Wednesday, 13 October 2021
Quote for the day
"The function of economic forecasting is to make astrology look respectable." - John Kenneth Galbraith
Tuesday, 12 October 2021
Quote for the day
"In trading, you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep the money." - Ray Dalio.
Monday, 11 October 2021
Inflation Explained
What's Inflation?
Inflation is divided into two types: Price Inflation and Monetary Inflation, the first type (about prices) is when there is a rise in the general level of prices of goods and services over a period of time, the second type (monetary) is when there is a rise in the quantity of money in an economy. Both types are in many times interrelated, and both have negative effects on the economy and individuals.
Effects of Inflation
Most effects of inflation are negative, and can hurt individuals and companies alike, below is a list of "negative" and “positive” effects of inflation:
Negative effects are:
- Hoarding (people will try to get rid of cash before it is devalued, by hoarding food and other commodities creating shortages of the hoarded objects).
- Distortion of relative prices (usually the prices of goods go higher, especially the prices of commodities).
- Increased risk - Higher uncertainties (uncertainties in business always exist, but with inflation risks are very high, because of the instability of prices).
- Income diffusion effect (which is basically an operation of income redistribution).
- Existing creditors will be hurt (because the value of the money they will receive from their borrowers later will be lower than the money they gave before).
- Fixed income recipients will be hurt (because while inflation increases, their income doesn’t increase, and therefore their income will have less value over time).
- Increased consumption ratio at the early stages of inflation (people will be consuming more because money is more abundant and its value is not lowered yet).
- Lowers national saving (when there is a high inflation, saving money would mean watching your cash decrease in value day after day, so people tend to spend the cash on something else).
- Illusions of making profits (companies will think they were making profits while in reality they’re losing money if they don’t take into consideration the inflation rate when calculating profits).
- Causes an increase in tax bracket (people will be taxed a higher percentage if their income increases following an inflation increase).
- Causes mal-investment (in inflation times, the data given about an investment is often deceptive and unreliable, therefore causing losses in investments).
- Causes business cycles (many companies will have to go out of business because of the losses they incurred from inflation and its effects).
- Currency debasement (which lowers the value of a currency, and sometimes cause a new currency to be born)
- Rising prices of imports (if the currency is debased, then it’s purchasing power in the international market is lower).
"Positive" effects of inflation are:
- It can benefit the inflators (those responsible for the inflation)
- It be benefit early and first recipients of the inflated money (because the negative effects of inflation are not there yet).
- It can benefit the cartels (it benefits big cartels, destroys small sellers, and can cause price control set by the cartels for their own benefits).
- It might relatively benefit borrowers who will have to pay the same amount of money they borrowed (+ fixed interests), but the inflation could be higher than the interests, therefore they will be paying less money back. (example, you borrowed $1000 in 2005 with a 5% fixed interest rate and you paid it back in full in 2007, let’s suppose the inflation rate for 2005, 2006 and 2007 has been 15%, you were charged %5 of interests, but in reality, you were earning %10 of interests, because 15% (inflation rate) – 5% (interests) = %10 profit, which means you have paid only 70% of the real value in the 3 years.
Note: Banks are aware of this problem, and when inflation rises, their interest rates might rise as well. So don't take out loans based on this information.
- Many economists favor a low steady rate of inflation, low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reducing the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
- Tobin effect argues that: a moderate level of inflation can increase investment in an economy leading to faster growth or at least higher steady state level of income. This is due to the fact that inflation lowers the return on monetary assets relative to real assets, such as physical capital. To avoid inflation, investors would switch from holding their assets as money (or a similar, susceptible to inflation, form) to investing in real capital projects.
The first three effects are only positive to a few elite, and therefore might not be considered positive by the general public.
How to Survive Inflation?
Tips to avoid the negative effects of inflation are only suggestions and don’t constitute any legal advice, therefore you’re free to use your own judgment depending on circumstances, to be more prepared to face inflation effects you need to be aware of those effects, so if you haven’t done so, please read some of them above, here are some tips:
- Be wise when holding cash, whether in your home or in your savings account, if you’re earning 5% interest on the money you have in your bank, and inflation rate is 10% then you’re in reality losing 5% and not earning anything.
