Financial Statement

How Stock Market Works

How Stock Market Works

Financial wealth is a term often used by financial planners, advisers and investors. But what does financial wealth creation really mean to the average person?

Everyone has a dream to be financially free of debt and to have financial security and to be able to live a quality lifestyle. Many people make different attempts to become financially wealthy but never seem to succeed. By having a better understanding of what financial wealth is and how the stock market works may help you achieve it.

Financial wealth put simply is freedom of debt, financial security and the ability to live the lifestyle you want. The terms wealth and success can mean different things to different people depending on their goals and personal perceptions of the idea. However, what most people would agree on is the importance of clearing debt and securing yourself and your family’s financial future.

In today’s society people are turning to more modern ways to make money and the Internet has made this very easy to do. The stock market has many different investing methods that can help generate extra income that can be contributed towards paying off debts, the mortgage, personal loans and credit cards. By having an understanding of how the stock market works and learning some stock market strategies then it can be a great cash flow generator. The aim of financial wealth creation is to clear debts and start building up capital. Today millions of people are investing in the stock market online to generate good money that requires very little human effort, and many are learning through online stock trading courses.


The general principle of trading stocks is to purchase shares when their value is low and to sell them when they have increased in value. Although, the stock market is a great place to make money it is also may be risky if you do not understand how the stock market works. With high risk often the higher the return you may earn. However by having a solid education and understanding of how the stock market works there are numerous stock market strategies that are considered low risk that can produce consistent monthly returns of 3-9% per month! One such stock market strategy is “share renting” and it is an excellent way to generate consistent cash flow on a monthly basis regardless of stock market direction. This is one of the fastest and easiest ways to make money and build financial wealth. However, it takes time and knowledge to be able to understand the various patterns in the stock market, so investing in an online stock trading course that can teach you a stock market strategy like share renting and preferably provide you with mentoring support is a recommended investment in learning how the stock market works.

Financial wealth creation is an essential step in achieving financial freedom from debts and to secure a stable financial future that will help you achieve the lifestyle that you deserve. A solid understanding of how the stock market works prior to investing money is a wise decision.

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction
How to achieve consistent returns by renting shares

A basic and low risk stock market strategy is the share renting method. The share renting strategy is very popular because it is very conservative and has been proven to be a very low risk investment for a relatively high return. It is not uncommon for stock market investors using this strategy to consistently earn 3-9% per month.

The basic logic behind trading on the stock market is to buy shares when they are sitting at a low price and sell them when their value increases. By renting shares however there is a slightly different approach. The sale price of the stock is agreed on ahead of time by the investor who is renting the shares, which is referred to as the strike price. Meanwhile another investor rents the shares which gives them the right to purchase the sellers stock at the strike price within an agreed time period. The investor who is renting the shares pays a premium which is then a capital gain for the seller of the shares. However depending on the strike price set by the person renting out the shares they may also wish to get capital gains in the value of their shares by setting a higher strike price.

The share renting strategy is such a popular stock market strategy because if the price of the shares does not increase to the strike price and the person who has rented the shares does not exercise their rights to purchase, the seller of the rent still earns the premium paid by the purchaser. Therefore, the positive aspect of share renting in the stock market is that even if the price of the shares remains constant or even decreases, the seller is still earning money from the premium paid by the investor paying the rent. The share renting stock market strategy is a fantastic cash flow strategy for any stock market investor wanting to generate cash flow to fund their other investments. It is also a great strategy for those just trying to get out of, or pay off unwanted debt and do not know a lot about how the stock market works.

The buyer’s advantage with share renting comes when the price of the shares on the market exceeds the strike price which they have already secured. The investor who has paid to rent the shares can immediately exercise their option to purchase the shares at the strike price and can realise an immediate capital gain and profit. To simplify this further, with the share renting strategy if a stock’s value on the stock market is $20 and the strike price is set at $24. If suddenly there is a fluctuation in the stock market and the value of the share becomes $30. The investor who rented the shares can exercise their right and purchase the share at the strike price of $24 and immediately sell it to another investor on the market for its market value of $30, realising an immediate profit of $6.

The obvious loss here with the share renting strategy, is that the investor renting out their shares, known as the writer, sacrifices the opportunity of selling the shares for the market price of $30. However, this is also the benefit of share renting because the writer secures a profit even when the price of the shares remains constant. The writer still earns the profit through the premium paid by the rental buyer, even if the purchase rights of the shares are not exercised.

