Is now the time to buy physical gold?
As of August 2013, the European market broke out. According to CNBC, the recession in Europe that has started years ago is over and its economy is surging higher.
The European market may have made a bear market last year. However, those who have invested in the European stocks during recession are now making profit and those who listened to the naysayer analysts have missed out on a great opportunity.
According to Eurostat, The European Union’s statistics office, 17 of the European countries that use the Euro currency saw a collective increase by 0.3 percent from April to June from the last quarter.
“The improvement made up for the previous quarter’s equivalent decline and was moderately better than the 0.2 percent anticipated in the markets,” a spokesperson from the Associated Press said. “Growth, however anemic, had been predicted by many economists following an easing in market concerns over Europe’s debt crisis over the past year and record low interest rates from the European Central Bank.”
In times of recession, people ask “Why invest in gold? Who will buy it at times when money is scarce and the inflation is high?” While this may be the common reaction of many, little do they know that buying stocks when the market is down is good primarily because they’re cheap. Now, since Europe is in a vital transition phase from its long-time recession, the yellow metal will soon start soaring in value.
Today, it isn’t hard to invest in gold may it be in the form of ETF or directly owning a physical unit of the commodity. Thanks to peer-to-peer gold exchange services that boomed in the UK since 2005, people are now able to invest in gold at BullionVault and store them for a small fee compared to actually spending in traditional gold storage means.
Apart from the commodities’ low price during recession, another reason for investing in them is because markets don’t really stay bearish for a long time. According to precious commodities expert Dave Skarica, markets don’t go down for more than 2–3 years. In fact, gold has only been down for 2 years. With Europe’s booming economy, those who have committed to the yellow metal during the time of recession will start reaping from their decision in investing on it.
Fundamental Analysis – Building a List of Investments
When I approach investing, I go sector by sector and look at my best ideas within each category. Every company that you target as a potential investment is part of a sector in the market (example: beverages). Sectors also get broken down into sub-sectors called groups (example: soft drinks). Any one group consists of very similar companies (example: Coca-Cola and Pepsi). The chart below lists the sectors in the market:
For more info on industries go to: http://biz.yahoo.com/ic/
Here is the process I use to build a typical portfolio:
1. I look at the sector composition of the S&P. I look at the current breakdown of the S&P 500 to see how the index is divided. You can find this info at www.morningstar.com:
2. Next I decide on how many companies I am going to buy. I typically buy at least 20-25 for each stock portfolio.
3. I decide which sectors (if any, I want to over or underweight). Some sectors are expected to under or outperform the markets over the next 12-18 months. I do lots of research to
4. I choose how many stocks I will buy per sector. For example, let’s say I chose 20 stocks and decide I will allocate 5% of my portfolio toward each company and decide I will allocate 10% of my portfolio toward health care. This means I will need to own 2 health care stocks (5% each) to get to my 10% allocation.
5. I perform an extensive analysis of each company I am considering adding to the portfolio. I look for companies with strong managers with significant insider ownership, strong balance sheets with little or no debt and plenty of cash, who have a commitment to returning value to shareholders in ways such as paying a dividend or repurchasing shares, strong cash flows, increasing revenues and earnings, improving margins, extremely attractive valuations, and, above all, no involvement in any immoral activities.
6. Once I have done my analysis I set up my watch list. Sometimes my watch list is quite small (20-30 names) and other times I may have hundreds of companies on my list. The bottom line is I do lots of homework BEFORE ever buying a stock.
7. Once a stock from my watch list moves in to my buy range, I execute a buy order.
In our next lesson, we will look at the various types of market orders.
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