Get your head in the game with this primer on how to buy stock. (Photo Credit: CC BY-ND/Chris Brooks/Flickr)

Ever wanted to learn how to buy stock? You’re in the right place. Learn what a stock is, how to choose good stocks and some of the basics of buying stock with this “stocks for dummies”- style guide.

What is a stock?

Essentially, buying stocks means buying partial ownership in a company. If the financial fortunes of the company improve, share value generally increases. The reverse can also occur. If you purchase shares at $10 each, then the share price skyrockets to $30 each, you’ve tripled your investment dollar, minus brokerage fees at sale. The classic investing phrase “Buy low, sell high” can truly be a gateway to financial security.

What stocks should you choose?

The Motley Fool demystifies the decision-making process by breaking it down into its component parts. With some due diligence that includes research into corporate earnings, revenue, cash flow and more, you too can chart safe investing waters.

Read the company’s balance sheet: This is the record of the company’s total assets and liabilities. Corporate balance sheets are available for research purposes via the Securities and Exchange Commission EDGAR website.

Understand valuation: Think of a share of stock as a stand-in for a share of corporate revenue, earnings, cash flow, etc. The portion of these that is paid to individual investors is called the dividend. If a stock has a good dividend yield – a high valuation – the more desirable it is.

Get a good return on equity: Return on equity (ROE) measures how corporate management works to increase the value of a company – through profitability, asset management and financial leverage. If the executive team manages these well, stock value rises.

Return on Invested Capital (ROIC): This is the amount of return on each dollar invested in a company, the “real cash-on-cash return.” ROIC is considered an accurate tool for measuring corporate earnings growth.

Where to buy stock

There are two basic ways for beginners to buy and sell stock:

1. Through a brick-and-mortar brokerage service.
2. Through an online brokerage.

Online brokerages have become increasingly popular, due to their convenience and flexibility. So long as you’re 18 years or older, you can deposit cash or stock in a brokerage account and get started. Companies like Charles Schwab and Smith Barney offer accounts that investors can manage online themselves, or use a live broker for added cost. Sites like E*Trade, TD Ameritrade and Sharebuilder offer respected online exchange services.

Brokerage fees will apply to most buy and sell transactions, the Wall Street Journal reminds. These fees can vary greatly by brokerage. Popular online exchange services charge in the neighborhood of $5 to $25 per month, with additional per-trade fees and minimum purchase requirements. If you wish to avoid fees entirely, sites like DRIPInvestor lists companies that sell direct to investors.

Additional information on investing is available via sources referenced in this article.

A stock market primer

Sources

Charles Schwab

DRIP Investor

E*Trade

Motley Fool

Securities and Exchange Commission EDGAR

Smith Barney

Sharebuilder.com

TD Ameritrade

Wall Street Journal

Increasing a mortgage payment by just $100 a month will save many thousands of dollars over the life of a home loan. Image: Flickr/nancyaurora2020 CC-BY-SA

Mortgage acceleration involves increasing the monthly payment to retire the debt sooner and save money on interest. Advocates of mortgage acceleration contend that it is a risk-free investment in future income. Others say the money is better spent on investments with potentially higher returns. The numbers make mortgage acceleration appear to be one of the best long-term investments available.

The principal argument for mortgage acceleration

Because of interest charged over time, the longer it takes to pay off your mortgage, the more expensive the loan becomes. Interest is calculated on the outstanding principal of the loan. Mortgage acceleration reduces the principal faster and limits the lender’s opportunity to collect interest. Some people consider liquidating stock portfolios or diverting payments from tax-deferred IRAs for the purpose of mortgage acceleration. But for most people, the prudent course is to simply add more to the principal payoff each month to generate significant savings on interest and an early exit from the mortgage.

Pay more now to pay yourself even more later

Many people think that home equity just sits there doing nothing. Taking money that could be applied to other long term investments for mortgage acceleration kills potential returns. But even though it impacts short-term cash flow, an investment in mortgage acceleration guarantees to increase cash flow in the longer term — risk free. Another argument against mortgage acceleration is that it eats into the tax deduction on mortgage interest. But the math for mortgage acceleration may still come out ahead. For example, a household with a federal income tax rate of 28 percent plus a state income tax rate of 5 percent is liable for 33 percent of taxable income. If total mortgage interest is $12,000 a year, deducting 33 percent of that liability leaves a net after-tax interest cost of $8,040. However, the household is still on the hook for 67 percent of the interest cost, which gets lower faster with mortgage acceleration.

