In my last post I covered the investing strategy of Benjamin Graham, a renowned investor who managed huge success with growth shares. Further to his ideas, let me run through a strategy based on defensive investing.

Graham insisted upon certain criteria for the stock section of the defensive investors portfolio. I have listed them below, adding my own reasoning to why they remain good practice.

(1) Adequate though not excessive diversification- 10-30 companies. Diversification is very important- simply not putting all of your eggs into one basket. No matter how stable the company selected is, there is always an inherent risk of a highly negative unforeseeable future development, hence buying 10-30 of these companies means that you can afford for one or two to drop. BP is a fantastic case in point- the company looked in great shape, yet had you invested exclusively in it, your portfolio would have lost around half of its value. Yet had you owned a portfolio of 20 large companies, one of which was BP the half drop in share price would mean a loss of 2.5%- far more manageable.

(2) Companies should be of sufficient size. Graham suggests $1 billion – £1billion would probably be a reasonable marker for UK stocks.

(3) Earnings Stability. Graham suggests all suitable companies should have delivered some profit for each of the last ten years. Of Grahams criteria, arguably this one of the most important- if a company is not consistently profitable it is likely a very poor investment, and certainly one that is not suitable for the defensive investor.

(4) Record of continuous dividend payments. Record should extend for at least ten years. It is very important for the defensive investor that they can reasonably expect dividend payments to continue- large companies that claim it is in the shareholders interests for the profits to stay entirely within the business are often in serious trouble.

(5) Some growth in earnings. Graham insists upon a minimum increase of 1/3 in earnings per share over the last ten years, calculate using 3 yer averages at the beginning an end of the ten year period.Such growth earnings is actually very modest- an annual return of just under 3%. We should probably insist upon a 50% increase over the last decade- still only 4.1% average annual growth.

(6) Moderate Price to Earnings ratio. Graham recommended that the defensive investor should not pay more than 25 x average earnings over the last seven years for growth shares- the “last seven years” bit is very important as it would exclude most highly speculative growth shares, as it insists on at least a moderate track record.

(7) Moderate ratio of price to assets.

(a) Current price not more than 1.5 x Net tangible assets per share

The first of Grahams “price to assets” criteria ensures a defensive investor does not purchase shares that do not hold significant underlying value. This criteria was designed for traditional investing activities, and it may be hard to find growth shares priced so moderately in comparison to their assets. However, I will include it, as it still certainly a good sign if a share meets this criteria, as it offers something of Graham’s margin of safety.

These criteria are in no way guaranteed to be the most successful- do not simply go out an buy all of the stocks meeting this criteria. Graham designed it to protect defensive investors from severely overvalued shares, and to provide a list of stocks from which investors could select.

Benjamin Graham defined a growth share as a share in a company “that has done better than average in the past, and is expected to do so in the future.”

The basic attraction of growth shares is as such: if you invest in a rapidly growing company, its earnings will increase, thereby increasing the values of your shares and the amount you receive in dividends.

The Problems With Trying To Predict The Growth Shares Of The Future.

We all know about the incredible growth stories behind some of the worlds biggest companies- if only we had bought a few shares in google or dell and we would be millionaires. The success of past growth stocks is still a significant pull to investors, luring them into hopelessly trying to predict the stocks and areas of the future.

Of course the principle of trying to invest in companies with good futures sounds very logical, yet it is actually very difficult- and if you get it wrong you might lose big time.

To illustrate the difficulties of picking the growth areas of the future, let us take the current energy debate. A “smart” guy might think there’s money to be made- now lets look at his options:

This simplistic diagram does at least indicate how difficult it would be to even pick a growth sector of the future. More bad news for the speculator- picking the right company is even harder. In terms of our energy example, there might be hundreds of companies in each sector- very tough to pick the eventual winner. Remember that Microsoft was essentially a garage based operation up against the mighty IBM and hundreds of other competitors. Unless you are prepared to lose all of your money, guessing which stocks will make it is not advisable. It is not investment, it is speculation.

Another problem of buying stocks with a good track record of growth is that they are very often expensive- after all if they are growing quickly, there are a lot of people willing to buy them. This presents another risk for the investor- He may pick shares in a fantastic company that grows its business at a fantastic over the next five years, but still not make much money.

Example

Company XYZ has a fantastic growth rate, priced at $3 per share, but has an EPS (Earnings per Share) of only 11p, giving it a P/E ratio of 27. This high P/E ratio is largely due to this companies past growth record, and its positive outlook for the future. Lets imagine XYZ’s earnings grow at 12% per year for the next five years- a fantastic growth rate. Now EPS would be about 19.4 pence per share. If the market still valued the share at 27 times earnings then your shares might be worth $5.23- not bad at all.