The share renting strategy is excellent for individuals wanting to invest in the stock market with a low risk tolerance level. The share renting strategy is used by many investors using the stock market for cash flow generation which is a good way to achieve financially security and freedom. The share renting stock market strategy may be learnt from reputable online stock trading courses where students are consistently generating between 3-9% per MONTH!

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction
In the past a beginner stock market investor found out how the stock market worked through a stock market school or by using a broker who generally charged a premium price for their market knowledge in the form of brokerage.

However now with the advent of the Internet savvy, astute, educated and successful investors are being created mainly through the use of online stock trading courses.

There are various online stock trading courses out there, however there are some things you should consider before selecting the correct one for you. What are your goals and what do you want to achieve as a result of your stock market experience?

For many stock market investors they are looking to create a life where they are completely financially free and they no longer have to go to work for a living. Think about this now, nearly everyone has at some point, but most people never really stop to think what financial freedom really means to them personally. As a result they never know what questions to ask to understand what decisions need to be made to change the way their life will be shaped in the future. Do you want to travel more, spend more time with family, concentrate on your health or simply just not have to worry about money?

What are the potential benefits for you?

Think about it, there is the potential to work in an environemnt where there are no staff or customers, no competitors, and be totally time flexible. You can trade your own hours when ever you wish, in any global market. Everyone has the exact same opportunities so there is a level playing field. It does not involve physical labour, has low overheads and can be done with very low starting capital. So being an online stock market investor potentially is a true dream business.

Therefore when you think about all these things what is it you want from your online stock trading course?

Do you want consistent reliable returns? Are you after some simple stock market strategies where you can spend a minimal amount of time analysing trades and be able to make money whatever direction the market is moving?

Being a successful stock market investor is potentially the powerful tool to give those who want to take assertive control of their financial future. However before investing you need to understand how the stock market works.

When I started investigating the stock market I was fascinated in the concept of using it for cash flow to help fund my real estate investments. I invested in an online stock trading course that provided me with simplified terms, an online mentor that I could access and talk to personally for the majority of the day and a number of low risk yet profitable stock market strategies. I was able to replace my income within the first 6 months of investing in the program and I have consistently earnt between 3-9% PER MONTH whilst utilising the stock market strategies I have learnt.

This online stock trading course may not be for everyone, some may think it is too simple and want to spend more time reading more complex charts, or looking up company technical analysis data. However I think it is something that all people interested in investing in the stock market should at least investigate, especially if you are looking for a great introduction on how the stock market works and how to make steady consistent returns.

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction

Posted by Judy Romero in Financial Statement, Investing, Investment
How to start a dividend portfolio?

How to start a dividend portfolio?

The question how to start a dividend portfolio was asked by Phillip, a teenager from Edinburgh. He has saved several thousand pounds in a building society savings account currently earning next to nothing. He is fed up with the low returns and is keen to benefit from lowly priced dividend paying companies, starting his own share portfolio.

So, how do you start building a dividend portfolio?

No matter how old you are or what your income currently is, anybody can build a dividend portfolio. Just invest in the ‘right’ companies at the ‘right’ time, and, over the years, the returns from your portfolio – dividends – will increase and increase and make a significant difference in your lifestyle.

Let’s get started . . .

Phillip, if you follow the following steps, you should be able to take that initial amount (you mentioned you have around £5000) and build yourself a solid dividend portfolio that can help supplement your employment income in years to come.


1- Open an online stock brokerage account

The first step is perhaps the more “complicated” one as you need a stock brokerage account before you can buy and sell shares. Being a teenager complicates that process a bit further, unfortunately.

However, there are a variety of ways to do this. Start by comparing which online stock brokers offer competitive terms. I suggest you stay away from stockbrokers who charge annual fees and/or ‘in-active’ fees.

What you are looking for is a broker that charges little for buying and selling shares (usually under £10 per trade is a good benchmark).

If you are below 18, ask your (grand-) parents to open an online stock brokerage account on your behalf. They will need to fill out a few forms, which you can download from the stockbroker’s website and then once it is all completed, you just transfer money into the account.

If you are between 16 and 18, you may want to wait until later this year when so-called stocks and shares ‘Junior’ ISA’s become available. Or, alternatively, once your brokerage account has opened, you can use the shares and cash therein and transfer this across to your Junior ISA.