- Be careful when buying bonds, high inflation rates completely destroy the value of long-term bonds.
- If you have a variable-rate mortgage, fix it if you can find a good deal, have a low fixed interest rate or 0% interest if you can find one.
- Invest in durable goods or commodities rather than in money. Check out our commodities list.
- Invest in things that you're going to use anyway and will serve you for a long time.
- Invest for long-term capital gains, because short term investments tend to give deceptive results or sense of making profits while in reality you’re not making profits.
- Learn about bartering which is trading goods or services without the exchange of money (it was very popular in hyperinflation times).
- Manage wisely your recurring monthly bills such as (phone bills, cable TV...), it would help to reduce them or eliminate some of them.
-Same goes with ephemeral items (movies, restaurants, hotel rooms...) they’re not bad if you spend money on them in moderation.
-Ask yourself, do I really need these things I’m spending my money on? Think how much and how often you will need something before buying it.
-Use the money saving tips such as: you need to reduce your consumption of things that are rising rapidly in price (eg, gas) without having to reduce your consumption of goods that are rising less rapidly or even falling in price (eg, clothes).
-Buy only what you need, especially objects that have multi-tasks, and are considered durable goods.
The conclusion from all this is: You don’t have to live cheap, just live smart!
Money and Inflation
Money is considered a storage of value. Normally if you were to sell a car for 100 gold coins, you should be able to go back and change that money in for another car tomorrow or the next week or the next month. When money holds its value, people feel safe saving it. Inflation weakens the function of money as a storage of value, because each unit of money is worth less with the passing of time and increase of inflation, so people tend to spend money on something else which can play the role of “the storage of value”.
Other terms related to inflation are:
Deflation: a fall in the general price level.
Disinflation: a decrease in the rate of inflation.
Hyperinflation: an out-of-control inflationary spiral.
Stagflation: a combination of inflation, slow economic growth and high unemployment.
Reflation: an attempt to raise the general level of prices to counteract deflationary pressures.
Depression: a severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels.
http://crisistimes.com/inflation.htm
Inflation is divided into two types: Price Inflation and Monetary Inflation, the first type (about prices) is when there is a rise in the general level of prices of goods and services over a period of time, the second type (monetary) is when there is a rise in the quantity of money in an economy. Both types are in many times interrelated, and both have negative effects on the economy and individuals.
Effects of Inflation
Most effects of inflation are negative, and can hurt individuals and companies alike, below is a list of "negative" and “positive” effects of inflation:
Negative effects are:
- Hoarding (people will try to get rid of cash before it is devalued, by hoarding food and other commodities creating shortages of the hoarded objects).
- Distortion of relative prices (usually the prices of goods go higher, especially the prices of commodities).
- Increased risk - Higher uncertainties (uncertainties in business always exist, but with inflation risks are very high, because of the instability of prices).
- Income diffusion effect (which is basically an operation of income redistribution).
- Existing creditors will be hurt (because the value of the money they will receive from their borrowers later will be lower than the money they gave before).
- Fixed income recipients will be hurt (because while inflation increases, their income doesn’t increase, and therefore their income will have less value over time).
- Increased consumption ratio at the early stages of inflation (people will be consuming more because money is more abundant and its value is not lowered yet).
- Lowers national saving (when there is a high inflation, saving money would mean watching your cash decrease in value day after day, so people tend to spend the cash on something else).
- Illusions of making profits (companies will think they were making profits while in reality they’re losing money if they don’t take into consideration the inflation rate when calculating profits).
- Causes an increase in tax bracket (people will be taxed a higher percentage if their income increases following an inflation increase).
- Causes mal-investment (in inflation times, the data given about an investment is often deceptive and unreliable, therefore causing losses in investments).
- Causes business cycles (many companies will have to go out of business because of the losses they incurred from inflation and its effects).
- Currency debasement (which lowers the value of a currency, and sometimes cause a new currency to be born)
- Rising prices of imports (if the currency is debased, then it’s purchasing power in the international market is lower).
"Positive" effects of inflation are:
- It can benefit the inflators (those responsible for the inflation)
- It be benefit early and first recipients of the inflated money (because the negative effects of inflation are not there yet).