However it is probably very unlikely the market will value it at 27 times earnings, as the high multipier was largely due to the expected period of long growth. Lets say that after this period the company is finding expansion harder (As companies get larger high growth rates are far more difficult to obtain), and therefore the market values it at 17 times earnings- still a fairly high ratio, then your shares might be worth $3.30- a ten percent return over five years would seen pathetic considering you had invested in company that had performed brilliantly.

Trading currencies has been a method of making money, ever since currencies came into existence. But in the past, the major currency trading market, known as Forex was not available for everyone as it is now. It was restricted only for the major players such as banks and other financial institutions. Well, this is all history, because now you have the chance to enter this market with as minimum as $250, through the various online broker companies offering mini-accounts.

Software platforms vary, but there several forex currency pairs that dominate the market. Now remember that in this business, it’s all about currency pairs – USD/EUR, USD/JPN, USD/GPB, USD/CHF, and practically all types of combinations of the various currencies in the world. In the world of forex, you work with forex currency pairs. You buy one currency by selling another, for example you buy Euro by selling your US dollars, with the obvious idea of the Euro climbing against the dollar, so at the end of the day, you will be able to get more USD when you sell your EUR. In the context of all those currency pairs, the ones that truly dominate the market, and are responsible for about 80% of all transactions are the so called “major pairs” – Euro vs U.S. Dollar, US Dollar vs Japanese Yen, US Dollar vs Swiss Franc, and US Dollar vs British Pound.

currencyCertain Forex currency trading strategies can be applied to increase your chances of success, but nevertheless, we are talking about chances here. Risk is always a factor on the FX market. Therefore, you must be responsible. Lots of money could be made and lost at the same time, if things go in the wrong direction. Investors make assumptions, analysis, charts, trust their intuition, but the bottom line is that no trading system is perfect and unexpected events can occur all the time, such as the Katrina hurricane, or 9/11. Such events affect the market and the values of certain currencies. The forex currency pairs are influenced by political and economical factors. Interest rates and inflation rates are part of the economical aspect. Sometimes, entire governments make deals on the Forex market in order to change the value of their national currency. For example, the US government often employs a policy of keeping the USD low vs the EUR (the dollar is dropping against the euro) so that in Europe, goods produced in the US can be cheaper, and therefore, more demanded on the European market.

An interesting term that you will often hear is “leverage”. The leverage allows you to operate with cash much larger than you actually in your account. If the leverage on your account is 10:1, that means that with $250 you virtually have $2500 to buy and sell with.

If you’ve visited this website because you’re intrigued about the idea of making money at home taking online surveys, but feel a little skeptical, then you’re in the right place.

Just in the United States, companies spend over 250 Billion dollars a year trying to convince consumers to buy their products and services. That’s a lot of money … And while the majority of it is spent on advertising, a portion is devoted to research. You see, understanding how people think and shop, why they buy certain products, etc. ultimately helps companies improve their products and services and make THEM more money. Knowing this, companies are willing to pay people up to $150 an hour for their opinions. Eventually, they know they will come out ahead and generate more profits for themselves.

Getting Started

moneyThe most difficult part about making money with paid surveys is finding and sorting through all the market research programs out there. And some of them are “scams” – they don’t pay as promised, they bombard you with more advertising, their telemarketers call you during dinner, etc. It would take you months to find, evaluate, and keep track of all the good opportunities. These websites have done the research for you and are constantly updating their databases of companies in need of people to take online surveys. This will save you a tremendous amount of time, hassle, and “trial and error” versus trying to do it all yourself. In addition, these members-only websites often provide tips, tricks, and strategies that will help you to make more money, as quickly and as easily as possible.

Obviously not everyone can take all the surveys. If you are father who works all day you would not quality for a survey about stay at home moms or daily child care. A women would not quality for a survey about men’s purchasing habits or say views about a men’s magazine. Some surveys are very general, anyone can take them (for example, what type of pain medication do you take when you get a headache). Some surveys will be specific and need someone from the targeted sex, age, work, or lifestyle.

Once you sign-up you can get started immediately. This is not to say you will be offered surveys or make money within an hour after joining. Some people start receiving surveys within a few of hours, but the average wait is usually at least a few days. It really depends on your “profile”, and which companies you register with. Keep in mind that many market research companies only send out 1-2 surveys a month. With these it will take at least a few weeks before you are entered into their system and start receiving surveys from them, depending on when you register. It’s crucial to register with as many as you can – you will NOT make a lot of money from any one company. You will be introduced you to 100s of companies, and the more you register with the more surveys you can take. It’s that simple. Once you get going you can do surveys every day.