Unfortunately the maximum deposit into a Junior ISA is just £3,000 in cash or shares. However, there are clear long-term benefits in holding dividend paying shares in a stocks and share ISA. So, worthwhile doing.

2 – Buy shares in two dividend paying shares

As you pay commission and taxes every time you buy shares, you do not want to buy too many different shares all at once. Consider buying shares every time you have at least £2000 in your account.

Obviously, with £5000, you can buy shares in two companies. The general rule is that you want to buy shares that:

    • operate in different sectors, see our comments on diversification, and
    • have consistently increased their dividends for years, but also, are likely to increase their current dividend pay outs, see our comments on the benefits of investing in companies increasing their dividends


3 – create an automatic savings and investment plan

While you will start earning dividends with the two dividend paying companies in order to build you dividend portfolio you will need to put more money in.

Once you start earning a wage, automate the process of transferring a fixed amount from your current account to your cash ISA savings account. Start with a small amount, that you know you don’t really need.

As time goes by, you can increase this amount. For example if you get a salary increase, you could put all or most of the increase into that automatic transfer.

Once you have £2000 or so in your cash ISA savings account, it is time to transfer it into your brokerage account and purchase shares in another dividend paying company.

4 – Compound your dividends

If you can, you should leave your dividends in your stock brokerage account in order for these to accumulate. Reinvesting your dividends is invaluable in the long term.

These dividends and the automatic contributions from your cash only ISA are what will make it possible for you to create a bigger and more diversified dividend portfolio.

Of course, the dividends will seem small, especially in the first years but compounding does work and therefore it is important to keep the money inside your stock and shares ISA account.

5- Have £2000, buy new dividend paying shares

When building your dividend portfolio what you want to do is to make a purchase every time you have £2000 available. Ideally you want to diversify into 20-30 dividend paying companies across different industries, etc.

Over time, make sure that no one company represents more than 5 per cent of your dividend portfolio in case any of them turns out to be a dud.

Consider subscribing to Dividend Income in order to read up on when dividend paying shares are historically undervalued or overvalued.

And, finally . . .

6 – Increase the amount over time as your income increases

As your income increases, be sure to put a higher amount into your share portfolio. You will not even notice the difference but your dividend portfolio will grow much faster as will the returns.


No matter how old you are or what your income is, anybody can build a dividend portfolio. Of course, it’s easier said than done. Buying the right shares is important but getting started, and actually building the dividend portfolio is the real critical part.

Have you started building your own dividend portfolio? Why? Why not?

Posted by Judy Romero in Financial Statement, Investing, Investment

Financial Statements and How to Read Them

Before you invest in a stock, you should definitely read financial statements. However, before you do that, you will have to learn how to read them correctly.

The very first thing you should notice, of course, is the EPS – earnings per share. Of course, this is the facet of the financial report everybody anticipates and tries to figure out. So, of course, if you are researching a stock, the EPS is probably the best way to start. People commonly refer to the EPS as the bottom line. And they do so for a good reason. It is the facet that represents the profit and loss of a company.

Naturally, the headlines in most media outlets will usually focus on the EPS. And, while it is the most important metric, it is still only one of the components you should focus on. Namely, there are two more crucial components in regards to a financial statement of a company that you have to understand.  Namely, the statement of cash flows and the balance sheet.

Of course, reading an online article will not turn you into a pro. However, it will help you understand the information you are getting. So, you can maybe save some money you would otherwise spend on consultants.

So, let’s start off this online lesson about financial statements by taking a look at the 10-K and annual reports.

Preparing for the lesson

As always, if you plan to conduct an investigation, you should first aggregate the data you expect to use. In essence, collect the materials you require to build the basis of your inquiry. However, what information should you be looking for, and where should you check?

Well, for starters, you should always check the 10-K and 10-Q forms as well as the annual report. Usually, all of those documents are easily accessible. Simply go to the investor relations option on the website of the company that you are investigating.

Form 10-K

The company makes this official filing to the SEC. The 10-K will usually have these sections:

* Overview of the company

* Overview of the financial data

* Information about the director and the senior management

* Executive compensations

* Consolidated financial statement that includes reports of an independent accounting company

* Other information

Form 10-Q

This is the “mini-me” version of the previous form. It is a quarterly form that includes financial statements without audits and notes about those financial statements.

Annual Report

The company sends this publication to all of its shareholders. Most companies will also make the annual report available for potential investors. Of course, not every company will make the same annual report. Some put a lot of effort into it, while others just add a few words to their 10-K form. Let’s cover three examples that vary depending on the amount of energy:

Low Effort: For example, Ruth’s Chris Steak House will put next to no effort into their annual report. Most of the time, they will just use their 10-K with a glossy cover.

