Wealth Building

Sunday, 9th April 2017

What is your advantage?

Written by George Traganidas Topics: Habits, Stock Investing, Wealth Building

Advantage

Investing is a zero sum game. For each investor that is buying a security because he thinks that it is undervalued, another investor is selling the same security because she thinks that it is overvalued. This difference in opinion is what makes the market. If everyone wants to buy or sell the same security at the same time, there would be no one to take the other side of the trade and there would be no market.

Therefore, the most important concern for an investor is to consider who is at the other side of the trade.[…]

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Thursday, 5th May 2016

2016 Annual Berkshire Hathaway Shareholder’s Meeting

Written by George Traganidas Topics: Presentations, Stock Investing, Wealth Building

Berkshire Hathaway meeting

Berkshire Hathaway held its 51st shareholder’s meeting in Omaha on Saturday 30th of April. This was the first year that the meeting was also broadcast live through Live Feed Video and it will be available for 30 days after the meeting. This caused a drop in the number of people who attended the meeting this year in Omaha, because they could watch the event from home.

Here follow my notes from the meeting. The notes will not cover all the topics and they are my attempt to summarise their most important points.[…]

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Wednesday, 27th January 2016

Security Analysis by Ben Graham

Written by George Traganidas Topics: Books, Stock Investing, Wealth Building

Security Analysis by Ben Graham

Ben Graham published the second edition of Security Analysis in 1940 and many investors still consider it one of the best investment books ever written. The book is about 800 pages long and by no means is an easy read. This has discouraged a lot of people from reading the book and learning from the “father of security analysis”. The book does a great job of laying out the investment philosophy of Ben Graham and how to think about investments and businesses. He outlines principles about investing in bonds, preferred shares, warrant and common stocks and uses a lot of examples from companies in that era to demonstrate his thinking.[…]

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Friday, 16th October 2015

Business Moats

Written by George Traganidas Topics: Stock Investing, Wealth Building

Moat

One of the tasks of an analyst who is evaluating a business is to think about the moat of the business. But what is a moat? A simple way to think about moats is to imagine that the business is a castle and the moat it what surrounds the business and keeps other businesses at bay. Every business has a moat, but the difference is the size and the durability. Some businesses have narrow moats and other have wide ones. Some business moats are shrinking as time goes by, whereas others are widening. Ideally an analyst wants to find a business with a wide moat that keeps widening. One of the characteristics of the capitalist system is that a profitable business will attract more and more competitors and these competitors will test your moat repeatedly. Thus, the more successful a business is the harder it is to keep being successful and widen its moat. […]

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Tuesday, 26th May 2015

Investment advice from Warren Buffett

Written by George Traganidas Topics: Personal Finance, Stock Investing, Wealth Building

Warren Buffett

A lot of people are still wondering where they should invest their money. Should they buy some stocks or are they too risky and they should invest in bonds instead. In his speeches and writings Warren Buffett has always said that a diversified portfolio of American businesses will provide the best long term results as long as the investor buys and holds wonderful businesses for the long term. His approach is simple so anyone can follow it and it delivers results with minimum supervision over the investments and minimum loss of sleep. He has followed his own advice and over 50 years it has helped him to build Berkshire Hathaway into a successful holding company. He is a man who follows his own advice. […]

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Tuesday, 5th May 2015

2015 Annual Berkshire Hathaway Shareholder’s Meeting

Written by George Traganidas Topics: Presentations, Stock Investing, Wealth Building

Berkshire Hathaway meeting

This time every year thousands of people from all over the world are gathering in Omaha to hear the words of Warren Buffett and his partner Charlie Munger. This year the crowd was about 44,000 people and they were not disappointed. The meeting started at 8:30 with the annual movie and at about 9:00, Warren and Charlie started the Q&A session. They answered question for about six hours on every topics. As always no questions were off limit.

