The energy boom in America is opening the door for new investments

  US-PDGov

By Donald Turner

The United States and their explosive gas and oil energy growth provide some great investment opportunities to investors. Just a few years ago, the United States was importing an increasing amount of oil and natural gas each year. Yerginstates the United States oil and gas production was in a steep decline since the 1970s providing very few investment opportunities. 

Newly developed technology has made it possible for tremendous growth in the United States gas and oil industries over the last five years. The United States will become the largest producer of oil and natural gas within the next two decades and the explosive growth in the US oil and gas production provides many opportunities to investors in most sectors of the United States economy, according to Jubak.

Current investing

US-PDGov

Carey from Forbes states that the most obvious places for investing would be with the companies that developed the new technology used for gas and oil production. These companies have seen impressive growth with some being bought out by big oil companies.

Current and near future investments

Companies in place to supply or support the oil and gas industry growth can offer prime investment opportunities through stocks or ETFs (Exchange Traded Funds). Companies that own gas and oil pipelines provide very economical means to ship the gas and oil over long distances in a timely manner. The pipelines help to ease bottle necking of the gas and oil going from the production fields to the market which can affect the price in the commodity market; another area investors can utilize. 

Transportation companies are a necessary component of the gas and oil production boom in the United States. The transportation industry hauls everything from gas and oil to market to hauling the parts for the drilling rigs to the water used for drilling. The transportation sector servicing the gas and oil production provides many opportunities to invest in by including truck and railroad companies. 

Construction companies contracted to build the infrastructure needed for the growing oil and gas production may provide great investment returns. Construction companies are building new pipeline systems to move the oil and gas supply to the markets and thus are responsible for building infrastructure necessary for the expansion.

Investments for the next few years

A great benefit being a leading oil and gas production country is lower energy costs as the lower energy costs provide the more investment opportunities and many companies will see an improved bottom line from energy cost savings. Chemical companies may receive the biggest benefit from reduced energy costs but any company that utilizes products from chemical companies will see a domino effect in their production prices giving investors a better return rate on Mutual Fund investments.

The United States gas and oil energy growth continues to explode; providing fantastic investment opportunities in many sectors of the US economy for investors. The smaller oil and gas companies that embraced the technology and took prudent action provide the most obvious investment choices. Supply and Support companies to the oil and gas industry offer many prime investment opportunities. Still, other investment opportunities can be realized in many other sectors of the US economy from reduced energy costs leading to an improved bottom line for most companies.

About the author: This article was written by Donald Turner, an avid writer of business and finance articles across the web. He writes this on behalf of US Emerald Energy, a company that has the facts about how to invest in oil.

Guest post: Top tips for acquiring private equity investment

By Stuart Green

This article looks at seeking private equity investment, and gives advice to business owners who are looking to acquire this for their business.

 

Private equity?

Although the private equity market has been growing since the 1970’s there are still a lot of businesses out there that wouldn’t know the first place to begin when it comes to seeking out private equity investment. The tragedy here is that there are many business who could benefit from private equity investment massively, however feel that being turned down for a bank loan is the beginning and end of any quest for financial support. How can you cast off the shackles and get the investment you and your business needs in order to move forward successfully?

 

Compare the meerkat

Okay, admittedly the famous website does not allow you to search for the best private equity deals, but it is taking us to the point we are making. When buying your home insurance you would never just choose the first one you see would you? Of course not, so even if your business is in dire financial straits and you need investment today, take the time to shop around and choose the best deal for you. Another rash decision could be the end of your business and should be avoided at all costs.

Generally, you will be looking at the options available, which will usually be as simple as a general fund or something that is specialised in your sector. It is up to you which you go for, however be aware that you may find yourself turning over a greater percentage of future profits if you enlist a private equity firm with expertise in your sector.

   Image: Tax Credits, Flickr;  CC BY-S.A. 2.0

Show empathy

By this we mean put yourself in the shoes of a private equity firm. Of course, this can be the most difficult bit as you will naturally think that your business is a great bet. If you struggle to see your business through the eyes of an investor then enlist the help of a friend or your accountant, who will give you honest feedback on the strengths and weaknesses of your business plan. Taking care of this early will give you the best opportunity of acquiring investment, as well as ironing out any issues that are likely to put investors off.

