Investing in ETFs

ETFs, or exchange traded funds may differ. They may track an index set by securities earnings rather than by securities market weightings. That will make a difference. Index make-ups may also vary within group types. The number of shares in an index is also important, as the size and trading value of those shares will then vary.

Trading volume is important as liquidity helps traders using ETFs. And there are many who periodically want their dividends reinvested. It’s important they get better pricing on small purchases.

Even if the ETFs use the same stock indexes, underlying costs of operation may differ. Lower-cost is a better choice. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Discipline Your Securities Trading

Leave frequent trading to the very heavy volume pros on Wall Street who can profit from their insider position.

It’s that insider position, along with expensive software, that gives assistance; added to that ample capital, plus the extensive credit leverage that offers these insiders an odds advantage for awhile.

Average traders should avoid the temptation. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Risk of Investing

Left-leaning politicians and the media mistakenly, negatively criticize the risk of derivatives, losing sight of the fundamentals of the subject.

The truth is, many investors seek risk, the riskier the better. They weigh risk against the added return they get from that risk. Sometimes the added return comes from short selling, or betting prices will fall.

In every transaction there is a buyer who wants in and a seller who wants out. When sophisticated buyers and sellers are available, as in derivatives, why is the government the arbiter of risk?

As far as the non-sophisticated are concerned, the media’s job is to explain the basics, so the masses keep away from what they are not familiar. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

The Meaning and Importance of Repos

A repo transaction involves a firm selling assets to another company, while agreeing to buy them back at a slightly higher price after a short period.

This can take as little as overnight, so the transaction becomes a short-term loan with the assets acting as collateral.

Because the term is short, there is little risk the collateral will lose its value. The lender or firm making the purchase thus takes a low interest rate.

With repo transactions, a borrower can get funds more cheaply than it could with one long-term loan that would put the lender at greater risk.

Under standard accounting rules, ordinary repos are considered loans, and the assets remain on the firm's books, But if a borrower could find a way that removed the assets from its books, often just before the end of the quarterly financial reporting period, the move temporarily could make the firm's debt levels appear lower than they really were.

That is where investment banking bookkeeping disputes arose during the 2008/2009 financial debacle. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Why Indexed Mutual Funds and ETFs

Investors who buy managed mutual funds through most fund managers rarely beat securities averages. That is why more and more are turning to the use of indexed mutual funds and related Exchange Traded Funds( ETFs).

Index mutual funds and ETFs are generally much lower-cost than managed funds. Low cost is the most important investment factor you can rely upon for long-term results.

And when some managers do better than indexes in a particular type of fund, they sometimes get nervous. Then, they play it safe and merely attempt to emulate the averages the rest of the year. They may be afraid to defy odds of being successful, compared to indexes.

I have always suggested the use of index funds. Especially because large mutual fund portfolio managers tend to find it so difficult to outperform indexes. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Securities Analyst Estimated Earnings

My research on securities analysts has given me insights that have taught me much about them.

Wall Street gets excited about how companies and analysts estimate earnings and whether analysts can manage to hit their estimates closely, or not at all. In fact, there are strategies based on the percentages of closeness-to-estimates that analysts get.

The sharp pencil folks in the financial community can come up with anything that will attract believers. Their machinations add up to little in the real world. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Use of Investment Derivatives

Few fully understand derivatives; thus politicians misuse them for their purposes.

Derivatives are a financial necessity as a a form of side bet that helps reduce the risk of a financial transaction. It’s a device that has been in use by commodity merchants for over a century and a half. It protects investors against the possibility the price trend of an original investment goes wrong. It’s perfectly legal and ethical.

Some simple derivatives are easily listed on an exchange. And they contain collateral in case of a market downturn. But not all derivatives can be worded simply. Some insist that only bankruptcy courts can handle their settlement.

So forget the diatribes against investment firms who write derivatives and are on both the buy and sell side at the same time. It’s reasonable risk management.

Politicians and media who are ignorant of the process are deluding the public by carrying on about derivative fraud. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)