Here follow my notes from the meeting. The notes will not cover all the topics and they are my attempt to summarise their most important points. […]

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Sunday, 18th May 2014

2014 Berkshire Hathaway Annual Shareholder meeting notes and more

Written by George Traganidas Topics: Presentations, Stock Investing, Wealth Building

Berkshire Hathaway meeting

On Saturday 3rd of May I joined almost 38,000 other “students” to attend the master class for investors that is the Berkshire Hathaway annual meeting. People started queuing at 2:30 am on Saturday in order to get a front seat to listen to Warren Buffett and his partner Charlie Munger. A student was paid $100 to start queuing at 3:00 am for a shareholder who arrived at 7:00 am to take his place in the line. As per usual, Warren Buffett and his long time business partner Charlie Munger sat on stage in Omaha, Nebraska, for over five hours answering questions from reporters, financial analysts, and Berkshire shareholders. Many shareholders had travelled great distances to be part of the weekend.[…]

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Wednesday, 12th March 2014

Lessons from Warren Buffet’s 2014 letter to shareholders

Written by George Traganidas Topics: Property Investing, Stock Investing, Wealth Building

Warren Buffett

On Saturday 1st of March, Warren Buffet released his 2013 annual letter to shareholders of Berkshire Hathaway. As always his letter is a great read, because it does not only tell you about his company but also gives general advice on investments and finance. He has been helping people for years to better understand the investment process and what they should look for and what to avoid. His insights on how to value companies are priceless. In addition, he sometimes gives general finance advice to help people who are not investment professionals themselves and they just want to look after their wealth and grow it.[…]

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Saturday, 23rd March 2013

How to value a business

Written by George Traganidas Topics: Stock Investing, Wealth Building

There seems to be a lot of confusion and discussion on how to value a business and determine what is a fair price to pay. If you are wondering whether to buy a share or the whole business you must be able to answer a simple question. How much is the value of the business and is the current price fair? After all a stock is part ownership of a business.

So let’s start from the beginning. Valuing a business is an eight step process and it takes time and effort.[…]

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Monday, 31st December 2012

Benjamin Franklin’s “The Way to Wealth”

Written by George Traganidas Topics: Articles, Habits, Personal Finance, Wealth Building

Courteous Reader,

I have heard that nothing gives an author so great pleasure, as to find his works respectfully quoted by other learned authors. This pleasure I have seldom enjoyed; for tho’ I have been, if I may say it without vanity, an eminent author of almanacs annually now a full quarter of a century, my brother authors in the same way, for what reason I know not, have ever been very sparing in their applauses; and no other author has taken the least notice of me, so that did not my writings produce me some solid pudding, the great deficiency of praise would have quite discouraged me.[…]

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Saturday, 12th May 2012

Berkshire Hathaway shareholders meeting 2012

Written by George Traganidas Topics: Seminars, Stock Investing, Wealth Building

Warren Buffet

Last weekend I went to Omaha for the annual Shareholders meeting of Berkshire Hathaway. It was an opportunity to see and hear Warren Buffet and Charlie Munger speak live and answer questions for more than 5 hours. It is a great experience and really well worth it.

On Friday evening, there were welcome drinks with food and a live band at Borsheims. It attracted a big crowd and it was a great place to socialise and meet fellow shareholders. Some of them have been going to the annual meeting for 30 years, but there were also a few that this was the first meeting that they attended.[…]

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Friday, 10th February 2012

Why stocks beat gold and bonds

Written by George Traganidas Topics: Articles, Stock Investing, Wealth Building

Fortune
By WARREN E. BUFFETT
Published: February 9, 2012

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — after taxes have been paid on nominal gains — in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability — the reasoned probability — of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk.[…]

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Sunday, 16th October 2011

Howard Marks Investing Ideas, part 4

Written by George Traganidas Topics: Stock Investing, Wealth Building

The “know” and “don’t know” schools

The “I know” school people believe they can discern what the future holds, and in their world investing is a simple matter:

  • First you decide what the economy is going to do in the period under consideration.
  • Then you figure out what the impact will be on interest rates.
  • From this you infer how the securities markets will perform.
  • You choose the industries that will do best in that environment.
  • You make judgments about how the industries’ companies will fare in terms of profits.
  • Based on all of this information, you pick stocks that are bound to appreciate.[…]

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Sunday, 16th October 2011

Howard Marks Investing Ideas, part 3

Written by George Traganidas Topics: Stock Investing, Wealth Building

Performance

A bit above average performance is not that bad if you can consistently do it for many years. You do not need to swing for the fences in order to achieve long term gain. If you are willing to take huge bets on assets to gain the spectacular results you should be ready to fail some times and then have huge losses. That will give you an average return over the years, unless of course you can be right about the future most of the times. Not an easy task to accomplish.[…]