- It can benefit the cartels (it benefits big cartels, destroys small sellers, and can cause price control set by the cartels for their own benefits).
- It might relatively benefit borrowers who will have to pay the same amount of money they borrowed (+ fixed interests), but the inflation could be higher than the interests, therefore they will be paying less money back. (example, you borrowed $1000 in 2005 with a 5% fixed interest rate and you paid it back in full in 2007, let’s suppose the inflation rate for 2005, 2006 and 2007 has been 15%, you were charged %5 of interests, but in reality, you were earning %10 of interests, because 15% (inflation rate) – 5% (interests) = %10 profit, which means you have paid only 70% of the real value in the 3 years.
Note: Banks are aware of this problem, and when inflation rises, their interest rates might rise as well. So don't take out loans based on this information.
- Many economists favor a low steady rate of inflation, low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reducing the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
- Tobin effect argues that: a moderate level of inflation can increase investment in an economy leading to faster growth or at least higher steady state level of income. This is due to the fact that inflation lowers the return on monetary assets relative to real assets, such as physical capital. To avoid inflation, investors would switch from holding their assets as money (or a similar, susceptible to inflation, form) to investing in real capital projects.
The first three effects are only positive to a few elite, and therefore might not be considered positive by the general public.
How to Survive Inflation?
Tips to avoid the negative effects of inflation are only suggestions and don’t constitute any legal advice, therefore you’re free to use your own judgment depending on circumstances, to be more prepared to face inflation effects you need to be aware of those effects, so if you haven’t done so, please read some of them above, here are some tips:
- Be wise when holding cash, whether in your home or in your savings account, if you’re earning 5% interest on the money you have in your bank, and inflation rate is 10% then you’re in reality losing 5% and not earning anything.
- Be careful when buying bonds, high inflation rates completely destroy the value of long-term bonds.
- If you have a variable-rate mortgage, fix it if you can find a good deal, have a low fixed interest rate or 0% interest if you can find one.
- Invest in durable goods or commodities rather than in money. Check out our commodities list.
- Invest in things that you're going to use anyway and will serve you for a long time.
- Invest for long-term capital gains, because short term investments tend to give deceptive results or sense of making profits while in reality you’re not making profits.
- Learn about bartering which is trading goods or services without the exchange of money (it was very popular in hyperinflation times).
- Manage wisely your recurring monthly bills such as (phone bills, cable TV...), it would help to reduce them or eliminate some of them.
-Same goes with ephemeral items (movies, restaurants, hotel rooms...) they’re not bad if you spend money on them in moderation.
-Ask yourself, do I really need these things I’m spending my money on? Think how much and how often you will need something before buying it.
-Use the money saving tips such as: you need to reduce your consumption of things that are rising rapidly in price (eg, gas) without having to reduce your consumption of goods that are rising less rapidly or even falling in price (eg, clothes).
-Buy only what you need, especially objects that have multi-tasks, and are considered durable goods.
The conclusion from all this is: You don’t have to live cheap, just live smart!
Money and Inflation
Money is considered a storage of value. Normally if you were to sell a car for 100 gold coins, you should be able to go back and change that money in for another car tomorrow or the next week or the next month. When money holds its value, people feel safe saving it. Inflation weakens the function of money as a storage of value, because each unit of money is worth less with the passing of time and increase of inflation, so people tend to spend money on something else which can play the role of “the storage of value”.
Other terms related to inflation are:
Deflation: a fall in the general price level.
Disinflation: a decrease in the rate of inflation.
Hyperinflation: an out-of-control inflationary spiral.
Stagflation: a combination of inflation, slow economic growth and high unemployment.
Reflation: an attempt to raise the general level of prices to counteract deflationary pressures.
Depression: a severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels.
http://crisistimes.com/inflation.htm
Quote for the day
"Success is achieved and maintained by those who try and keep trying." - W. Clement Stone
Sunday, 10 October 2021
Path to Success
The path to success is not a straight one, it is a winding road where adjustments must be made to continue moving in the right direction.
The 10 steps on the path to success.
