OWE THE COMMISSION
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The Ghanaian News October 2012
BUSINESS
Stocks Investment Demystified-Fictions & Facts By Eddie Twumasi Smith Bsc(Hons) Chem Eng, MBA,CGA, CPA
and not predictable. Over the short term, the behavior of the market is based on enthusiasm, fear, rumors and news. Over the long term, though, it is mainly company earnings that determine whether a stock’s price will go up, down or sideways. 1. Stocks are just junky investments on paper.
4. Inflation rate exceed stock growth rate.
When you buy a share of stock, you are taking a share of ownership in a company. Collectively, the company is owned by all the shareholders, and each share represents a claim on assets and earnings.
Since the end of World War II, through many ups and downs, the average large stock has returned close to 10% a year -- well ahead of inflation, and the return of bonds, real estate and other savings vehicles. As a result, stocks are the best way to save money for long-term goals like retirement.
Since World War II, Wall Street has endured several bear markets defined as a sustained decline of more than 20% in the value of the Dow Jones I n d u s t r i a l Av e r a g e . Bull markets eventually follow these downturns, but again, the term “eventually” offers small sustenance in the midst of the downdraft. The point to consider, then, is that investing must be considered a long-term endeavor if it is to be successful. In order to endure the pain of a bear market, you need to have a stake in the game when the tables turn positive. 2. Too many stocks to select for investment. The most common ways to divide the market are by company size (measured by market capitalization), sector, and types of growth patterns. Investors may talk about large-cap vs. small-cap stocks, energy vs. technology stocks, or growth vs. value stocks, for example. That said, there is always a way to fragment different stocks by industry, company size and stage of growth. 3. Stock prices are erratic
5. Stock market and stock value are in sync. A good stock may go up even when the market is going down, while a stinker can go down even when the market is booming. 6. Only big companies can create value in the long term. Stock prices are based on projections of future earnings. A strong track record bodes well, but even the best companies can slip. Hence, both big and small companies listed on the stock market have equal propensity to create value and appreciate in price in the course of time. 7. Stocks are expensive a n d n o t a ff o r d a b l e . Because a stock’s value depends on earnings, a $100 stock can be cheap if the company’s earnings prospects are high enough, while a $2 stock can be expensive if earnings potential is dim. 8. Stocks are overvalued.
To get a sense of whether a s t o c k i s o v e r- o r undervalued, investors compare its price to revenue, earnings, cash flow, and other fundamental criteria. Comparing a company’s performance expectations to those of its industry is also common -- firms operating in slowgrowth industries are judged differently than those whose sectors are more robust. Therefore, the drivers or dynamic affecting the values of stocks are many and can be predicted if trends or leading factors are studied or understood. 9. Stock portfolio management is a risky venture only for the experts. As a general rule, it’s best to hold stocks from several different indus tries . That way, if one area of the economy goes into the dumps, you have something to fall back on. 10. Cost of trading is expensive. The cost of trading has dropped dramatically - - i t ’s e a s y t o f i n d commissions for less than $10 a trade. But there are other costs to trading -- including mark-ups by brokers and higher taxes for short-term trades -that stack the odds against traders. What’s more, active trading requires paying close attention to stock-price fluctuations. That’s not so easy to do if you’ve got a fulltime job elsewhere. And it’s especially difficult if you are a risk-averse person, in which case the shock of quickly losing a substantial amount of your own money may prove extremely nerve-wracking Stay tuned for more on investment options.
How to deal with Collection Agencies By: Zane Roth and Jayson Schwarz This article and next month’s will look at debt collection from both sides of the ledger. Next month, we will explore your options as a creditor, today, let’s talk about how to stop creditors from bothering you. if you cannot, did not, and, perhaps, will not, pay your debt, there are a few things you should know. First, you should know how to get collection agencies to stop calling you, and second, how to finally deal with debt you cannot repay. A collection agency may only call you once you have received written notice of the debt; if you haven’t received a letter, then you don’t have to take the call. If you have received written notice of the debt, one way to get the collection agency to stop calling is to strike a deal. Often, you can work out a payment plan to pay off a reduced debt in installments or in a reduced amount in a single payment. However, if you are going to negotiate with an agency, please, never admit to owing the debt. You will see why below. If you simply want the collection agencies to stop calling, send the collection agency a registered letter. First, you may say that you dispute the debt and suggest that the matter be brought before the Court. The creditor may determine it’s not worth the expense of going to Court and
possibly write off your debt, or they may in fact start a lawsuit. In that case, you’ll likely wish you made arrangements to pay the debt when you could. Second, you can write and tell the collection agency to contact your lawyer, assuming you have one. Once such a letter is received, the company can no longer contact you, and if they do, you can complain to the Ontario Ministry of Consumer Services. You can also file a complaint if the collection agency tries to collect more than what you owe, calls you more than three times a week without your consent, or if they are abusive, threatening, or if they exert undue pressure on you to pay. Sometimes a creditor takes too long to demand payment, which means you may not have to pay. Generally, a person or company has two years to file a lawsuit to collect a debt, and the clock starts running as soon as that debt is incurred. The reason why you don’t want to admit to a debt, is because that may restart the clock. Similarly,
payments towards a debt may also restart the clock. So, if more than two years have passed since you incurred the debt, and if you haven’t made any payments or otherwise affirmed or acknowledged the debt, you may get away without having to pay it thanks to the Limitations Act. You should know, however, that a creditor may nonetheless tell the credit bureau that you are a credit risk and affect your rating. Interestingly in that case you can force a credit clean-up. Finally, if your debts are too numerous or too high, you may want to seek out the assistance of a credit counselor or bankruptcy trustee or lawyer, who can help in developing a plan to get you out of debt and stop creditors from bothering you. The first best option is to pay your bills as they become due. However, if that’s not possible, you now have options. Next month, we’ll discuss how you, as a creditor, can try and limit those options and collect on your debt. Jayson Schwarz is a Toronto lawyer and senior partner in the law firm Schwarz Law LLP. Zane Roth is the litigation associate at the firm. If you have a topic in mind, or a question, mail, deliver or fax letters to the newspaper or to the firm, use the website www. schwarzlaw.ca or infor@ schwarzlaw.ca and give us your questions, concerns, critiques and quandaries.
Schwarz Law
Barristers and Solicitors
Schwarz Law LLP is a full service law firm, offering sound and practical professional advice in the areas of Business Law, Corporate, Commercial, Real Estate, General Litigation, Personal Injury, Construction Liens, Immigration and Estates and Tax Planning. Schwarz Law LLP is also associated with law firms in Providenciales (Turks & Caicos Islands), Kansas City, Missouri (USA), Accra (Ghana) & Montreal, Quebec. Jayson Schwarz is also a foreign referral associate of Cyrus Ross International (Europe). As a result, through our network of associated firms, we can provide national and international solutions as required.
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