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Sunday, 16th October 2011

Howard Marks Investing Ideas, part 2

Written by George Traganidas Topics: Stock Investing, Wealth Building

Telling the future

Making market forecasts on a consistent basis is not an easy thing. Many people try and none succeed on it. If you are always crying ‘wolf’ then at some point you will be right, but that does not tell us about your ability to forecast market movements. A useful market forecast is only useful if it is in contrary to popular belief. If everyone predicts it then this is already reflected in the price of assets. […]

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Sunday, 16th October 2011

Howard Marks Investing Ideas, part 1

Written by George Traganidas Topics: Stock Investing, Wealth Building

When the world’s self-made billionaires speak it is good to listen. Then when you find out who they follow on a regular basis, maybe you should look at them too. This is how I learned about Howard Marks. Howard is the chairman of Oaktree since 1995. His approach to money management is based on a simple motto: “if we avoid the losers, the winners will take care of themselves”. His memos to clients are a must read for investors. Here are some pieces of advice taken directly from his memos.[…]

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Thursday, 15th September 2011

“Common Stocks and Uncommon Profits” by Philip A. Fisher

Written by George Traganidas Topics: Books, Stock Investing, Wealth Building

Common Stocks and Uncommon Profits

Philip Fisher was in investor for many years and he was a very successful one. In his book “Common Stocks and Uncommon Profits” he outlines some of his ideas that have helped him to be a successful investor.

He regularly used to go out on the field and speak with employees of the companies, with suppliers, competitors and the management and was able to gather valuable information from them. Of course, he did a lot of preparation work before he went to the meetings to show to people that he was a serious investor.

Here are 15 points that he was looking for in companies that he wanted to invest in. Many of them are more difficult to quantify than a simple P/E ratio, but none the less very important.[…]

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Thursday, 15th September 2011

The lessons of the 2007 crash

Written by George Traganidas Topics: Wealth Building

Howard Marks from Oaktree capital wrote in a memo the lessons that the market crash of 2007 should have thought us. A lot of these lessons are not new ones, but a repetition of old lessons that investors did not learn last time. Or maybe their memory is short term. Maybe more attention should be paid this time and learn these lessons to avoid repeating them next time. Because there will surely be a next time. Here are the lessons:[…]

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Monday, 8th August 2011

This time it is not different

Written by George Traganidas Topics: Wealth Building

Mark Howard of Oaktree Capital Management wrote in one of his memos about the times that are unchanged. Here is his notes:


Why do the mistakes repeat? That’s a good question, but not much of a mystery. First, few investors have been around long enough to recognize reoccurrence of the errors of twenty or forty years ago. And second, the greed that argues for ignoring “the old rules” easily trumps caution; hope truly does spring eternal. That’s especially true when the good times are rolling. The tendency to ignore the rules invariably reaches its apex in periods when following them has cost people money. It is thus, as Galbraith points out, that those who harp on the lessons of the past are dismissed as old fogies. What are some of the recurring mistakes investors make?[…]

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Monday, 8th August 2011

The most important thing

Written by George Traganidas Topics: Wealth Building

The most important thing

Mark Howard of Oaktree Capital Management wrote in one of his memos that a lot of people ask him what is the most important thing he has learned throughout his years of investing. After been asked this question a lot, he decided to compile a list of the answers he has given to various people, because he has given various answers. Here is the list:

  • The most important thing – above all – is the relationship between price and value.
  • The most important thing is a solidly based, strongly held estimate of intrinsic value.

[…]

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Monday, 8th August 2011

How to build a successful partnership

Written by George Traganidas Topics: Wealth Building

Successful Partnership

Mark Howard of Oaktree Capital Management wrote in one of his memos some very good ideas about building a successful partnership:


If an organization is to be the best, it must find, train and retain the best. Not only does turnover drain off your best people, but it also takes their institutional memory and leaves you bogged down in hiring and training their replacements.