1. Written goals: You must have goals to both guide your big decisions in life and tell your subconscious what to move towards. The power of written goals is something few people ever use. The first step on the path to success is writing down what you want over the short-term and long-term in all areas of your life: health, relationships, finances, spiritually and in your career. You can’t start your journey without a map of the territory your travelling to.
2. Model Success: To achieve your goals you need models of people who have already done what you want to do. Look at how they achieved it, what they did, what they read, the risks they took, and the systems they used. You must look for the principles and the context of their accomplishments. Use them as models to see what is possible, how much work and how long it took, and measure the cost.
10. Perseverance: Quitting ensures failure, trying longer increases the probability of success. If you are on the right track then pursuing your goals and not stopping will continue to rise your probability of success until it reaches 100% one day. “Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.” – Thomas Edison
If you know where you want to go, get on the path of success, and stay moving in the right direction, only time separates you from your goals.
The 10 steps on the path to success.
1. Written goals: You must have goals to both guide your big decisions in life and tell your subconscious what to move towards. The power of written goals is something few people ever use. The first step on the path to success is writing down what you want over the short-term and long-term in all areas of your life: health, relationships, finances, spiritually and in your career. You can’t start your journey without a map of the territory your travelling to.
2. Model Success: To achieve your goals you need models of people who have already done what you want to do. Look at how they achieved it, what they did, what they read, the risks they took, and the systems they used. You must look for the principles and the context of their accomplishments. Use them as models to see what is possible, how much work and how long it took, and measure the cost.
3. Count the Cost: Understand what it will take to achieve your goals, the time, work, energy, effort, education, and risk. Know the cost before you begin. Before you go any farther you must be willing to pay the price for the success you want. If you aren’t then the journey stops and you find something you are willing to pay the price for. If you are willing to pay the price tag keep going.
4. Create a System: You need a systematic process that moves you closer to your goals each day. What do you need to do every day to be just a little closer to your goal? What should you read? Who should you study? What should you learn? How can you grow yourself into who you need to be? How can you grow your business, career, connections, work, or project in some way no matter how small. Compounding growth leads to huge accomplishments when done consistently.
5. Work Hard: Each day you must do the needed work to move yourself toward your goals. This is the most difficult part that ends most people’s journey to their own goals. Work is what separates goals from just wishes, hopes, and dreams. Work is putting in the effort to take the actions needed to move closer and closer to achievement each day. If it were easy everyone would do it.
6. Work Smart: Work alone is not enough, it must be working at the right things that matter. You need a feedback loop that allows you to see what moves you closer to your goals, what doesn’t, and what wastes your time and energy. You must track your progress and analytics and see the work that is meaningful. 80% of all results will likely come from just 20% of your actions, double down on what leads to results and stop doing what leads nowhere.
7. Quantified Data: You need to study your competitors for what worked for them, their biggest successes and failures and the data behind them. In no time in history has more data been available to show what does and doesn’t work in any field or industry, MoneyBall is a great movie that teaches basic analytics and the use of data to optimize the value of money and time.
8. Quality and Value: In whatever you do you must create and deliver quality and value to be successful. You must be giving more to your customers, audience, students, or in your relationships than you are taking from or costing them. Even with goals for yourself you need quality food, quality thoughts, and quality exercise for health goals as an example. The cost you are paying must be worth the value you are getting. The cost you ask from others must be less than the value you are delivering. If your product is crap nothing else matters in business, you fail. If value is not there then relationships, business partnerships, employee motivation, and customers will be brief as they go looking for better opportunities.
9. Mindset: A positive mind and attitude can be an edge. Negativity can be a drain on your energy and ensure failure. If you don’t believe in yourself and your goal who else ever will? A growth mindset doesn’t guarantee success as there are many other variables but a negative mindset can almost guarantee failure.
10. Perseverance: Quitting ensures failure, trying longer increases the probability of success. If you are on the right track then pursuing your goals and not stopping will continue to rise your probability of success until it reaches 100% one day. “Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.” – Thomas Edison
If you know where you want to go, get on the path of success, and stay moving in the right direction, only time separates you from your goals.