 

Have confidence

A strong part of any investment proposal will involve you, and more specifically your own level of confidence. While an investor will be attracted by what seems like a sensible, watertight business plan with excellent potential for revenue generation, you still hold the key. By having confidence in your plan and the ability to convey that confidence without crossing into arrogance will stand you out as a very strong investment opportunity.

Dealmarket is an online private equity marketplace that offers a selection of private equity funds to investors and entrepreneurs. 

The best and worst weekdays to buy and sell stocks

Image attribution: Stuart Miles, standard royalty free license

In historical research it has been demonstrated that some days of the week have indeed been better than others for buying and selling shares. However, since finance and economics is generally not a pure science, conditions for verifying such a pattern are limited to scenarios that are not necessarily perpetually accurate or realistic representations of broader market conditions.

Days of the week to buy and sell shares change with the prevailing market and share related conditions, but don't necessarily fail to demonstrate some indication as to which day of the week is better to buy or sell shares. The best day of the week to buy shares and the worst day of the week to sell shares conforms more to the logic of the time and the place than any pre-established long-term pattern.

The 'Day of the week effect'

Trends and patterns present themselves in the stock market all the time; this much is documented. For example, in the Journal of Economics and Finance, Volume 25, number 2, 2001, it was empirically demonstrated that the days of the week do not have the same volatility in price movement and also do not provide the same levels of daily returns as evident in statistical research on the S&P 500 Stock Index between 1973-1997.

According to this particular study, the days of the week with the best returns was Wednesday, and the day of lowest return was Monday with Fridays having the highest volatility. Such being the case, it would appear as though some time during Monday would be the best day to buy shares, and at some point on Wednesdays would be the best day to sell shares.  

Pattern changes over time

The findings in the aforementioned study may be convincing, but they aren't absolutely conclusive. This is because the time periods in which the measurements were made are finite within a longer market timeline. For example, in the book 'Stock Market Rules' it is claimed the market tended to drop on Mondays and rise on Fridays for a period of 37 years between 1953 and 1989. Also according to the book, this Monday decline pattern changed in the 1990s essentially providing a counter claim to any definitive long-term day of the week effect.

Trends are different across markets

A problem with quasi-scientific research is variance within the shares studies themselves. In other words, because the conditions are different across studies it is difficult to prove any universal accuracy of finding no matter how statistically valid any single study is. To demonstrate this principle, it is helpful to look at another 'day of the week effect' research study by Yelis Yalcin of the Gazi University Department of Econometrics and Eray M. Yucil of the Turkish Central Bank. The findings from this study show the best days of the week to buy and sell shares varies across multiple emerging markets indicating no one good day to buy shares or bad day to sell shares across multiple markets.

Individual financial products vary

Many studies make use of averages to verify hypotheses about particular events or subjects. In the case of days of the week for buying and selling shares this tends to exclude the individual price movements of shares. Such being the case for some shares Monday may be the best day to buy shares and the worst day to sell shares, but at a different time, or in the same market with different shares this may not be the case. This is because the underlying financial conditions of a company or financial instrument which the shares represent can vary and influence price independently of market movement. This tendency is measured by a statistic called the Beta coefficient.  

In summary, if investors or traders can act on shorter term patterns in which recognizable share price movements do occur, then there may indeed be a best day of the week to buy and a worse day of the week to sell shares in that context. The bottom line however, is that any pattern, trend or market condition can change with a multiplicity of market, economic and share specific variables that are not easily nor accurately accounted for or measured using empirical research techniques.

What to Invest in During 2011

The economic environment in 2011 is riddled with conflicting market indicators that point to the necessity for a well thought out and developed investment plan for 2011. Around the spring of 2011, the U.S. national debt not including state and municipal debt is expected to reach its $14.3 trillion debt ceiling that was legislatively raised in 2010. This is an amount similar to the annual national gross domestic product implying the U.S. national debt is near 100 percent of GDP.  Federal revenue was expected to increase from near a 60 year low in 2011 according to the Congressional Budget Office, but the CBO's forecasted expiration of tax provisions that kept tax revenue low did not occur.

