Stock market could become a shock market if your portfolio does not have consistently profitable consumer, pharmaceutical and oil companies which are in business for over 30 years and increasing their dividends periodically. Dividend yield should be calculated on your original cost of shares and compared with interest rate on Bank deposits. If the rate of interest is less than 1 % p.a. it will take about 100 years to double your money. If you divide 72 by the rate of interest you would get the number of years it would take to double your money.
PE ratio is important and a PE ratio of 10 for a profitable company with profits growing at 10 % per year would result in price increase of 100 % after 7 years. Investors should try to understand that the market is always nervous and this makes share prices fluctuate but the long term trend is important.You can only be approximately right while predicting share prices or you would be precisely wrong. The videos in the web sitewww.ft.com is a good source to develop business & financial sense.
The web site www.berkshirehathaway.com will give insight into the importance of holding profitable companies for a long period of time. Some people have paid more than $1 million to have lunch with Warren Buffett, Chairman of Berkshire Hathaway and learn from him. The share price of Berkshirehathaway was about $2,000 in 1990 and it is over $98,000 now and has gone up almost 50 times.
The ketchup company Heinz made profits of $845m in 2008 and paid dividends of $485m in 2008 and is in food business since 1869 and this is LONG TERM. The five year financial summary page in www.heinz.com would give profit trends of this company. You could also look at www.cococola.com for the profits trend of the most valuable brand in the world.
Cost of extraction of oil is cheaper than dirt in some countries and an Oil company could make fee income of more than $1.50 per barrel and the potential gains could be $15 billions if the size of the oil field is 10 billion barrels. ExxonMobil made profits of $45 billions in 2008 and $ 25 billions in 2004 and you may refer to the financial highlights in the web site www.exxonmobil.com .
You should also look at the 10 year financial hlghlights for Pepsi, Coco Cola, Walmart, Cisco, Intel, Microsoft, Procter & Gamble, Pfizer and Abbot Labs.
You could also look at the financial highlights of major Canadian Banks ( RBC, TD and BMO) since Canadian Banks have avoided credit crisis due to strict controls on Capital, liquidity and leverage ratios. Shareholders can reap substantial benefit due to lack of competition and dominance of few Banks in Canada.
In 1599 in U.K. 125 shareholders formed East India Company to trade in India and got 200 % dividends and shows that a few people in 1599 understood the importance of dividends and wealth is accumulated by collecting dividends for many years. It is very difficult for companies to increase dividends every year and by investing in these dividend paying companies you could reduce your risk and increase your wealth. If you understand history vou can predict the future. No one really cares about your money and you need to understand the risks and rewards on your own.
If you want to invest in shares of foreign companies (Shell oil, BP, Nestle or any Global foreign company) you could buy American Depository Receipts (ADR).
Professional firms have lost money trading in shares and some firms have gone bankrupt by taking too much risk and the fund Long Term Capital didn't last long and went bankrupt. Risk arbitrage means buying shares of the target stock and selling shares of the acquirer. In the current situation selling Kraft shares and buying the target company -Cadbury choclate shares. Cadbury company is in play now and Hershey has entered the takeover game and bid up the price of Cadbury shares. If the share price of the target company goes up by 10 % and the holding period is 2 months the gain on an annual basis is 60 %.
It takes many years to understand stock market and it is critical to develop deep knowledge before you get into this high risk venture. The risky part is the lack of questioning skills and thinking independently is the best way to develop questioning skills.
You can open an investment account in a major company to hold your investments.www.fidelity.com or a major bank. www.hsbc.com
You would need professional help from an experienced and licensed broker who works for a major reputed firm for specific selection of stocks.
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