on rental income by up to 2 years.
* How to get the taxman to pay your travel costs (flights, hotels,restaurants).
* How to get a tax refund of £50,000 when you buy commercial property.
* How to write off new kitchens and bathrooms as repairs and get the taxman to pay 40%.
* Motoring costs you can claim.
* How to make the mortgage on your home tax deductible by borrowing against your buy-to-let properties.
* How to claim tax relief for mortgage interest even if the money is used for personal reasons.
* How re-mortgaging property can save you thousands in tax.
* Plus lots more...

New Video: Why do Bond Prices fall when Interest Rates rise?

2010-08-23T14:56:00.000-07:00

At first it might appear confusing that bond prices fall when interest rates rise - when properly looked at though this makes a lot of sense. This video clarifies why this is the case.

New Video: B1. Book Review: The Big Short, by Michael Lewis

2010-08-11T02:52:00.000-07:00

In this series I would like to highlight entertaining books that relate to saving and investing or events that have taken place in financial markets. This first video highlights 'The Big Short' by Michael Lewis - a book about the players involved in the sub-prime lending fueled housing bubble, whose implosion allowed a small number of hedge funds to make spectacular returns, while the holders of this sub-prime debt got pulled down with the implosion leading to numerous bailouts and the ensuing debate about risk, bonuses etc.

New Video: The Key: The Basic Principles

2010-04-03T18:02:00.000-07:00

We have created a lot of videos on various subjects - some of them more detailed, some of them less - having done all of that - we thought it was a good idea just to provide a reminder of the most important thing to start with - the key: the basic principles.

New Video: Introduction to Share-Buybacks

2010-03-16T10:14:00.000-07:00

We have uploaded a new video - An Introduction to Share Buy-Backs - in the Corporate Finance Series. Share Buy-Backs represent a way for companies to manage their capital structure, to potentially use cash to buy undervalued shares and to signal potential undervaluation - for shareholders, like dividends, share buy-backs represent a return of cash from the company to shareholders.

New Video: Time Value of Money

2010-03-11T09:25:00.000-08:00

We have uploaded a new video regarding the Time Value of Money - an often spoken about concept that relates to compounding, discounting, present and future values.

Guest Blog: A Budget That Works for You

2009-10-09T09:14:00.000-07:00

Creating a personalized budget is simple once you determine what percentage of your monthly income is to be set aside for bills. You start by totaling all your debt and all sources of income before you can decide what amount can be designated per expense category.

List essential categories first, followed by other basic monthly bills. For example, Utilities, Food, House, and Medical will be the top priorities. Expenses such as Family, Clothing and Transportation will come next, followed by the non-essentials: Entertainment, Debt and Investments. Here is a break-down of these categories:

Utilities: water & sewer, gas &/or oil, electric, telephone (wireless &/or land-lines)

Food: eating out, groceries, snacks, or lunches; using coupons when grocery shopping offers extra savings, especially for sale items.

House: mortgage or rent payment, repairs, property taxes

Medical: prescriptions, health insurance, co-pays or relevant out-of-pocket costs

Family: child support, alimony, or child care

Clothing: work, school, formal occasions, uniforms

Transportation: repairs and maintenance, gas, auto payments and insurance: also includes buses, subway, or toll booths.

Entertainment: vacations, subscriptions, club memberships, movie rentals or cinema tickets, satellite or other television services

Debt: student loans, credit cards, business loans

Investments: 401K, Christmas club, stocks, savings accounts, or college funds

Don’t overlook the occasional, miscellaneous expenses such as birthdays, weddings, anniversaries, and unplanned special occasions. Other expenses to plan ahead for are the seasonal ones like swimsuits, summer camps, field trips, new clothes and shoes for school, and school functions.

One easy way to start your budget system is to buy a cheap coupon organizer, create your categories and for each one, put in the allotted amount of cash. Be sure to take care of the essential expenses first. Taking this first major step sets you on the path to becoming free of debt and effectively managing your hard earned money.

A budget that is customized for you is vital for effective money management. Keep in mind that your debt was not created overnight and a budget is simply a tool that’s useless unless put into action. It may take a few months before you see the positive results of sticking to your budget. Creating your own budget by using these categories of basic expenses is the fastest and easiest way of reducing your debt and learning how to properly handle finances.