How mortgage acceleration pays off

Bankrate.com offers an online calculator that shows you how much you can benefit from mortgage acceleration. Using a $165,000 30-year fixed rate mortgage at 7 percent interest with a monthly payment of $1,097.75, total interest charges until the loan is paid off in April 2041 amount to $230, 190. By paying just $100 extra each month, you can save $60,033 in interest, and the loan is paid off in August 2034. Paying an extra $200 a month puts an extra $93,191 in your pocket, and the loan is gone in September 2030. If you can manage to increase the monthly payment by $300, you keep $114,817 and that last payment of $1,397.75 is made in January 2028. Mortgage acceleration is a smarter and safer investment than you can find anywhere else.

Sources

MarketWatch

Minyanville

Bankrate.com

The private microfinancing site 40Billion.com offers commercial paper, traditionally a tool for large corporations, to small businesses. Image: CC The Truth About/Flickr

The online private microlending and social networking company 40Billion.com announced new short-term loan options for small businesses Monday. Using unsecured promissory notes, commonly called commercial paper, small and medium-sized businesses can finance opportunities through 40Billion.com for up to nine months. A week earlier, the microlender launched integrated social networking tools, enabling its members to use LinkedIn and Facebook accounts to help raise money.

A new short-term loan option

Commercial paper has been used for more than a century, mostly by large corporations wanting to raise quick, cheap working capital. Now 40Billion.com is offering the commercial paper option to small and medium-sized businesses that wish to borrow from $5,000 to $1 million for up to 270 days. Commercial paper is an unsecured promissory note to meet short-term financing and cash flow needs. In certain situations, commercial paper can be an affordable alternative to a traditional bank line of credit.

Why commercial paper?

According to 40Billion.com, commercial paper offers several advantages over traditional bank loans. Commercial paper is unsecured, meaning it doesn’t create a lien on the borrower’s assets. The discount rate is negotiated through 40Billion.com with investors seeking to diversify and earn a quick return. Businesses with strong Social Business Rating System (SBRS) scores and good relationships can get affordable rates. SBRS is 40Billion.com’s proprietary rating system that evaluates businesses on criteria other than traditional credit scores. The broad range of maturity, from 15 days to 270 days, provides flexibility for a variety of short-term cash needs such as payroll, inventory and marketing.

Social network financing

Founded in 2008, Atlanta, Ga.,-based 40Billion.com claims to have facilitated more than $30 million in loans between investors and entrepreneurs.The company said it helps its members find new customers and financing resources via social networking. 40Billion.com users can log in with LinkedIn or Facebook. The financing site automatically displays the users profile from either of those social networks. Users can also import contacts from e-mail programs. The integrated social networking tools in 40Billion.com also suggest new contacts that members may know through past associations or similar interests.

Sources

Information Week

News Wire Today

40Billion.com

Vulture investors are taking advantage of depressed home prices and securing long-term profit by renting, instead of flipping. mikebaird/Flickr photo.

Vulture investors are feasting on the depressed U.S. housing market. Deflating home prices, rock-bottom mortgage rates and a rental market surging with people who have lost their homes are attracting swarms of vulture investors who are after distressed properties. But in this weak U.S. economy, their strategy is changing. In boom times, vulture investors were home flippers looking for quick cash. In these troubled times, they are landlords raking in hefty, steady incomes.

Vulture investors swoop down on dead housing market

Vulture investors get their name because they swoop down and buy distressed properties on the cheap. CNN reports that places wracked with foreclosures and short sales like Las Vegas, Phoenix and Miami are popular because home prices there have dropped as much as 70 percent. Vulture investors used to be known for flipping often and helping to bid up home prices to unsustainable heights. Now they consider potential rental profits, a far more stable, long-term investment these days. Vulture investors today may actually be helping stabilize neighborhoods.

Vuture investing changes strategy

Several factors presently occurring in the U.S. housing market have changed vulture investing strategy from buyer and seller to buyer and landlord. Mortgage resource HSH.com said ever-rising home prices, the meal ticket for house flippers, are a distant memory. It no longer works out to buy cheap and sell cheap. Plus, millions of foreclosed borrowers have to wait years before they can buy again have no choice but to rent, often from vulture investors who bought the properties for pennies on the dollar.