Medium Effort: Somewhere between the two examples are those that offer a decent annual report, but in the end refer people to their 10-K. As an example, we will use the Duke Energy company. Their annual report offers a business overview and consolidated financial statements. However, they do still rely on their 10-K to do the talking.

High Effort: An example of a company that puts in a lot of effort into their annual report would be Amylin Pharmaceuticals. They hire professionals to design their annual reports and even incorporate a message to their shareholders. They also include the business overview that features (but doesn’t limit itself to) the management of the company, the products they offer, new projects they are starting, and the way they operate. You can also find the report from auditors, consolidated financial statements, and notes for all of those.

A Step by Step Guide on How to Read These

Ok, now we have gone through the reports you should acquire. However, we still haven’t shown you how to address the information you can find in these. So, these are the steps to follow in your investigation.

Step 1 – Find Reports From the Independent Accounts

The first thing you want to find out is if the company’s records and statements are presented in a fair and an appropriate manner. You should also find out if they are in line with the GAAP (Generally Accepted Accounting Principles). That means that you will have to make sure that the company did receive an unqualified report. Companies that receive this report are companies that have no items that could cause a GAAP exception, and the financial conditions of the company don’t indicate any possible issues regarding the company’s existence.

This report will usually open with the general information about which company it concerns, as well as which period of the company’s history the independent auditors are auditing. They will usually go through the consolidated statements of operations, the equity of stockholders, and the cash flow of the company. It is very important for this report to state that the financial statements of the company are fair in their representation of the financial situation of the company in question. The report should also mention any changes that the company went through lately. So, if the company changes the method of accounting for their payments, you will be able to find it in this report.

It is very important to go through this report to find if there are any red flags that should worry you. Make sure to read the entire report to check if any irregularities might be a cause for concern.

Step 2 – Read the CEO’s Letter

A majority of annual reports will include the letter from the chief executive officer of the company. And you would do well to read it. As you probably already know, the CEO is the actual leader of a company. As such, the CEO will be the one that manages the operations of the company and sets the plans for its future. So, you should definitely want to know what the CEO has to say. This letter will usually talk about how the company started, how it is doing right now, and what the plans for the future are.

Since these are personal notes from the CEO, no two letters from the CEO are the same. Some of them will be there to advertise the company as it is and praise its workings. On the other end of the spectrum, you will have CEOs who are very critical of the situation. They will focus on the mistakes that happened in the past, and the changes they are making to avoid those mistakes. They will also tell you what the challenges of the future are. Overall, you should always take the time to read the letter of the CEO.

Step 3 – Read the Overview

Companies don’t always remain the same throughout their history. They usually go through various changes. As always, the demand is the factor that dictates the strategy alongside market conditions in the world. And that goes for every company and every industry out there. You, as an investor, are the one paying for the expansion of the company. So, make sure to read the business overview to see what the future plans are. After all, you want to know what your money is going to do for the company. The overview will also give you the general idea regarding the current products of the company and the position in the competitive nature of the market.

The Conclusion

In the end, you can probably notice that there is a lot of homework you would have to do before you even start analyzing the numbers. So, before you go on with your trading day, choose any company, regardless if you are a stockholder in that company, find their annual report and 10-K forms and try to analyze the data you see there. This way, you can formulate your own opinion about where the company is going instead of relying on various analysts to do it for you.

Posted by Judy Romero in Financial Statement
What to Do When the Market is Too Hot

What to Do When the Market is Too Hot

Lately, I’ve been reading quite a bit about how the market is getting overheated.  Some even say the market is in or near a bubble and soon will burst.  Once that happens, most expect large losses and price drops coming from the stocks in the market.

The S&P 500 is widely accepted as a good measure of overall stock market activity.  So far, year to date returns for the S&P 500 are up 24.48% as of December 13, 2013.  In 2012, the S&P 500 return was up 13.4%.  As you can see, the market has had quite a good run over the past 2 years and investors should have done fairly well with their portfolios.

The higher returns over the past couple years has many investors worried.  The stock market goes up and it goes down.  We can’t always expect it to go up.  Many investors and pundits become worried when the market reaches new highs, expecting that it won’t be long before it comes back down again.