Source:www.newtraderu.com
Quote for the day
"Courage doesn’t mean you don’t get afraid. Courage means you don’t let fear stop you." - Bethany Hamilton
Saturday, 9 October 2021
Be Observers Of Stock Market, Not Predictors
Stock markets are unpredictable. Most will agree. Even then we all look for market predictions. There are people claiming to predict the markets. Sometimes they are right and sometimes they are wrong. When they are right they tell the whole world, and when they are wrong, they just simply choose to forget it.
In my view, it is almost impossible to predict the markets consistently. If someone WERE able to predict the markets, why would he or she even share it with you. She would be sitting on billions of dollars. A successful investor does not say "Come I will teach you how to make money like me".
In my view, to succeed for stock investing, we don't need to be predictors but observers. Stock investing is much like trying to swim. When the river is flowing down, it is necessary that one does not try to swim up, because if one does, one will face stiff resistance. Similarly, if the flow is up, one should be careful to try to swim upwards and not down.
Difference between predicting and observing:
Predicting:
a. When the market is rising, asking "Till what point will the markets rise"
b. When the market is falling, asking "At what point will the correction stop"
c. In a rising market, shorting the stocks/index at a point where you "think" there is resistance
d. In a falling market, buying stocks/index at a point where you "think" is the support
Observing:
a. When a market is rising, asking: are there signs that the trend is changing. If yes, what will be my strategy. If no, I will hold to my longs.
b. When the market is falling, asking, are there signs that the trend is changing upwards. If yes, which stocks will I buy when the trend changes.
c. In a rising market, watching for resistance. This means that if at a level the market finds difficulty to breakout, then considering that point as resistance.
d. In a falling market, watching for support. This means that if you find a level at which the market has already found support, then considering that point as support.
Too simplistic? What is the difference between the two you ask. The difference can be explained with an example.
If the markets have corrected by 20%, predictors would start buying the stocks and start averaging at each fall. Observers however will not buy the stock till the market actually stops, shows signs of stability and then shows some upwards movement. On getting their cue, the observer will buy into his position and keep the support as a stop loss point. There is just a small difference between these 2 techniques, but one that could have enormous implications on how much money you can make by stock investing.
Stock investing is not a game. Consider it a business with a certain risk and reward characteristics. If one plays it like a game one needs to be lucky to make money. If one treats it like a business, one needs to be just smart (with some luck).
By Aditya K Agarwal
Article Source: http://EzineArticles.com/940150
In my view, it is almost impossible to predict the markets consistently. If someone WERE able to predict the markets, why would he or she even share it with you. She would be sitting on billions of dollars. A successful investor does not say "Come I will teach you how to make money like me".
In my view, to succeed for stock investing, we don't need to be predictors but observers. Stock investing is much like trying to swim. When the river is flowing down, it is necessary that one does not try to swim up, because if one does, one will face stiff resistance. Similarly, if the flow is up, one should be careful to try to swim upwards and not down.
Difference between predicting and observing:
Predicting:
a. When the market is rising, asking "Till what point will the markets rise"
b. When the market is falling, asking "At what point will the correction stop"
c. In a rising market, shorting the stocks/index at a point where you "think" there is resistance
d. In a falling market, buying stocks/index at a point where you "think" is the support
Observing:
a. When a market is rising, asking: are there signs that the trend is changing. If yes, what will be my strategy. If no, I will hold to my longs.
b. When the market is falling, asking, are there signs that the trend is changing upwards. If yes, which stocks will I buy when the trend changes.
c. In a rising market, watching for resistance. This means that if at a level the market finds difficulty to breakout, then considering that point as resistance.
d. In a falling market, watching for support. This means that if you find a level at which the market has already found support, then considering that point as support.
Too simplistic? What is the difference between the two you ask. The difference can be explained with an example.
If the markets have corrected by 20%, predictors would start buying the stocks and start averaging at each fall. Observers however will not buy the stock till the market actually stops, shows signs of stability and then shows some upwards movement. On getting their cue, the observer will buy into his position and keep the support as a stop loss point. There is just a small difference between these 2 techniques, but one that could have enormous implications on how much money you can make by stock investing.
Stock investing is not a game. Consider it a business with a certain risk and reward characteristics. If one plays it like a game one needs to be lucky to make money. If one treats it like a business, one needs to be just smart (with some luck).
By Aditya K Agarwal
Article Source: http://EzineArticles.com/940150
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