If you need more precise guidelines to help you start the process of building your own budget, there are many resources available to you. Several of these can be found on the Internet simply by doing a search on “budgets” or “how to do a budget”.

Debbie Dragon is a freelance writer providing articles for Billeater.com, a site that helps it's readers save money, with unique money saving tips and tricks for your busy lifestyle.

Making Your Money Go Farther

2009-09-25T00:03:00.000-07:00

This guest post is by Tisha Tolar, a writer for DebtFreeDestiny.com, where she provides information about credit card consolidation, debt relief and how to get out of debt.

With falling stock prices and job layoffs, stretching your money is more important now than it has been in many years. Budgeting is a common technique for managing money; yet many people find the budgeting process too convoluted. The spreadsheets and receipts become overwhelming.

With any system, if it becomes too much work, you quit doing it. The solution for finding the right way to track your spending involves creating a system that is simple and easy to use with no more than one or two steps.

Instead of using a combination of credit cards, checks, debit cards and cash, use an envelope system. The envelope system involves the use of only cash. This system pays for expenses such as food, haircuts, entertainment, gasoline, gifts and clothing. It generally does not cover fixed expenses such as mortgage, utilities, and telephone, tuition and loan payments. Here is how it works:

Determine how much money you should be spending or have available to spend each month. Note that the amount should not exceed the disposable income you have available after paying your fixed expenses.
To arrive at this amount, subtract your monthly fixed expenses from your monthly income. The amount left is your disposable amount.
Divide your monthly disposable amount of money by four. This is how you arrive at your weekly budget.
Put cash in an envelope equal to the weekly amount you set aside.
For one week, all the money you spend comes from the cash in the envelope. This means you will not be using credit cards, debit cards or writing checks. This also means you don’t have to transfer the information from your receipts to a gad-awful spreadsheet.
At the end of the week, any leftover funds can be set aside for emergencies or larger purchases. Another option is to move the leftover money into next week’s envelope.

The cash envelope system will stretch your money as it will force you to become more aware of how you spend your money. For example, if it is Tuesday and you only have $20 left for the rest of the week, you might decide to forgo going out for lunch and instead swing by home to eat leftover pizza from last night.

As you use the cash envelope system you will likely become more familiar with the concept of cash flow. For instance, if you buy $50 of groceries on Monday and by the end of the week, your family will only eat $20 of those groceries purchased, you have an extra $30 of food sitting on your pantry shelves. That same $30 could have been used on Thursday for haircuts or an evening at the movie theater.

In addition to helping you determine what is truly valuable in your life, this thought provoking system will stretch your dollar, put you in control and leave you feeling much better about yourself.

This guest post is by - Tisha Tolar is a writer for DebtFreeDestiny.com, where she provides information about credit card consolidation, debt relief and how to get out of debt.

New Video: P3. What is an ISA? (UK)

2009-05-12T05:44:00.000-07:00

An Individual Savings Account or ISA is one of the most common and easy to access saving and investing tools in the UK. This video provides an summary of this products.

P2. What is a 401k Plan?

2009-04-20T02:00:00.000-07:00

401k plans are spoken about very frequently in the US, and represent a potentially very tax efficient manner for money to be set aside for the future. This video introduces what 401k plans are - building on the concepts of taxes and compounding, providers and users of capital, principles of taxation, mutual funds and even dollar-cost averaging.

New Video: P1. Structures, Products and Services

2009-04-20T01:41:00.000-07:00

This is an introductory video to some of the structures, products and services that we as investors have to consider on a regular basis. It builds on the concepts and examples of products of the other videos - in this series the items discussed are often more specific, and often specific to a country or region as opposed to being more generic and potentially available in many regions.

New Video: S2. Securitization, CDOs and the Sub-Prime Crisis

2009-03-13T04:13:00.000-07:00

The volume of issue of CDOs and the corresponding ability of banks to issue mortgages had a significant impact on the quantity of mortgages that could be made by banks. This video explores the topic of securitization further with a particular focus on CDOs and how that relates to the sub-prime crisis.