This is irrational thinking.  We should not be thinking about the market reaching new highs in the form of prices.  The S&P 500 being at it’s all time high price really tells investors nothing.  As investors, to really find meaning from the market price, we need to look at it in terms of valuation.


Looking at the market in terms of valuation means comparing the S&P 500′s price to the underlying earnings from the companies making up the index.  Most recently, the S&P 500 has a P/E ratio of 18.4 on 12/13/13.  A year ago, the P/E was 16.8.  Historically, the average has been right around 14.  So what this means is that certainly the S&P 500 is currently trading at a higher valuation than it was last year and even based on it’s historical average.  However, one thing that should be clear is that a P/E of 18.4 is most definitely not a bubble.

While the market may pull back at some point to align itself closer to historical norms, I don’t think we will see a sharp decrease due to any sort of bubble burst in the stock market.

The stock market is getting heated.  Prices are climbing.  Valuations are climbing.  Investors need to have a plan of action for when the market is starting to become overpriced.  There are a few paths of action dividend growth investors may consider in this type of situation.

Continue with your plan.  Yes, the market valuation is getting higher and many companies are becoming overpriced (not bubble territory yet but certainly prices that smart investors aren’t as interested in).  However, there are still many dividend growth companies that are trading at reasonable or even under valuations!  There are still quite a few companies on my list of Top 35 Dividend Growth Stocks that I believe are still at price points worth buying.  Later this week, I’ll write an article highlighting some of the companies I believe still worthy of buying at current valuations.  Definitely, if the investor is willing to do a little digging, more companies trading at reasonable valuations worth buying can be found.  Many dividend growth investors, me included, will want to continue with our buying of more shares of dividend growth stocks.  Until I cannot find a single company worth buying at it’s current price, I will continue to be a buyer for the long term.
Sell Put options.  This is a method many investors can use to earn a return while waiting for prices to come down to levels where they are willing to buy.  Selling put options means that you are giving someone the right to sell 100 shares of stock for each option at a given price.  In return for this right or option, the person will pay you a premium at the start of the contract.  You keep this premium whether they decide to sell their stock to you or not in the end (when the option expires).  For example, I may sell a January 35.50 Put option to someone for Microsoft for a premium of $0.23/share or $23 total.  I will receive $23 up front.  Then if the price of Microsoft drops from it’s current price of $36.69 down to $35.50 (or lower), the person who bought the put option may exercise it forcing me to buy the 100 shares of MSFT for $35.50 each.  My cost basis on each share will be the $35.50 I pay minus the $0.23/share premium I received.  My cost basis per share is then $35.27.  This means I am buying the shares at a 3.87% discount from where they are currently trading.  If you are willing to buy at this discounted level then you may want to do the option.  If not then I would advise not doing the option trade.  Option trading is an advanced strategy and I would recommend anyone interested to do a little research before jumping into this strategy.
Continue holding current positions, hold off on buying anything new and collect cash for when prices come back down.  If you feel prices are getting too high and are not comfortable buying anything with the market so heated, then one option is to put your plan on hold.  Collect the cash you normally would use for buying and keep it in a savings account.  Accumulate this cash so that you can put it to use when market prices come down to a level you are more comfortable buying at.  You may want to hold your current investments rather than selling because you want to own for the long term, you don’t really know what the market is going to do from this point (could continue going up) and you want to collect dividends.
Sell out of current investments, collect cash for new purchases when market prices come down.  There are certainly some investors that may feel more comfortable selling their stocks right now and getting out of the market completely.  This isn’t what I’d recommend, but certainly if that is what makes you able to sleep at night then that is what you should be doing.

Personally, I feel I am still able to find good valued companies worth buying, even in today’s heated market environment.  I have no idea what the future direction of the market will be.

The year 2014 could bring a small slow drop in prices, a large drop in prices, another large gain in prices.  We really don’t know.  There is nothing stopping the market from continuing it’s climb eventually to reach true bubble territory.

I am a long term investor, I buy my companies for the long run.  I won’t sell them unless I believe they are trading at absolutely ridiculous valuations, which they currently are far from.

My personal plan is to continue with my plan.  Making purchases of new shares and new companies as I have money available.  I am becoming more interested in options strategies and may decide to implement some of those in 2014 but feel I must do a little more research before jumping down that path.

How about you?  Do you feel the market is valued to high?  Are you afraid of a crash soon?  Are you continuing to buy or holding off or trying new strategies?  Share your thoughts in the comments below!