We always have placed great emphasis on preventing turnover, and the results are visible – in the very small number of senior professionals who have moved on to other employment in my 25 years in portfolio management, and in the investment performance that my long-term colleagues have produced.[…]

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Tuesday, 21st June 2011

Compound interest

Written by George Traganidas Topics: Personal Finance, Wealth Building

Compound interest is when the interest you have earned gains interest itself. For example, if you deposit £1000 in the bank and you get 10% interest per year, at the end of year 1 you will have £1100. Then at the end of year 2, you will have £1210. During the second year the interest is applied to your original amount (£1000) and to the interest that you gained at the 1st year (£10). This is how money multiplies over the years and it works for you. Notice that you have only deposited £1000, but then the money that you gain from interest multiplies by itself (together with your original amount) and works for you. This is the secret of how to become rich. Many of the richest people in the world have used this simple idea to create their fortunes, e.g. Warren Buffet, John D. Rockefeller.[…]

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Thursday, 23rd December 2010

A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business

Written by George Traganidas Topics: Presentations, Stock Investing, Wealth Building

Charles Munger
USC Business School
1994

I’m going to play a minor trick on you today – because the subject of my talk is the art of stock picking as a subdivision of the art of worldly wisdom. That enables me to start talking about worldly wisdom – a much broader topic that interests me because I think all too little of it is delivered by modern educational systems, at least in an effective way.

And therefore, the talk is sort of along the lines that some behaviorist psychologists call Grandma’s rule after the wisdom of Grandma when she said that you have to eat the carrots before you get the dessert.[…]

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Monday, 20th December 2010

How to combat a financial crisis

Written by George Traganidas Topics: Personal Finance, Wealth Building

A lot of people are confused on what to do in this difficult economic climate. People are losing their jobs, governments are raising taxes, goods are becoming more expensive, currencies are devalued, etc. This is not a nice picture and many people are feeling helpless in this doom and gloom.

Maybe this is not the best way to think, but you have to consider how all this affects you. Maybe the general economy is bad, maybe companies are not doing so well, but the real question is how are you doing? What does all this mean for you? What can you do to avoid the chaos and (to take it a step further) profit from all this? Do not think that this is totally selfish, it partially is. But looking after yourself, you can survive and then you can provide for the people that matter to you. You can provide to them in the form of money, but even better you can provide to them in the form of knowledge.[…]

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Tuesday, 9th November 2010

Warren Buffett’s Business Evaluation Filters

Written by George Traganidas Topics: Stock Investing, Wealth Building

At a press conference in 2001, when Warren Buffett was asked how he evaluated new business ideas, he said he used 4 criteria as filters.

  • Can I understand it (Is it predictable. Do I have a reasonable probability of being able to assess where the business will be in 10 years)?[…]

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Monday, 1st November 2010

Charlie Munger Investment Principles Checklist

Written by George Traganidas Topics: Stock Investing, Wealth Building

Poor Charlie's Almanack

I finished reading “Poor Charlie’s Almanack” that details the thinking principles of Charlie Munger about investments and life in general. The book is an amazing read, because it shows how Charlie thinks about problems using many different ways. This helps him to avoid the “Man with a hammer” syndrome and allows him to see other aspects of problems and try many different ways to solve them.

The book contains all his talks, lectures and public commentary.[…]

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Thursday, 21st October 2010

Dollar Cost Averaging

Written by George Traganidas Topics: Stock Investing, Wealth Building

A lot of people are trying to time the market, but very few are able to do it consistently. The old advice of buy low and sell high is not that easy to implement and many people end up doing the exact opposite. An easy way to invest in the stock market is dollar-cost averaging. Here is a helpful post from fool.com that explain how it works:

Let’s begin with a definition. Dollar-cost averaging is a fancy term for periodic investments of fixed sums of money. Simply put, dollar-cost averaging involves investing a set amount of cash ($100, $500, $1,000) at regular intervals (monthly, quarterly, yearly) into a stock, a group of stocks or a fund. The key to its success is consistency. Investing the same amount each time on a set schedule can really help grow your portfolio over time.[…]

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Thursday, 21st October 2010

Enterprise Value

Written by George Traganidas Topics: Stock Investing, Wealth Building

When you are evaluating a company you need many tools that will help you to look at the company in different ways. One such tool is enterprise value. Here is a very good article from fool.com that explains what it is:

