Your Questions About Money Making Stocks For 2010

Mary asks…

How diversified should I be with $18,000?

In late 2009, when I turned 18, I put $5,000 into a tax free trading account. I then added $5,000 more in early 2010, making my total investment $10,000. I have made only an 8% return since then because I made the dreadful mistake of believing that with only $10,000 it wasn’t worth diversifying. I then proceeded to put all my money into Google stocks when it had come down from $600 something to $576 back in April. That didn’t work out well, and I ended up spending the next 6 months at a loss (well over $2000 at one point), waiting for Google stocks to come back up. After spending many a day with all my money tied up in decreasing Google stocks, while other stocks kept climbing, I realized how important it is to diversify. Luckily, I was able to sell my Google stocks a few days ago at a profit, and I put my $10,700+ into RY($3,000), BIDU ($3,000), MCD ($3,000), and BNS ($1,700+). I am now in the process of investing an additional $8,000+ using a regular trading account. Have I made an okay move by investing my initial $10,700+ in only 4 companies? Should I have spread it out more? Should I have spread it out less? How should I spend my other $8,000? Should I add it to the existing companies I have invested in? Should I invest in additional companies? If so, how many more? How diversified should I be with $18,000?

John answers:

$10,000 isn’t a lot for trading shares and investing across 4 different uncorrelated stocks should be sufficient provided you don’t need the capital in the short-term. Just don’t get excited by the daily fluctuations and expect to make 25% in 6 months. Because usually that’s what happens – you put your money in a share and see other companies going up while yours doesn’t move and you think how stupid you were to having put your money in a non-performing stock and think about the opportunities you are missing.

But, well, it doesn’t work like that!! If you have another $8000 available I would try to put that in something else other than shares – try bonds or a tracker fund that follows commodities for instance. Commodities will always be in demand and even if we were to witness another dip they will surely recover in the long term.

Carol asks…

Out of the money call options: how do I calculate return?

I want to make sure I am calculating this correctly. Please help.

XYZ stock currently priced at $21.00
I buy 100 call option contracts of XYZ stock for a total premium of $2,000 (or 20 cents per share)
Expiration date: June 26, 2010
Strike price: $23.00

Let’s say June 19th, 2010, XYZ stock finally reaches $23 per share

I have the option at that time to call for my shares? The 100 contracts would yield 10,000 shares of XYZ stock. 10,000 shares x $23 per share = $23,000 in value

So, in this example, the total monetary gain on my investment is $21,000. Am I calculating this out of the money call option correctly? Thanks.
I don’t understand. I thought the seller of the option calls would cover with shares if the strike price is reached. Is that not the essence of a contract? Or do I need to wait until the expiration date?

John answers:

When you buy a call option that gives you the right, but not the obligation, to buy the underlying stock by paying the person who sold the call the strike price for each share. As that owner you have that right regardless of the current market price of the stock. In your example, that means each of your 100 call options gives you the right to buy 100 shares for $2,300. (If you exercise that right your total cost will be $2,320 for 100 shares since you already paid a $20 premium for each option.)

If it is an American style option you may exercise that option at any time before expiration. (In the United States all exchange traded options on stock are American style.)

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The fact that the stock reached $23 per share is not significant. You have the right to exercise the option at any time.

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Umm, the last time I checked $23 x 10,000 was $230,000, not $23,000.

You would get $230,000 worth of stock but you would also pay $230,000 to buy it if you exercised the options.

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No. If you paid $2,000 for the options and $230,000 for the stock your total cost would be $232,000, $23.20 per share. If the stock was worth $23.00 per share the total value of the stock would be $230,000 so you would have an unrealized loss of $2,000. If the stock was at $23.20 per share you would break even. If the stock was at $25 per share you would have an unrealized gain of $250,000 – $232,000 = $18,000 (nine times your original investment).

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No. The seller of the call options will deliver the shares to you if you exercise the option and pay him $230,000. It does not matter what the market price of the stock is.

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No. Some large institutions do enter into “exotic” option contracts, such as barrier options or binary options which could have terms similar to what you described, but for normal exchange traded options that is definitely not the essence of the contract.

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You only need to wait for the expiration date if you have a European style option. There are some exchange traded European options traded in the United States, but not with stocks as the underlying security.

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For a good review of how options work you might want to go through the free on-line tutorials at either

http://www.cboe.com/LearnCenter/default.aspx

or

http://www.optionseducation.org/

Susan asks…

The great Federal money tree?

I am a bit baffled. How is the US Gov printing 600 billion dollars to cover debt a good thing? Seriously, nobody will buy our debt so we have to create make believe money to cover the bills. More and more of our debt is now funny money. If you and I printed our own money they’d arrest us but the Feds are proud of it and the stock market is thrilled?

It’s not like we printed a few million. We printed 600 BILLION on just this one round. Well over a trillion in the last year or two. That is scary. Million dollar bill to buy a candy bar kind of scary.
This makes no sense to me whatsoever. Can anybody explain the logic behind this?
http://www.marketwatch.com/story/fed-to-buy-600-billion-in-government-bonds-2010-11-03
No it’s not going to create jobs. Even Obama has finally admitted the Stim package didn’t do much to save or create jobs, at least for Americans. It did keep lots of illegals employed and created lots of jobs in China and India.

How is this not counterfeiting on a grand scale? Yes they are supposed to print money but this is like pulling out your crayon an drawing a dollar bill when you go to the grocery store. This is just not reality.

John answers:

Have you noticed the show of force we’re making in India? Uncle Sugar has one tool left: military. Yes, we’re on the verge of becoming that; a failing Empire.

About the money, http://www.thesurvivalpodcast.com/page/2
2 podcast episodes explaining all about money. How we got here and where we’re going.