Despite high national debt, and worry about the financial fundamentals of the U.S. economy, companies reported strong profits in 2010. These profits came at the expense of cost cutting and improving operational competitiveness both nationally and abroad. Companies like General Motors (GM) and Ford (F) have emerged anew and fiscally leaner. Yet revenue remains a problem for some large companies despite increased earnings. For example, large Dow Jones component companies like General Electric (GE), Bank of America (BAC), Verizon (VZ) and Merck & Co, Inc. (MRK) experienced declines in the first three quarters of  2010.  Several of the companies that did not have consecutive quarterly losses didn’t have steep rises in year over year revenue metrics either.

The housing industry and employment continue to be thorns in the side of a slow moving economic recovery as evident in the long-term Case Schiller Index and the Bureau of Labor Statistics unemployment data.  Monetary liquidity fueled by the Federal Reserve Bank provides the financial grease to help an economic engine that has mechanical problems. The grease is no good without a functional engine. At the least, an investment plan for 2011 will consider the risks of investing in such volatility where high frequency automated trading can cause market price movement patterns unpredicted by even by the best technical analysts.

So what’s bullish, or a good investment for 2011? Many financial experts such as Jim Cramer of 'Mad Money' tout domestic equities are part of what is fueling the U.S. economic recovery. Still more claim emerging markets have more room to run. If this is the case finding the right financial instruments can mean the difference between benefiting from rising valuations and sitting on the sidelines with a bag of misdirected investment capital. Either way, researching these investments and arriving at 100 percent confidence in them seems unfounded given the considerable amount of things that can go wrong. For example, there are several under funded or heavily in debt state and municipal governments; the potential for bond defaults or higher servicing costs, more employment cuts, and higher taxes are all real possibilities.

With international markets expanding, U.S. companies have opportunities to increase market share and revenue. As with all investments simply having an opportunity is not always enough, the investment prospect must also have solid market forecasts, economic suitability, brand equity, and effective management. If revenue is reinvested domestically it has the potential to stimulate economic growth in some industries and economic sectors within the U.S., but will it be enough? The companies that have adaptable business models and products that have a proven record of successfully changing with the times may be worth a second look.

With the risk of inflation on the horizon, adjustable inflation protected securities might be just the thing to hedge for this future potential risk. Whether or not this risk will occur depends on a number of factors i.e. will prices of goods and services rise despite a weak economy indicating stagflation, or will a lake of flaccid financial liquidity be drained in time to prevent a high inflation accompanied by new economic prosperity? These are things to consider when investing in 2011.

Investing in Bank Stocks

In the United States, during the 1990's several federally implemented acts contributed to banking deregulation that had begun the previous decade. These Acts essentially gave banks the ability to operate with more freedom and with greater commercial horizons. The new laws allowed banks to operate more freely from state to state and to engage in other banking functions. The result became banks that could provide a multitude of services.

Key U.S. banking institutions

A few major U.S. banks are listed below for illustrative purposes. These are just a few of many U.S. banks, several of which play important roles in various aspects of economics and banking services.

Bank of America (BAC): Bank of America is a very large commercial bank that deals with day to day bank services on a world-wide scale across the United States. This company is a large capitalization bank with share value of 223 Billion dollars and offers a wide array of consumer and commercial banking products.

Meryl Lynch (MER): Meryl Lynch is another large bank that operates primarily in the investment banking sector of the U.S. economy and globally. This bank has a market capitalization of near 61.5 Billion dollars, and its major products and services include brokerage, institutional investing, and financial advising services along with several related banking products and services.

Countrywide Financial Corporation (CFC): Countrywide Financial is yet another very large bank that deals primarily with mortgage lending within the United States. Its market capitalization is near 11 Billion dollars and in 2007 its share prices fell dramatically due to financial turbulence caused by factors relating to a weak housing market.

Benefits of investing in banking stocks

Banking stocks are a unique to the type of services and products they offer. While the stocks may fluctuate significantly in value over the short run, many large and stable banks offer the potential to grow steadily over longer term horizons. A few of the functions that can lead to a banks asset and profit growth are listed below.

• Mergers and Acquisitions: Banks that facilitate, finance and engage in a high volume of corporate mergers and acquisitions have the potential to yield an increase in profit margin due to the increase in return on assets associated with these banking activities.