When trying to determine the value for a given company, a metric that many investors use religiously is market capitalization, better known by the shortened, slightly sassier term “market cap.” It’s simple enough to figure out — all you do is multiply the company’s shares outstanding by its current share price.[…]

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Monday, 4th October 2010

The Art of Stock Valuation, part 1

Written by George Traganidas Topics: Stock Investing, Wealth Building

When you are looking to invest your money in the stock market you need to go through thousands of companies and decide which ones will prosper in the future and which ones will not. The way to decide which ones will prosper is more of an art than it is science. Unfortunately, there is no secret formula for this although many people have tried unsuccessfully to create one that will work over the years. Many of these theories have been created based on mathematical models and all of them failed in due course.

This series of posts will look at people who have been successful at picking prosperous businesses over the years and will try to reverse engineer their successful approach. We will look at both quantitative and qualitative measures that can be used to evaluate companies. The data available for each of these companies is so vast that we need to sort through it, ignoring the noise and concentrate on the key metrics that really matter.[…]

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Wednesday, 8th September 2010

Option Strategies

Written by George Traganidas Topics: Options, Wealth Building

Option Strategies

There are a lot of option strategies and each one of them should be used in the appropriate situation. The guide below is a summary of a series of articles about the stock strategies. This summary will help you to identify which strategy to use in which situation so you can maximise your profits and reduce your loses. I will update the list below as a find new information about the strategies or as I learn new ones.[…]

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Wednesday, 8th September 2010

Bearish Spreads

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
February 11, 2010

Why use bearish spreads?

  • To profit on a falling stock or index while capping your risk.
  • To earn strong percentage returns on a moderate move in an underlying investment.
  • To lower the cost of bearish put option purchases.[…]

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Wednesday, 8th September 2010

Bull Call Spreads

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jim Gillies
August 25, 2009

Why use bull call spreads?

  • Capital gains: To profit on a stock you feel relatively bullish on.
  • Defense: To limit your capital at risk and lower your break-even point compared with just buying calls alone.
  • Leverage: To land an oversized potential return on your net cost, although you sacrifice additional upside.[…]

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Wednesday, 8th September 2010

An Introduction to Spreads

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
February 11, 2010

Why use spreads:

  • To profit on the movement in a stock while capping your potential loss at a pre-determined amount — though you cap your potential profit as well.
  • To purchase options with less cash up-front, which in turn helps leverage your potential returns.
  • To earn sizable percentage gains even on modest moves in the underlying stock.[…]

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Wednesday, 8th September 2010

Writing Straddles

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
November 18, 2009

Why write a straddle?

  • You believe a stock or index is going to hold steady or stay in a tight range.
  • You believe a stock that was recently volatile will settle down considerably.
  • You believe the market’s overall volatility is going to decrease.[…]

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Wednesday, 8th September 2010

Buying Straddles

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
October 7, 2009

Why buy a straddle?

  • You believe a stock or index will move dramatically, but you don’t know which way.
  • You believe volatility will increase in general, so the value of the options you’re buying will increase.
  • You want to leverage potential returns when the underlying investment moves meaningfully in either direction, but limit your risk.[…]

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Wednesday, 8th September 2010

Strangles

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
March 12, 2010

Why use strangles?

  • You buy (“buy to open”) a strangle to profit on a sharp move in a stock, whether up or down.
  • You write (“sell to open”) a covered strangle to profit when a stock stays within a wide range — or, if it doesn’t, to get a better buy price on new shares or a higher sell price on existing shares.[…]

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Wednesday, 8th September 2010

Diagonal Calls

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jim Gillies
September 28, 2009

Why use diagonal calls?

1. If you’re mildly bullish on a stock and want to generate income from a leveraged investment.
2. To profit from a range-bound stock.
3. If your underlying stock is chosen well, and you’re handed a little market luck, you can wake up a year or two hence with a significantly in-the-money call option that effectively costs you nothing.[…]

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Wednesday, 8th September 2010

Stock Repair

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Who should use the stock repair strategy? Someone who is:

  • Down 15% to 25% on a stock and willing to forego profits to sell at breakeven.
  • Not interested in averaging down or holding for the long haul.
  • Using a margin-approved account and can write call options.[…]

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Wednesday, 8th September 2010

Synthetic Shorts

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com By Jeff Fischer August 10, 2009 Feeling bearish? If you’re looking to profit when stock prices slip, there’s a way to use options to mimic shorting a stock — but with distinct advantages. To set up this “synthetic short” position, you sell a call option and simultaneously buy a put option, using the same […]

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Wednesday, 8th September 2010

Synthetic Longs

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Are you confident about a stock, but reluctant to pony up the cash to buy it today? A synthetic long may be just the ticket.