E3B. Introduction to Deflation

2009-03-13T03:25:00.001-07:00

Deflation very much related to the subject of inflation, and in fact is a negative rate of inflation (i.e. prices are falling) for a sustained period of time. This video introduces deflation and some of the issues associated with it.

New Video: 36C. Defined Contribution Plans

2009-03-13T03:04:00.000-07:00

Defined Contribution Plans are the other of the two main pension plans available for many employees - and in fact, they have become the prevalent form of retirement or pension plan type in most countries, particularly in the private sector.

New Video: 36B. Defined Benefit Pension Plans

2009-03-13T03:02:00.000-07:00

Defined benefit pension plans are one of the two main categories of pension plans available. This video follows on from the types of pension plans video to provide more information on this particular type.

New Video: 25. Closed-Ended Funds

2009-03-09T07:31:00.000-07:00

We sometimes hear about closed-ended funds which are a type of fund that shares similarities with standard mutual funds which are open-ended, but also has some very key difference in particular with respect to how money flows in and out of the funds.

New Video: 18. Dividends

2009-03-09T07:28:00.000-07:00

Companies can pay out a part of their earnings in the form of dividends which shareholders receive as one element of their potential return (the other being capital appreciation).

This video provides more information on this and how this looks both from the company's and the investor's perspective.

Although dividends come up in a number of other videos, this video focuses specifically on the subject.

New Video: CF1: Dividend Policy

2009-01-19T00:54:00.000-08:00

Deciding how large a dividend to pay, or whether to pay a dividend is one of the corporate finance decisions that companies have to take. It is partly influenced by the companies desires and nature of business and corporate finance considerations, and partly by the nature of investors. This is the first in a series of videos on corporate finance issues.

New Video: S1: What is Securitization?

2009-01-14T00:28:00.000-08:00

Securitization has come up a lot recently, especially in the context of the sub-prime mortgage crisis. This is a first introductory video describing briefly what securitization is.

New Video: E5. Introduction to Monetary Policy

2008-11-03T04:06:00.000-08:00

We have uploaded a new video - the video provides a brief introduction to monetary policy - one of the main elements of economic policy.

New Video: E4. Economic Policy

2008-10-31T03:56:00.001-07:00

Economic policy is an important factor that relates primarily to governments and central banks and their initiatives to affect growth, inflation, employment etc. This video introduces the subject, and introduces monetary and fiscal policy - two key elements of economic policy.

New Video: E3. Inflation

2008-10-31T03:55:00.000-07:00

Inflation is not a complicated topic - this video briefly highlights what it is and why it is considered important to keep under control.

New Video: V8D. Earnings Yield

2008-10-30T04:50:00.000-07:00

We have uploaded a new video that rounds out the valuation series entitled Earnings Yield. The earnings yield is often referred to in the context of comparing the valuation of stocks and bonds.

Valuation is probably not the most exciting topic on the saving and investing channel - and also to some extent affected by arguments in favour of market efficiency - nonetheless it is worth knowing what the terms refer to.

Best regards - Michael

New Video: V8. What is Yield?

2008-09-20T04:10:00.000-07:00

We have uploaded a new video introducing the concept of yield which is so often spoken about. We hope you like it.

Learning about the Treasury

2008-08-25T05:18:00.000-07:00

When it comes to knowledge, always better to go to the source - as far as the Treasury goes, they have a part of their site dedicated just to this.

http://www.treas.gov/education

and a section for kids.

http://www.treas.gov/education

Clearly they have expended some effort to set this up - very interesting - and straight from the source!

Government spending is the key to tax costs

2008-08-24T08:39:00.000-07:00

There is a very interesting article this weekend in Barron's magazine (subscriber or purchase at newsstand) on tax cuts entitled 'When Is a Tax Cut Really a Tax Hike? Usually' by Gene Epstein which highlights how tax cuts are not really tax cuts if they are accompanied by a rise in inflation-adjusted spending (which is what we currently have) - that spending will have to be recaptured by the government at some point through higher taxes. In other words, although tax cuts at first glance might be popular, the ultimate tax burden might be rising at the same time because of the more fundamental driver: spending. Makes sense - but so important to bear in mind especially with populist tax cuts that can be proposed at a time when the US governments budget situation is poor - and spending is the real item to watch.

