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Investing Consultancies - Ask a Question about Investing

Ask a Question about Investing

- Can I make my living from the stock market?
- Is free cash flow higher than cash flow of the company?
- Which is lower: cost of debt or cost of equity?
- Can anyone affect the price of a stock?
- What is net profit?
- What is required money amount to start investing?
- How to screen stocks?
- Can I get rich by investing?
- What is working capital?
- Is Turkey a good market for investing?
- How do I calculate WACC for a company?
- How do companies set their dividends?
- How news affect the stock price?
- When should I sell stocks?
- How to understand price to earnings ratio?
- Can I become a shareholder? How to do it?
- Does profitability depend on sales of the company?
- I often hear about other investors that are taking profits from FOREX markets. Can it be true and how much of money can I make in FOREX?
- Is the stock market crash and depression the same thing?
- I would like to start investing but don’t know how to do it?
- Which investments are more liquid stocks or bonds?
- I am trying to figure out fund fees versus returns. If a management fee is 1.58% annually. (Oppenheimer International Growth N (OIGNX) Fund)...

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Question about investing. Rayon:
Can I make my living from the stock market?
Investment consultancies. Rokas Lukosius:

Sure you can. But you need a lot of capital. Let’s say average return on the market is 10% annually, and want that your income annually would be at least $50,000 then you should have initial capital of $500,000 to make living from investing in stock market. Of course, some years will bring higher return while others lower, but you have to focus on average return rate on portfolio of medium-risk investments.





Question about investing. Ana:

Is free cash flow higher than cash flow of the company?


Investment consultancies. Rokas Lukosius:

There are no changes for free cash flow to be higher than cash flow from operations. Basically, free cash flow is equal to operating cash flow less capital expenditure of the company and all companies normally have such expenditures so free cash flow under normal conditions is always lower that operating cash flow.

 





Question about investing. :
Which is lower: cost of debt or cost of equity?
Investment consultancies. Rokas Lukosius:

Usually cost of debt is lower because debt capital providers are risking less than equity providers so their return is lower. However, under some circumstances (high risk premium on the market, high risk free interest rate, too much of debt in company’s capital structure) cost of capital may rise very significantly.





Question about investing. Ahmed:
Can anyone affect the price of a stock?
Investment consultancies. Rokas Lukosius:

It depends on some factors. At first, is the amount that you have for this purpose. Of course, if can spend millions for this, then you may move almost the price of any stock. However, if your funds are much more limited, then it will be harder. Though, you still can easily affect a stock price is liquidity and market cap or free float is very low.





Question about investing. Ted:
What is net profit?
Investment consultancies. Rokas Lukosius:

Net profit is called many names: profit, net income, earnings, income, net earnings and sometimes even more terms. But basically, net profit is a bottom line in income statement and is equal to company’s revenue less all costs and expenses.





Question about investing. Jayson:
What is required money amount to start investing?
Investment consultancies. Rokas Lukosius:

It may depend on many factors. The main of which is the minimum amount to invest required by your broker while most of the brokers have requirements for minimum invested amount to open a brokerage account. Another problem is minimum fee. Most of the times there is a minimum fee to make any transaction. If that minimum fee would make more than 2% of your transaction amount, then you need larger amount to invest. Another problem is time. Small investment portfolio also requires yours attention and time and it just might be not worth it if the amount will be insignificant.





Question about investing. Christopher:
How to screen stocks?
Investment consultancies. Rokas Lukosius:

The problem is that effective stock screening requires some skill and experience. The largest investment and finance portals as Bloomberg, Reuters, Yahoo Finance or Google Finance allows you to screen stocks using such criteria as sector, region, country or other. More developed screeners also allow you to use valuation multiples as price to earnings ratio as a criteria as well. But you won’t get good investment ideas from initial screening if you aren’t experienced investors because you have to understand financial analysis at deeper level.