This option strategy works nearly the same as owning the underlying stock outright — except you don’t need to pay up front. Usually, you’ll set up a synthetic long on a stock if you foresee a strong catalyst for appreciation in the next 18 months or so. As the stock price goes up, your options gain value along with it, sometimes to a much greater degree.[…]

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Wednesday, 8th September 2010

Protective Collars

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Protective collars are useful in bear markets or when you’re uncertain about a stock’s valuation risk. They can also be a prudent way to protect your gains on stocks that have recently leaped in price, nearing your estimate of fair value. Let’s explain how collars work, starting from the beginning.[…]

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Wednesday, 8th September 2010

Writing Covered Calls

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Why use covered calls?

  • Income: To generate cash on a stable stock.
  • Defense: To profit if a stock you own slips in price.
  • A better sell price: To obtain a higher price when you’re ready to sell.[…]

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Wednesday, 8th September 2010

Writing Puts

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Why write puts?

  • Income: To make money while waiting for your preferred buy price on a stock.
  • Advantage: To buy stocks at a lower net cost.
  • Profit: To earn income from stocks you believe will hold steady or increase modestly.[…]

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Friday, 23rd July 2010

Buying Puts

Written by George Traganidas Topics: Options, Wealth Building

Buying a put gives you the right to sell the underlying stock at a set price (the strike price) by a specified date (the expiration date). Your maximum loss with a put is limited to what you pay for the option up front (the premium).

Buying put options is a great way to profit from a stock’s fall while putting less of your cash at risk. In addition, you can buy puts to protect a stock – one that you’re bullish on for the longer term – from a near-term price drop. Buying protective puts can also help make your portfolio immune to a market crash.[…]

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Friday, 23rd July 2010

Buying Calls

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Nick Crow
August 12, 2009

Why buy calls:

  • You believe a stock has a strong catalyst for appreciation over the coming months or few years.
  • You want to benefit from a stock’s upside, but put less capital at risk than buying the stock outright.
  • You want to leverage your bullish expectations on a stock you already own.[…]

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Wednesday, 9th June 2010

Options Glossary

Written by George Traganidas Topics: Options, Wealth Building

Options Glossary

American style: Options contracts that can be exercised at any time after purchase and before the expiration date.

Assignment: When the options writer (also called the seller) is forced to buy (for a put writer) or sell (for a call writer) the underlying stock. Essentially, your counterparty has exercised its option contract, which you wrote, to buy or sell the underlying stock.

At-the-money: An option whose underlying stock is trading at its strike price.

Bearish: An options strategy (and outlook) that achieves its maximum payoff when the underlying stock drops in price. For example, if you are bearish on a stock you know well, you could buy a put or a bear put spread.[…]

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Wednesday, 9th June 2010

Introduction to Options

Written by George Traganidas Topics: Options, Wealth Building

Introduction to Options

Why Options?

Options are excellent tools for generating income, protecting profits, hedging, and, ultimately, earning outsized gains. They can generate returns in flat markets, cushion the blow of down markets, and be outstanding performers in decent markets. Whatever your investment goals, options can be a powerful addition to your portfolio, used to hedge, to short, to produce income, and to obtain better buy and sell prices.

What Are Options?

Stock options formally debuted on the Chicago Board Options Exchange in 1973, although option contracts (the right to buy or sell something in the future) have been around for thousands of years. An option gives the holder the right, but not the obligation, to buy or sell an underlying stock at a set price (the strike price) by a set date (the expiration date). The option contract allows you to profit if a stock moves in your favor before the contract expires. Not all stocks have options, only those with enough interest and volume. There are only two types of options: calls and puts. A call appreciates when the underlying stock rises, so you buy a call if you are bullish on that company. A put appreciates when a stock declines. You buy a put if you believe a stock will fall or to hedge a stock that you already own.[…]

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