Posted by Judy Romero in Financial Statement, Investing, Stock Market
What Do You Do When You Think Markets are Expensive?

What Do You Do When You Think Markets are Expensive?

Of all the financial commentary that appears online every day/week/month/year, by far the most interesting to me are Howard Marks’ monthly memos. In particular, the last two have been packed with insights, and with the most recent one being released a week ago, I wanted to share some things that could be beneficial to private investors. Specifically, I wanted to talk about a section in the memo entitled “Investing in a Low Return World”.

A time for caution?

Anyone with an appreciation for financial market history will admit that timing the market in any capacity is extremely difficult. This is particularly the case for more passive investors. Howard Marks is most assuredly not a passive investor – in fact, a good argument could be made that he is one of the five all time best investors ever. He has shown an ability to take risks at times when risk-taking has been well paid, and has also shown the ability to lower his risk levels during periods where investors are not demanding adequate compensation for risk-taking.

The crux of Marks’ last two investor letters has been: It’s time for caution. I think it might be wise to heed his insights.

Given the environment, what does Marks suggest?

Expensive meal

6 options – some of them not so good.

  1. Invest as you always have and expect your historic returns
  2. Invest as you always have and settle for today’s low returns
  3. Reduce risk to prepare for a correction and accept still-lower returns
  4. Go to cash at a near-zero return and wait for a better environment
  5. Increase risk in pursuit of higher returns
  6. Put more into special niches and special investment managers.

Lets look at these briefly. Option 1 is interesting, but if you believe that valuations ultimately matter (and I do), then I agree with Marks here – this is “sheer folly”. Option 1 is out.

Option 2 is the most sensible, low maintenance option on the list. Continue to invest as you have always done, and be aware that returns may be lower (or higher) than they have been in the past. Again, as Marks says: “sensible, but not highly satisfactory”

Option 3 and 4 are similar, given individual investors rarely have access to some for the tools hedge fund managers use. There are arguments to be made for reducing risk depending on where you are in your lifecycle of investing (those closer to retirement may be more risk adverse for example), but the question remains – are you willing to accept a return of zero on your cash assets to be insulated from a potential correction? Most aren’t.

Number 5, in my opinion, is the worst of the bunch. Firstly, investors are typically bad at identifying their risk tolerance, and are most likely to say they have a high risk tolerance following a sequence of strong returns,. This is a terrible combo. Secondly, any time investors increase risk to compensate for low returns, I start to become concerned. It is very similar to reaching for yield ion dividend stocks – at some point you are ensuring a nasty shock down the road from mispricing risk. Do I want to be part of that crowd? Not at all.

Number 6 is the most interesting for me. This one isn’t easy however. And pursuing this means that you implicitly believe that a) markets are inefficient and b) you can identify people who can take advantage of it. Not everyone believes this, and not everyone can. This is the option I have been pursuing recently however, and I’ll share some of the areas I’m hunting in.

Special Niches and how to find them:

Everyone knows that I’m a fan of listed investment companies. Luckily for me, there are a number of listed investment companies that focus on alternative or special niches. These funds include (but aren’t limited to) companies such as Bailador Technology (BTI), Australian Leaders Fund (ALF), Watermark Market Neutral (WMK), Monash Absolute (MA1), Blue Sky Alternatives (BAF) and Global Value Fund (GVF).

All of these companies focus on niche markets where mispricing can occur. Most of them have reasonable track records. So what’s the kicker?

The fees are high. Most charge higher management fees and performance fees over hurdles, which may or may not be particularly demanding. But since you are paying for specialist investors operating in niche markets, you might argue that the fees are fair.

Now, its important to note that just because these companies operate in more niche investments, this doesn’t mean that they will be unaffected by any sort of turmoil in financial markets. While their portfolio performance is unlikely to be as heavily affected as some of the more vanilla LCIs, its almost certain that the trading price of some of these companies will fall substantially, leading to larger than usual discounts to NTA. This could provide some opportunities for savvy investors.


Howard Marks, as per usual, has given investors some incredibly useful nuggets of wisdom in his latest newsletter. By considering the uncertain investment market that his firm faces, he has outlined some strategies that investors may use going forward. Importantly, the Australian market may offer some opportunities to put Marks advice into action, at reasonably low costs and low effort to the individual investor. With a number of fund managers providing easy access to niche investment markets, investors should investigate the merits of these particular managers’ offerings.

Posted by Judy Romero in Financial Statement, Stock Market