The Trickle-Down Effect

2008-08-21T08:30:00.000-07:00

As the housing crisis becomes more pervasive in the US and UK, unfortunately it trickles through a large part of the economy. The banks have taken a big hit in their sub-prime investments, which in some cases have meant significant layoffs and certainly lower compensation. As homeowner equity declines, equity refinancing and desire to spend both decline affecting consumption. For homeowners that have high leverage, in some cases bankruptcy is the only option, meaning that it will take a while for their spending to come back - for those that decide to hang on and try to continue to make the mortgage payments, spending on other things declines. Less house purchases and less moving is bad for home retailers (as is less spending). These are some of the reasons why this might take a while as the overall issue trickles down through other parts of the economy.

UK: How to Beat the Credit Crunch

2008-08-09T05:57:00.001-07:00

We thought you may be interested to know that TaxCafe has just published a brand new tax guide called How to Beat the Credit Crunch, by Toby Hone.

This new guide is packed with practical ideas and tips to help you survive and make money during the Credit Crunch. To learn more click on title of post or use link below.

www.taxcafebooks.co.uk/product.php?prodid=cru&id=11195

Overview

This unique new guide is packed with practical ideas and tips to help you survive and make money during the Credit Crunch.

Itís essential reading for ALL property investors and landlords.

The advice and strategies contained in this timely publication will help you drastically increase your rental income, slash your expenses and turn your property portfolio into a well-oiled cash generating machine!

The author also reveals his secrets for making lucrative new investments in the current climate.

What Information is Contained in the Guide

The guide contains numerous real-life examples from the authorís extensive experience in buying, selling, renovating, developing and managing a big portfolio of investment properties.

Subjects covered include:

Creative ways to boost your rental income by over 50%.
How to overcome the mortgage drought and find the best deals.
18 practical ways to slash ALL your property expenses.
...some of these tips will save you £100s, others will save you £1,000s!
How to tap into the fastest growing rental market with the highest rental yields.
6 ways you can seriously improve the health of your property portfolio.
How to protect yourself from rising interest rates.
How to improve your credit record and keep it squeaky clean.
The biggest threats to your property portfolio NOW and how to handle them.
Ways to boost your emergency cash reserves and shield yourself from the Credit Crunch.
How to virtually eliminate losses through effective deposit management.
How to avoid giving away up to 32% of your rental income without even knowing it.
Practical ways to eliminate void periods completely.
Ways to rent out problem properties quickly.
The outlook for the UK property market and a comparison with the US mark
The 1990s crash... will it be as bad this time round?
A detailed look at the benefits and drawbacks of selling property now.
How to source property at a 25% discount.
Innovative money-making strategies that work in the current climate.
... including buying below market value properties and
... creating potential goldmines within your portfolio.

About the Author

The Author of How to Beat the Credit Crunch is Toby Hone. Toby Hone is a professional property investor. Over the last 10 years he has built a portfolio of 30 properties worth around £3 million. He is also an active property developer, specializing in sourcing below market value properties, as well as properties requiring refurbishment and also development projects, and adding value to them using various techniques revealed in this book.

Realistic Expectations

2008-08-03T07:46:00.001-07:00

There was a story on Barron's website last Friday by Randall Forsyth entitled 'Finance Has Become The Business of America' which was very interesting and thought provoking. An illustration of this would be that the financial sector as a percentage of the broad stock market indices has been rising over multiple decades. Furthermore, clearly the economy has been moving from a product and manufacturing one to a services (including financial services) one. That is a real risk of course when financial markets turn sour - and it makes a case for making sure that markets are functioning - sometimes at a high cost.

For us as savers and investors, what is important to remember is that saving and investing is a complement to working and making money (and not a replacement) - as ultimately it should provide a means of setting aside money, perhaps and ideally even tax free, and letting it grow. It is not about getting rich quickly in most cases - and taking on too much risk with this short-term goal in mind, as opposed to the facts about saving and investing definitely a bad idea with potentially very bad consequences, as market corrections like the one in housing right now can demonstrate.

38. Getting Started

2008-06-22T20:34:00.001-07:00

If you have gone through the videos here, read the book and really delved into the subject and you understand risk, time horizon - what is sure and what is total gambling, and you have a long-term view and understand how investing works - then prudently beginning is the next step.