In 1967 former Fed Reserve head Alan Greenspan was a groupie of http://www.aynrand.org/site/PageServer?pagename=about_ayn_rand_aynrand_biography
and wrote an article in which he said in essence that paper fiat currency is a fraud whose inevitable destiny is always to be inflated out of existence. Then he went on to chair the Federal Reserve banking cartel for many years. He must have really bad dreams 😉

Noticed how gold and silver prices have reacted to the devaluation of our funny money?
Here’s a copy of an email I sent last night:

For those of you who thought Grant was nuts since the 80s when he said this was inevitable, this is what the death spiral of a fiat currency looks like. Been to the grocery store lately?

Friday night
silver oz $26.71
gold oz $1393.21

“…prices of nearly all agricultural commodities have been spiraling out of control in recent months just in anticipation of today’s quantitative easing announcement. In the past 60 days alone, cotton prices are up 54%, corn prices are up 29%, soybean prices are up 22%, orange juice prices are up 17%, and sugar prices are up 51%. Meanwhile, the Dow Jones has only gained 9%.

The Federal Reserve is doing everything in its power to push stock market prices up …”

There are some bubbles going on. The stock market being one. Money itself being another. Status quo is unsustainable, but powerful forces keep trying to prop it up.

Prepare for change.
END

I might add that a great investment, paying about 15% is long-term storable food. Yup, rice and beans will cost 15% more next year, as will canned goods, pasta (heard about the wheat shortage in 8 of the last 10 years?).

The best way to lower your food budget and be prepared for any sort of calamity is to have a couple months of food in your pantry or basement. Here’s what I do: I wander around the middle part of the grocery store looking for deals. Everything in that middle part is storable (“store what you eat, eat what you store”) and what you use goes on sale every 2-3 months.

Let’s suppose I use a lot of canned tuna. A couple weeks ago Kroger had tuna on sale 50 cents a can. I spent $30 and bought a case of 60 cans, “sell by” date 2014. So next year when I want a can of tuna, I already have one and paid 50 cents when at the store in 2012 they will cost $2.

Almost everything I buy, I buy on sale because I believe in having a surplus. I have batteries for the next year because I bought them when they were on sale. This sets me up for being prepared for power outages and saves me money since I actually use batteries daily for flashlights and mp3 player, etc.

Cut 40% off your food budget, have a surplus, buy ahead of need, meaning buy when its on sale, and once you are prepared for alien attack, sunspots, civil disturbance or the end-of-the-world-as-we-know-it, a little unemployment seems like a vacation and not a disaster.

Oh, and get out of debt. Reduce overhead, because

WINTER IS COMING

Yours Truly
The Ant (not a grasshopper)

Mark asks…

Should I Steal Money From My Own Business? What would you do?? 10PTS?

I’m 21 and started up a small business in 2009 with my sis (she’s 19). We attend conventions all over Canada selling cartoon and videogame merchandise. Today I had a falling out with both my sister and my mom, because I mentioned wanting to be paid back for the money I put into this business. Not all at once, of course, I’ll accept a little at a time. There’s approx. $2000 owing to me. Whenever I mention being reembursted ppl just roll their damn eyes. Honestly, I feel like I’m being pushed out of the business I started!!!!

My mom acts like the whole business idea was my sister’s, and whenever my sister buys products for the business, my mom makes sure her reemburstment is priority #1. Over me getting paid. It’s so unfair, I need money too! It’s the reason I wanted to be an entrepeneur in the first place. I go to university and pay my own way through. Neither of my rents have given me a f**king nickel for my education. And now my mom acts like my sister should be paid more than me because she’s currently paying for most of our stock. In 2009-2010 my three credit cards were nearly maxed out buying supplies for this business, the monthly interest was crazy high. (Sometimes $70.00 on one card alone). I had to use most of my student loan to pay off two of my cards earlier this year. My mom never cared if my credit was being ruined.

At this point I’m contemplating leaving this business behind for my mom+sis, or stealing back my money overtime.

What would you do? I need advice. I dislike them so much right now.

John answers:

You need to kill them, don’t worry i’ll explain everything.
First kill them, preferably silently, this part is up too you.
Next get some hydrochloric acid, a bathtub, some water, a bucket or two, gasoline and a match
Fill the tub with the hydrochloric acid and put them in it for an hour or two.
Take them out and bring what is left of them to the middle of a forrest, as far away from civilization as possible
Pour gasoline on them and light them on fire, keep the bucket(s) with water close by to keep the fire in check
Put the fire out. They should be ashes by now, if not repeat the step before this.
Take the ashes and scatter them about the forrest.
Create and alibi and a story about what you think happened to them, this part is also up too you.
Good luck!

Sandy asks…

Why don’t we raise taxes on the rich in California to pay off that states debt?

Think about it. Hollywood makes more money then most companies in California. As a matter of fact they are one of the richest big wigs in our nation.

http://techcrunch.com/2010/02/23/hollywood-stock-exchange-real-money/

Since so many Celebrities are for helping the poor I see no reason why they cannot pay higher taxes. Most of those Celebrities would be more then happy to pay much higher taxes if it means that they can help the poor in California.

I know that there are those who hire illegal aliens and abuse them by making them do all the dirty work. Since those rich slave owning Hollywood types don’t pay a fair wage to those poor illegal aliens. We should crack down on those celebrities and make them pay for all of the health insurance, pensions etc.I think its time to give the illegal aliens who work for those celebrities a raise.

Property taxes in Hollywood need to be increased so that the poor in LA can get better schools.

Can you think of any other reasons to increase taxes on Hollywood and Celebrities?

P:S: Main street Media is loaded too!
Hollywood wants higher taxes for the rich in other states. So why aren’t they offering to pay higher taxes themselves?

John answers:

Because the rich will flee

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