Feb 10 2013

Defining Investment

Generally, investment is defined by dictionaries as, transacting to produce income or profit.

There are only three investment groups; ownership, lending and cash equivalents.

Ownership Investment

This class of investment is the most volatile but also the most profitable.  Examples are:

  • Stocks/Shares.  From futures to currency swaps your expectation of profit depends on market valuation.
  • Business.  Entrepreneurship requires more than just ownership and capital.  Creating products, services and sales is risky, but the potential return is large.
  • Real estate.  Considering the 2008 mortgage meltdown it is dangerous to consider your primary residence an investment.
  • Precious Objects.  Gold, Platinum, Art and the like.  Like property there is the risk of depreciation with regard to damage and storage costs.

Lending Investments

A little lower risk but then lower returns.  You become the bank with associated risks.  Examples:

  • Your savings account.  You are lending your capital to the bank with pitiful returns.
  • Bonds.  A category from CDs (Certificate of Deposits) to International Debt Issues.

Cash Equivalents

Any cash investment that can be converted to cash immediately.

  • Money Market Funds.  Although the return is very small it usually is better than your savings account.  It is also very liquid in that you are able to present checks against your balance like an ordinary checking account.

Almost an Investment

Here we could think of our education, a cup of coffee to wake us up for longer working hours or a lawnmower to be more time efficient.  Consumer purchases depreciating over time are not investments.

Bottom Line

There are three types of investments: ownership, lending and cash equivalents.  There is no fourth category of consumer purchases.  Admittedly, it’s a clever piece of advertising that removes some of the guilt from impulse purchasing. The decisive test is whether there is a potential to turn a profit. The operative word here is; “potential” because not every legitimate investment makes money.  Making money through investing requires research and evaluating different investments, not simply knowing what is and is not an investment.  That said, being able to see the difference between an investment and a purchase is an essential first step.


Feb 1 2013

Trying Times; Will It End In Tears?

As the S&P 500 makes a run at its 2007 high, many stocks have already arrived there. Some big name companies have been making all-time highs, and the uptrends are looking very strong. But is this rally sustainable? Recent surges show strong buying interest, but rarely are such aggressive moves sustainable. Here we look at the possible entry points and danger signals in these high flying stocks.

Johnson & Johnson (NYSE:JNJ) has had a great start to 2013; starting out the near $70 it closed Jan. 29 at $74.41, up about 6%. The stock recently broke out of a triangle pattern, which began in October, providing a target price of $76. Therefore, the stock looks to have a bit more room to go on the upside in the short term. Volume was quite light on the breakout though, so those looking for a better (lower) price in the coming weeks could get it. There are two old resistance levels that should now provide support on pullbacks – approximately $70 and $68. This is likely to provide a better long-term entry point. Watch the trendline that began in 2011; it currently intersects near $64 and a drop below that indicates further downside is likely.