37. Transaction Costs

2008-06-21T04:13:00.001-07:00

One of the things that can damage our returns is transaction costs - a brief video on this subject.

36. Following the Crowd and the Role of Expectations

2008-06-19T23:36:00.001-07:00

Blindly following the crowd can lead to some of the worst investment decisions - something everyone is expecting in the future is also often already reflected today.
Often one can read headlines like 'this market is expected to rise strongly for the coming year' or 'this stock will perform strongly'. If everyone, or a very large percentage of the market participants expect the same thing, then often all of the future expectation is already priced in today.
Smart investors spend a lot of time trying to figure out things that might not be expected or priced in - that is also a reason why financial literacy and therefore not having to believe everything you hear are so important.

35. Diversification - savingandinvesting.com

2008-06-19T03:22:00.001-07:00

Diversification - or not putting all your eggs in one basket - has a solid foundation in math. In fact there are some really good reasons to always bear them in mind.

34. Two Generic Types of Pension Plans

2008-06-18T15:51:00.001-07:00

There have been some horror stories regarding pension plans - but not all pension plans are alike. Newer pension plans are typically significantly different in their approach than the older ones.

33. First Principles of Taxation

2008-06-17T23:22:00.001-07:00

Saving and investing is incentivised in most western countries through tax benefits. Governments want to collect taxes to provide the services that they provide - but they also provide tax benefits for saving and investing because it is considered beneficial for individuals and society as a whole.

32. Taxes and Compounding - savingandinvesting.com

2008-06-16T00:16:00.001-07:00

Compounding is one of the key forces when it comes to any saving and investing plan - but the reality is that paying, or not paying taxes, has a huge impact on what we compound to. And often we can save the taxes because governments want us to save for when we retire, or for when our incomes are low

31. Timing Investments and Dollar Cost Averaging

2008-06-15T05:54:00.001-07:00

Timing investments is not straightforward, and there are ways of making the process pretty efficient.

30. The Impact of Time

2008-06-14T06:45:00.001-07:00

The nature of the stock market means that our time horizon makes a big difference in determining which investments are more suitable.

29. Hedge Funds 5: Prime Brokers

2008-06-13T17:14:00.001-07:00

Prime brokers perform a very important role in the hedge fund industry by providing much of the infrastructure backbone that allows hedge funds to hold securities, employ leverage and even by assisting in raising assets.

28. Hedge Funds 4: Funds of (Hedge) Funds

2008-06-12T04:15:00.001-07:00

Because of the risk associated with investing in any single hedge fund - to diversify and lower volatility, a number of hedge funds are often combined into what is known as a fund of funds or fund of hedge funds.

*** New Video: V7C: The Risk-Free Rate

2008-06-10T17:16:00.000-07:00

The rate used to discount future cash flows is based on the risk-free rate plus a premium for the risk of those particular cash flows. In effect, the risk-free rate is the lowest return, or the lowest rate of interest, that investors would be willing to accept (for a riskless investment).

This video goes into what the risk-free rate is and what benchmarks might be used to establish its value.

27. Hedge Funds 3: Different Strategies

2008-06-10T04:59:00.001-07:00

Hedge Funds use many different strategies to make money although broadly speaking they are often put into 3 main categories. This video details the categories and what the means are.

26. Hedge Funds 2: What is Short-Selling?

2008-06-09T13:12:00.001-07:00

Short-selling is often spoken about, particularly in the context of hedge funds - this brief video explains what this is.

25. Hedge Funds 1: What is a Hedge Fund?

2008-06-08T05:49:00.001-07:00

An introductory summary of hedge funds. There is a lot more on this in the book because it is easier to convey in a written format than on tape - also at more info at savingandinvesting.com.

24. Index Funds and ETFs

2008-06-06T17:16:00.001-07:00

Passively managed funds are index funds - funds that aim to hold securities in exactly the proportion that they are held in within an index and that typically have significantly lower fees that actively managed funds. These products offer market exposure at lower cost - so do ETFs.

22. Mutual Funds 3: Active and Passive Management

2008-06-06T05:14:00.001-07:00

The terms active and passive management are often used when discussing mutual funds - what do the terms actually mean and what have some people concluded.