Vulture investing: the cash flow advantage

Vulture investors that pay in cash can start making money from the first month they start renting the homes. The CNN article uses Las Vegas as an example, where prices have fallen about 70 percent and rents have only declined about 20 percent. Las Vegas vulture investor Glenn Plantone told CNN he is getting cash flow, or net return on investment, of 12-to-14 percent. The advantage of cash flow is that even if real estate prices decline further, the money coming in stays the same.

Managing Business Cash Flow

Cash Flow versus Profit

Cash flow is vastly different than profit. Cash flow is money which is coming into and flowing out of your business bank account or petty cash and may or may not contain profit monies. Profit, on the other hand, is specifically those funds remaining after a project has been paid in full by the customer AND all expenses deducted from that payment for the cost of performing the project. At times, profit will appear in your account well before cash flow occurs.

Cash Flow and Profit Defined

According to Investopedia.com, cash flow is defined as the situation which occurs when “the company’s long-term cash inflows…exceed its long-term cash outflows”, while profit is defined as “a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity.”

Cash Flow Isn’t a Windfall

When cash flow comes into your business, especially before a job is completed, never view it as a windfall. Financial experts at the website InvestorWords.com’s define a financial windfall as when “money is received which is not expected and is not the result of something the recipient did”. Even though monies may seem to be a windfall, look more closely and you’ll see that seldom do funds meet the above definition of a true windfall. It can be easy to want to use non-windfall funds to upgrade or expand, but unless the money is actually profit, it will be needed to keep the company’s cash flow positive. If a project has not been completed and all expenses paid, you can find yourself spending money which will be needed for materials and other costs of doing business. Don’t set your business up for financial disaster in this way.

Don’t Inflate Your Operating Checking Account

When cash comes in prior to a job being performed, often in the form of a deposit on a contract or as monies paid to purchase materials to perform a job, place those funds in a special business banking account so that they are reserved only for those expenses associated with that specific project. Otherwise, your operating bank account balance can appear artificially inflated. This is also important should someone establish an agreement with your business, providing cash flow, and later cancel. Unless you have the money in a separate bank account to refund the money, based on your business’ refund or cancellation policy, it can be a financial hardship.

Reserve Cash Flow for Expenses

Just as the name implies, cash flow is easy to spend; it tends to want to continue flowing — right out of your hands! It is important to realize that this flow of money must cover daily expenses, payroll, yearly expenses like taxes, and emergency expenses as well as upgrades and expansion. The money flowing in and out of your business really has no relationship to the amount of profit you are earning and this fact must remain in the forefront of your mind as you manage business finances.

Spend Profit Only

After your business has completed a project and all associated expenses have been paid in full, you can determine the exact amount of profit which was earned from that project. The Marketing Guy states on his blog at TheMarketingGuy.files.wordpress.com that “some of us have forgotten how to calculate profit…The first business you started was probably a lemonade stand and nothing has really changed since that.” A simple worksheet which details the cost of a project, such as expenses for material, labor, advertising, and other direct costs, subtracted from the income from that project reveals the true amount of profit earned from the job. That, and only that, is the amount which can be spent for anything other than the cost of performing that job. If you apply cash to other needs, you will almost certainly sabotage the project to which the cash should have been applied.

Invest and Spent Profit Wisely

Once you know your profit amounts, you can choose were to apply those funds. Wise investments to help your company provide a cushion during tough economic times or slow business periods are a wise use of some of your profit. Reinvesting into your business can be smart, too if you need upgraded equipment or an expansion in advertising or staffing. If you have enough profit, investing in sound, well-advised investments such as stocks, bonds, annuities, and other securities can be wise but you should seek the advice of a skilled expert in investments before sinking your profits into these financial vehicles. Above all, keep a prudent reserve of funds from your profits for emergency expenses.

In uncertainty, sometimes what we need is something like short term loans to hit us on the nose. (Photo: flickr.com)

Many people are turning to short term loans in order to get through unexpected expenses. The world is a very confusing place. It’s impossible to estimate exactly how much you will have to spend each month. There are all sorts of problems which could result in costing you more than you have budgeted. If your car breaks down, then a payday loan could help to tide you over until you actually get paid.

No Need for a Credit Check

Short term loans are provided as a form of cash advance. This means that you can get some of the money from your job before you actually get paid. Taking out one of these loans is very easy because it shouldn’t require the use of a credit check. Few people enjoy credit checks; they are horrible for everyone concerned. Being told that you can’t have something because your credit score is too low is terrible. As long as you or your partner is currently employed and has a regular monthly income, then it should be possible to take out a short term loan very easily.