• Initial Public Offerings: When companies increase in size or become public, they often seek additional financing for expanded operations and project implementation. Banks that facilitate these activities well can benefit from them.

• Credit Services: Banks that engage in credit services have the potential to earn substantial profits dependent on the creditworthiness of their clients and interest rates they are able to charge.

Risks of Investing in Banking Stocks

• Sector Downturns: In the case of the aforementioned banks, an economic downturn in any one of the markets these banks deal in could cause a lot of volatility in the share prices of those companies. As we have seen, the downturn in the United States housing market led to stock volatility in shares of 

Countrywide financial corporation

• Economic adversity: If an economy turns sour, the banks may be the first to feel it as consumers, corporations and institutions run to banks to liquefy their assets, default on loans and redeem their funds. These factors and changes in currency valuation, federal banking policy and profitability can be another risk of investing an banking stocks.

Key metrics of banking institutions

Since there are many types of banks engaging in a variety of services choosing the right financial metrics to assess these companies can be tricky. Nevertheless, the two following measurements indicate a banks essential capital and operational stability.

• Capital Reserve: The amount of unused liquid assets a bank maintains on its balance sheet is an indicator of solvency. Capital reserve amounts in excess of 10% are considered sufficient by U.S. regulatory agencies. An example formula for assessing capital reserve is the capital adequacy ratio (CAR) which divides capital by assets such as loans which are weighted for risk.

• Daily Value at Risk (VAR): A VAR calculation can be used to determine the risk level of its investments and/or banking products using a multiplier for precaution. An example of this calculation takes the potential dollar value loss within a specific time period using the worst 10% of investment assets multiplied by 4. If over 365 days, a bank's worst 10% of loans cost them $20,000.00. Multiplied by four, and divided by 365, their daily value at risk would be $80,000.00//365 or $219.18 of risk per day or $80,000.00/year. Naturally, the higher this value is in comparison to other banks, the greater the measured risk of the banks investments.

Introduction to the Dow Jones Industrial Average

The Dow Jones Industrial Average (^DJI) is one of the U.S. stock markets oldest metrics dating back to 1896. The Dow Jones Industrial Average consists of 30 very large companies that have generally existed for a long time and have monolithic reputations as corporate giants with significant economic influence.

Some of these companies include General Electric (GE), Alcoa (AA), and Coca Cola (KO). Like other indexes, the Dow Jones Industrial Average takes into account the proportion of each company in determining the mathematical influence each company has on the index value. By doing this the index managers are ensuring a more accurate representation of the combined performance of all the companies.

• Why the Dow Jones Industrial Average is Used:

The Dow Jones Industrial Average is used to measure both corporate and economic performance. Since the companies listed in the index are from a wide variety of economic sectors, the DJI provides analysts, fund managers, investors and economists with a useful indicator for overall stock market performance. The Dow Jones is considered a financial barometer of broad based market performance and data has been collected on this particular index for over 80 years.

• How the Dow Jones Industrial Average is Used:

Often, the value of many company stock prices are correlated using statistical analysis to the Dow Jones Average. This value is called a 'Beta' and is the measurement of how closely an individual stock trends up or down in tandem with the Dow Jones Industrial Average and/or other indexes. The DJI provides people with a quick snapshot of market performance of large companies and possibly many more companies that are correlated with them for a given business day. In this sense it is an assessment tool of general market performance and individual stock performance as measure by the Beta statistic.

• Mathematical Considerations of the DJI:

The Dow Jones Industrial Average has something many other indexes do not and that is 'consistency'. In other words, because the index only uses price weighting and not capitalization weighting, it does not take into account growth in each companies equity directly.  For example, if a company has a 2 for 1 stock split and after a month the stock prices increases 10% the DJI will reflect the 10% increase in stock price but not the increase in equity generated from the stock split. 

What's more, if the price of the stock declines due to the split which is more likely this will negatively affect the performance of the index average. Usually however, savvy analysts and observers may have the knowledge and sense to factor these financial occurrences into their analysis of the DJI performance.

Another concern is since there are only 30 companies in the DJI and over 9000 publicly traded companies in the U.S. the index is perhaps an understatement. The virtue of the DJI rests with the size of its component companies and the fact many of these other publicly traded companies have stock prices that are statistically related to the DJI.