21. Mutual Funds 2: Types of Mutual Funds

2008-06-04T20:06:00.001-07:00

There are many types of mutual funds - here is a summary of some and why they can exist.

20. Mutual Funds 1: What is a Mutual Fund?

2008-06-04T01:52:00.001-07:00

Mutual Funds explained in simple terms.

19. Why do Financial Markets Exist?

2008-06-03T19:02:00.001-07:00

Financial markets exist for a very important reason - one that has been around for a very long time. This is explained very simply.

*** 29. Prime Brokers

2008-06-02T02:44:00.000-07:00

*** New Video: V7B: Discounting

2008-06-01T20:18:00.000-07:00

A number of the valuation methods refer to discounting - discounting cash flows - discounting dividends. This video looks at what discounting is - and how to some extent it is the inverse of compounding.

17. Who issues Bonds?

2008-05-31T04:10:00.001-07:00

Equity - or public equity in the form of stocks is issued by companies. Not only companies can borrow - and not only companies can borrow through securitised debt.

16. Private Equity, IPO, Public Equity

2008-05-30T13:22:00.001-07:00

Equity can either be private or public and these terms are often used in the press. In the transition from the former to the latter there is typically an IPO. Public equity is also known as stocks or shares.

15. The Capital Structure of a Company

2008-05-29T00:16:00.001-07:00

This video highlights what is spoken about when we talk about the capital structure of a company - effectively the structure of that company's financing, which is very tied to the right side of that company's balance sheet - for the book values, as well as the market values of the items on the right side of the balance sheet.

14. What is a Bond?

2008-05-28T00:26:00.001-07:00

Bonds are pieces of debt of companies or governments and this brief video details further what a bond is.

Everyone should know what a stock and a bond are - this video gives a quick intro to that. What stocks and bonds are has a lot to do with how providers of capital interact with users of capital (through equity (which includes stocks for many large companies)) and debt (which includes bonds for many large users of capital).

*** New Video: V4. The EV/EBITDA Ratio

2008-05-27T09:07:00.001-07:00

In order to address some of the shortcoming of the P/E Ratio - or at a minimum, try to provide additional information, another ratio that is very commonly used used is the EV/EBITDA ratio. Like the P/E ratio, this ratio uses one year of data and tries to establish a relationship between the value of the company and some measure of profitability. In order to adjust for the fact the earnings are influenced by interest cost, tax charges, depreciation and amortization - none of of which is directly linked to the operations of the company, this ratio compares this to the Enterprise Value of the company, which is the Market Capitalization (the market value of the equity (P x number of shares)) plus the net debt (debt - cash).

This measure therefore compares a broader measure of the company's value - one which includes net debt which an acquirer would have to assume, and compares it to EBITDA - a measure of the operating earnings of the company, thereby neutralizing the effect of varying interest levels between companies and depreciation policies. The EBITDA measure is not perfect, but clearly one can argue that it 'cleans' the earnings to provide a number that is more reflective of the operating performance of the company.

The drawback that it only looks at one year's worth of data remains.

13. What is a Stock?

2008-05-26T22:38:00.001-07:00

Everyone should know what a stock and a bond are - this video gives a quick intro to that. What stocks and bonds are has a lot to do with how providers of capital interact with users of capital (through equity (which includes stocks for many large companies) and debt (which includes bonds for many large users of capital).

12. Links between the Financial Statements

2008-05-26T05:28:00.001-07:00

Each of the three financial statements captures different aspects of a companies financial situation - about operations as a going concern (Income Statement), about actual cash flows - also going beyond Operations to include Investing and Financing (Cash Flow Statement) and the assets and liabilities of the company (Balance Sheet).

Therefore it only makes sense that some links exist between all the three statements - income and cash flows for example, income over a year that is not paid out as dividends and change in assets etc.

Having an appreciation of these links is a clear indication that conceptually the 3 financial statement have become clear.

*** New Video: 15. The Capital Structure of a Company

2008-05-25T01:54:00.000-07:00

11. The Cash Flow Statement

2008-05-25T01:52:00.001-07:00

The cash flow statement is typcally the 3rd of the 3 financial statements found in an Annual Report. This video provides an overview.