Cash Flow

Most people will get paid monthly or sometimes weekly. This means that you will have a long time without any income. If there are any unexpected expenses during the time when you are not paid, then you may struggle to make your payments. Short term loans can provide you with some of the money from your paycheck before you actually get paid. Using a fast short term loan can ensure that you get the money you so desperately need as quickly as possible.

Make Ends Meet

Most people only make just enough money to survive each month. They are just managing to make ends meet and that’s why any unexpected expenses can quite easily push you over the edge. Quite often you will spend your entire salary very quickly and then wait the rest of your time for your next paycheck.

Secured or Unsecured

Most other types of loans are secured against something; this could be your car or property. Fast Payday loans are an example of an unsecured loan. This means that the lender assesses how much they can lend you by listening to the information you tell them. There is no need for property valuations to be carried out. Because the loans are unsecured, you will be limited to how much you can borrow. Once you have built up some goodwill with the lender, then it may be possible to borrow more.

Who Qualifies?

If you’re interested in short term loans, then you will want to know who qualifies. Most people qualify for these loans. Normally speaking, anyone who is employed or has a regular income can apply for these loans. You also need to be over 18 years old and have a bank account. Depending on the loan company, you might also need a check book to write a post dated check. You will simply write a check with the date when you get paid; this is how the lender will be repaid.

To apply for short term loans, click here!

Comforts of home at Extended Stay America (photo by flickr.com)

The recession seems to be holding on, and debt relief may be farther away than consumers had hope. This week, Extended Stay Hotels LLs filed for Chapter 11 bankruptcy protection. The company attributes the filing to reductions in consumer travel as a result of the recession.

The company includes Extended Stay Deluxe, Extended Stay America Efficiency Studios, Homestead Studio Suites, StudioPLUS Deluxe Studios, and Crossland Economy Studios. The company has over 680 hotels throughout the US and Canada that serve long-term business travelers.

What went wrong?

In 2007, Lightstone Group, the largest private real estate investing company in the US, bought Extended Stay Hotels for $7.4 billion, and in mid-2008, business travel started to wane. Because of the economy, businesses have been forced to lay off employees and cut many of the departments that did most of the traveling. Even companies that haven’t had large personnel cutbacks have chosen to save money by reducing travel.

A spokesperson for Extended Stays Hotel stated, “The tightening credit markets, the reduction in construction activity and increased unemployment have decreased the demand for extended-stay accommodations, as fewer construction sites, consulting opportunities and travel plans are coming to fruition.”

Big revenue, much bigger debt

The long-term hotel giant had revenues totaling $1 billion in 2008, but its debt exceeded $7 billion. Revenue per room fell almost 25% throughout the year. Seeking Chapter 11 bankruptcy allows the company to continue to do business while it attempts to restructures its massive debt under court supervision. A spokesperson for the chain stated, “All hotels are open and welcoming guests as usual.”

In terms of infrastructure, the company employs about 10,000 workers nationwide. DeLapp, CEO for the company, stated, “Our end of the business—hotel operations and administration—remains strong on an operating basis. Because we generate significant positive cash flow [we do] not need financing to meet operating obligations.”

Cautious reaction by consumers

As consumers are evaluate the financial turmoil of yet another industry, the immediate reaction is pessimism. Dr. Glinda Merken, an economist at Brown University, said, “Most consumers hear the news of billion-dollar earning companies filing bankruptcy and immediately evaluate their own debt relief solutions…they wonder if they are viable.”

Merken’s assessment is accurate according to a new AP poll that looked at consumer trust and their view of the future. The poll shows that most Americans are closely watching what is going on in the media and that the demise of large financial institution reminds them of their own precarious situations.

Not quick to increase spending

In addition, the poll shows that although the government is encouraging spending, few people are actually doing it. As Mark Reed, an economist for Smartmoney.com stated, “The current administration can encourage spending as much as they want, but it will fall on deaf ears until positive things start happening…No one is rushing out for big-ticket items in the midst of the nightly news, where bad news is packaged up in a half hour and force-fed to the masses.”

Wait-and-see is the order of the day

This bad news is causing consumers to rethink their spending. Many are focusing on saving for future emergencies and formulating practical debt relief solutions. These are their priorities as the post-recession world unfolds to the public. As corporations continue to fall under economic strife, more people are adopting wait-and-see attitudes.