The Dow Jones Industrial Average is a key market index that measures market performance as a weighted average of its component parts. These component parts are companies that comprise some of the largest in the United States and provide a representational assessment of a larger market performance.

It is likely the Dow Jones Industrial Average will continue to be used in the future because of the importance of the companies within the index. While the importance of this index may decline over time and as other index are relied more heavily upon, the Dow Jones Industrial average will continue to have a relative importance and representational merit in regards to stock market performance and metrics.

Sources:

1. http://stocks.about.com/od/evaluatingstocks/a/beta120904.htm
2. http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
3. http://www.djindexes.com/mdsidx/?event=showAverages
4. http://www.finweb.com/investing/market-indexes-the-dow-jones-industrial-average.html

Commentary on the Investment Style of Warren Buffett

"I always knew I was going to be rich. I don't think I ever doubted it for a minute." (Warren Buffett) 

Warren Buffett has been a part of the investment World for several decades. His investment career started young and then gradually evolved through experience, intrinsic know how, mentorship, education, employment and then leadership. Warren Buffett is a deeply admired and respected personality in the financial World because his investment principles are not only sound, but effective and ethical.

By his early financial career, Warren Buffett was already well immersed in the financial world having invested in his teens and founding an investment company in his mid-twenties. By this point he had also already worked as a stockbroker, become educated at a reputable academic institution, mentored under a prominent financial specialist of the time, and taught investing at the University of Nebraska. By age 32, Warren Buffet was a millionaire.

Buffett's investment principles

Warren Buffett does not just randomly pick companies to buy, he chooses them based on a detailed set of requirements and qualifications that indicate or point to Buffett's investment principles. A few of those inferred principles are outlined below. While these principles may not be entirely accurate and/or representative of Buffett's investment strategy they are based on information about Warren Buffett's investment style.

• Due diligence: Research companies thoroughly • Value: Companies that are priced below their expected future performance • Leadership: If a business isn't managed well, Buffett tends to shy away • Financial Performance: Companies should have high profit margins and high market share  
Investment strategy employed by Buffett

In addition to investment principles, Warren Buffett is known to employ investing strategy. The strategy used by Buffett is not believed to be complicated but is thought to be accurate and financially astute by observers of Buffett. Essentially, some of the key components of Buffett's investment strategy include the following:

i) Invest for the long-term: Short term trends don't matter when a company is destined for profit.

ii) Financial performance: If a company experiences losses, low profit margin, poor return on assets among other financial metrics, the company probably won't be invested in by Buffett.

iii) Size: Given the magnitude of Berkshire Hathaway, companies must be large to yield significant returns to the profitability of the company Buffett invests for.

iv) Industry: If the industry is too complicated or out of Buffett's are of knowledge, it presents a risk that disfavor's it from a Buffett investment qualification.

Clearly, Warren Buffett's track record and investment strategy have worked for him and thus have measured credence. Moreover, all the factors and decisions that go through Warren Buffett's mind when selecting businesses to invest in are not mentioned above. Rather, some of the more well known and studied factors of his investment style are illustrated.

What these principles and elements of strategy indicate is Warren Buffett is a disciplined, analytical and business minded investor who doesn't take great risk. He favors long term investing and sound management as well as clear market domination. In fact, these are principles that many astute business people follow which makes Buffett's investment style even more intriguing because he does it better than others who are familiar with the same principles and strategy.

To summarize, the investment style of Warren Buffett is well developed and merited by the success of the company he helps manage named Berkshire Hathaway. His investment style is given further credence by his personal worth, integrity and stellar reputation within the financial community. As a matter of financial strategy, all reputation aside, Buffett's investment style is safe, long term and studied making it a suitable investment model for aspiring investors, new and existing mutual fund managers and financial institutions.

Sources:

1. http://www.brainyquote.com/quotes/authors/w/warren_buffett.html
2. http://www.investopedia.com/articles/01/071801.asp
3. http://en.wikipedia.org/wiki/Warren_Buffett
4. http://www.associatedcontent.com/article/363525/financial_tips_investment_warren_buffett.html
5. http://www.streetauthority.com/warren_buffett.asp