10. What is a Balance Sheet

2008-05-24T05:02:00.001-07:00

The Balance Sheet is one of the 3 main financial statements for companies, and it captures the assets, the equity and the debt at a certain point in time - like the end of the year. And it balances.

*** New Video: V2C. The P/E to Growth Ratio

2008-05-23T08:22:00.000-07:00

One of the shortcomings of the P/E ration is that it does not reflect the fact that some companies have higher P/Es than others (in particular in the year that might be being looked at) than another, but might also have higher earnings growth. With higher earnings growth, a company with a high P/E on next year's earnings might have a much lower P/E on a future year's earnings given that the 'E' would have grown to be much higher then.

In order to incorporate, normalize and adjust for differences in earnings growth, the P/E to growth ratio is often used.

It adds information and is another commonly used ratio - it does not address all of the shortcomings of using P/Es.

9. What is an Income Statement

2008-05-22T20:45:00.001-07:00

There are 3 main account statements for companies - the income statement, the balance sheet and the cash flow statement. This video in on the first of these - the income statement.

** New Video: 12. Links between the Financial Statements

2008-05-22T06:47:00.000-07:00

We are happy to announce a new video, focusing on the following:

Each of the three financial statements captures different aspects of a companies financial situation - about operations as a going concern (Income Statement), about actual cash flows - also going beyond Operations to include Investing and Financing (Cash Flow Statement) and the assets and liabilities of the company (Balance Sheet).

Therefore it only makes sense that some links exist between all the three statements - income and cash flows for example, income over a year that is not paid out as dividends and change in assets etc.

8. Debt Consolidation - savingandinvesting.com

2008-05-22T05:21:00.001-07:00

Some of the principles behind consolidating your debt explained in a simple manner - in general, consolidating debt is something one should consider as a tweak to lower interest payments. Racking up huge debts on credit cards or in general as a percentage of one's net wort is a terrible idea right from the start.

7. High Credit Card Interest Rates

2008-05-21T00:43:00.001-07:00

There are reasons which make credit card interest rates so high. High credit card interest rates make having this kind of debt a bad idea especially if we let it compound to buy things that quickly lose their value.

6. Borrowing Money

2008-05-20T06:42:00.001-07:00

A brief simple video on why certain interest rates are higher (for example credit card rates) and others that have collateral against them lower.

5. Principles of Leverage - savingandinvesting.com

2008-05-19T04:10:00.001-07:00

A follow on from 'What is Leverage?' looking at some of the principles surrounding leverage.

4. What is Leverage? - savingandinvesting.com

2008-05-18T04:44:00.001-07:00

Leverage explained in very simple terms - what it is and how it works.

3. Providers and Users of Capital: Equity and Debt

2008-05-17T04:12:00.001-07:00

There a 2 main ways for providers and users of capital to interact - this video provides more information on this.

2. Providers and Users of Capital

2008-05-15T22:44:00.001-07:00

It is the interaction between providers and users of capital that forms the basis of our financial system. It is that which allows our money to grow and for companies and governments to have access...

1. Compounding

2008-05-15T01:22:00.001-07:00

This is the first video in the series - very important.

An introduction to what has been called the 8th wonder of the world - compounding. The principle that allows small sums to grow to large sums over time.

I7. 5 Popular Misconceptions Part 2

2008-05-14T13:17:00.001-07:00

There are many misconceptions around saving and investing, and even how difficult it is (or is not). Here are some (Part 2).

I6. 5 Popular Misconceptions Part 1

2008-05-13T03:17:00.001-07:00

Saving and investing seems to have more than its deserved share of negative connotations. That might be because of a few popular misconceptions - here are 5 that I think are out there and fairly significant.

I5. Starting with the Right Thing - savingandinvesting.com

2008-05-12T00:04:00.001-07:00

When we start to think about saving and investing, the best place to start is with knowledge - certainly better to start with knowledge than to start by making decisions.

I4. Why the Subject is so Important!

2008-05-10T02:12:00.001-07:00

Getting back to the series - after the announcement of an additional video (6. Borrowing Money) - this is the fourth of the introductory videos.

Best Regards,

Michael

6. Borrowing Money

2008-05-10T02:09:00.001-07:00

A new video has been added on the Saving and Investing channel regarding borrowing money.

Best Regards,

Michael

I3. My Background

2008-05-08T23:17:00.001-07:00

Some introductory information on my background and why this material is so important and I felt strongly about communicating some of this information.

SavingandInvesting.com

2008-05-07T22:26:00.001-07:00

This month we are going to run a video a day on the savingandinvesting blog in a logical series because some of the newer ones actually fill in additional detail and give context to the earlier ones.

This is the second video (logically) in the series.

1. Introduction - by savingandinvesting.com

2008-05-07T07:50:00.001-07:00

This is the first of two introductory videos - it was one of the first ones recorded and def. a bit different hopefully than the rest - nonetheless it gives an idea as to what this whole thing is supposed to be about. Thanks for watching.

New Video: V6: The Discounted Cash Flow (DCF) Method

2008-04-10T08:06:00.000-07:00

In order to value an overall company, perhaps the single most rigorous method, is to look at all of the cash flows - over the life of the company and discounting them back to a value for these cash flows today. One can either look at the cash flows to the overall company (and subtract the value of the debt on the balance sheet to arrive at a value for the equity of the company), or one can start by looking at the cash flows to equityholders.

This method is rigorous in that it aims to capture a lot of information about the company, far into the future. These cash flows are inherently very difficult to predict, and also, they then need to be discounted at an appropiate discount rate which reflects their risk.

New Video: V5: The Dividend Discount Model (DDM)

2008-04-09T00:13:00.000-07:00

As long as we hold a stock, the only cash flow that we receive is the dividend, that the company pays out of it earnings/net income (the remainder is retained earnings). This method of valuing stocks looks at the value of the stock as the value of the cash flows that we can expect to receive as dividends. Some companies don't pay dividends and one can has to make significant assumptions about dividends into the future (which clearly have a big impact on the calculated result) - so like all of the methods, it is not always applicable and certainly not without assumptions and disadvantages - but it does take mean looking and thinking about the real expected cash flows and is certainly a method often used and often spoken about.

New Video: V4. The P/Book Ratio

2008-04-07T14:31:00.000-07:00

In this fourth video on valuation, the P/Book ratio is discussed. Like all of the valuation methods, it has advantages and limitations - and perhaps more importantly, times when it might be relevant and times when less so - more for companies that have tangible book values that can be determined and where the assets are more tangible and relevant to the companies productive capacity ultimately, less so for companies where the book value does not capture value such as goodwill or a brand that might also not be reflected in the balance sheet.

New Video: V3: The Price/Sales Ratio

2008-04-06T12:22:00.000-07:00

Early stage companies often do not have earnings, or have negative earnings or they have earnings that at changing so much that they are not considered a useful measure. Furthermore, earnings can be affected by depreciation policy or even one-off extraordinary expenses or gains that might depress or inflate earnings.

In all of the above situations, the Price to Sales Ratio might be a more useful, or complemenetary valuation tool. The characteristics of the P/Sales ratio are discussed in this video.

New Video: V2. The P/E Ratio

2008-04-05T23:55:00.001-07:00

The first valuation method is detailed in this video - the P/E ratio. Often referred to and spoken about - it is certainly worth knowing what this valuation method involves - in terms of both advantages and disadvantages.

New Video: V1B. Remarks on Valuation

2008-04-05T23:53:00.000-07:00

Given the arguments for market efficiency, a few more remarks on valuation are worth making - particularly in light of the fact that valuation is important to understand, but not something that can be used to gain an extraordinary return if market efficiency arguments hold true.

New Video: Introduction to Valuation

2008-04-05T14:37:00.000-07:00

This is the first in a series of videos that will discuss some of the most popular valuation methods that are often referred to.
The aim of this series is to highlight what the valuation methods involve - given arguments for market efficiency, the value of individual investors actually relying on publicly available information to make individual stock decisions is questionable - nonetheless knowing what the valuation methods involve and some of their characteristics and drawbacks is clearly useful.

New Video: Introduction to Diversification

2008-04-04T08:05:00.001-07:00

Diversification is one of the most important concepts of saving and investing - it clearly has a lot to do with not putting all of one's eggs into one basket. In this introductory video on diversification, what diversification means and some important considerations are introduced.