Question about investing. Madeline:
Can I get rich by investing?
Investment consultancies. Rokas Lukosius:

Sure you can. Just it won’t happen very fast. Only gambling and speculating gives fast results, but the problem is that those results probably will be negative. While true investing takes time and it needs tactile initial capital. If you want to get rich from investing, you should be prepared that it may last few decades. But if you will keep to your investment strategy strictly, it will come sooner or later.





Question about investing. Kirk:
What is working capital?
Investment consultancies. Rokas Lukosius:

Well, working capital is a type of a capital that is needed for a company to finance its casual operations. It is actually easier to calculate working capital than to truly understand it as working capital is equal to current assets less current liabilities. However, there are more modifications of working capital calculation.





Question about investing. Kevin:
Is Turkey a good market for investing?
Investment consultancies. Rokas Lukosius:

All markets can be good for investing if timing is right. However, Turkey is very volatile which means very risky market and everyone who chooses Turkey for investment should be aware about the risk. Would be better if such risky markets as Turkey would not have a dominant allocation in the portfolio.





Question about investing. :
How do I calculate WACC for a company?
Investment consultancies. Rokas Lukosius:

WACC is weighted average cost of capital of company. Each company has different WACC which basically depends on its capital structure, cost of debt and cost of equity. Cost of debt and equity mostly depends on the riskiness of investments in such company, which depend on sector, capital structure as well as other factors.





Question about investing. Tim:
How do companies set their dividends?
Investment consultancies. Rokas Lukosius:

Basically it depends on company’s dividend policy but dividend policy also depends on few factors: possibility to payout dividends (are there free funds that can be paid out), can company invest those money better and bring higher return for investors? Is this business cyclical and do company need to accumulate the cash for down economical cycle? Does company any stock buybacks?





Question about investing. Bravo:
How news affect the stock price?
Investment consultancies. Rokas Lukosius:

Basically it depends on the type of a news and liquidity of a stock. If stock is illiquid then it may not feel the effect of news at all. However, if liquidity is normal then stock price should react to the news immediately, sometime stock price even overreact to the news until analysts get their job done and evaluate the effect of news to the company’s value.  The stronger affect of the news to the value of a company, the stronger should be the change in company’s stock price.





Question about investing. Joe:
When should I sell stocks?
Investment consultancies. Rokas Lukosius:

It is a good question while everybody is talking about how to buy the stocks but nobody specifies when to sell it. Only Warren Buffet can always buy stocks and never sell them, while other investors are most of the time forced to do that. Before deciding to sell a stock you should look at few indicators: Is the stocks overvalued or undervalued? Do you know any better stocks to invest? Are you sure that bear market is coming?





Question about investing. Cola:
How to understand price to earnings ratio?
Investment consultancies. Rokas Lukosius:

If company performs normally, then the lower price to earnings ratio is better than the higher one. However, this is only one ratio of many and you can’t pull it out of the context.  To completely understand price to earnings ratio you should calculate the same ratio for many companies in the same industry niche and compare them in between. Then do the same with other valuation ratios.





Question about investing. Iva:
Can I become a shareholder? How to do it?
Investment consultancies. Rokas Lukosius:

There are few ways to become a shareholder. The easiest one is to buy shares of some company. Even if you own only few shares, you can call yourself a shareholder. Another way to do that is to establish your own company and then you will become the single shareholder of a company and will have a full control of it.





Question about investing. :
Does profitability depend on sales of the company?
Investment consultancies. Rokas Lukosius:

Profitability of the company depends on many factors and sales volume is one of them. Usually, all companies have some fixed costs and when sales decreases and fixed costs stay the same, it decreases the profitability of one sold product as well as whole profitability of the company.





Question about investing. Winnie:

I often hear about other investors that are taking profits from FOREX markets. Can it be true and how much of money can I make in FOREX?


Investment consultancies. Rokas Lukosius:

You should not believe in al what other people are saying. Very few people are earning money in Forex market and your chances are very low to earn money instead of losing it. Yet, the true is that you may often hear about such profits and other people. But this is a trick. Forex is a gigantic and very profitable industry. Telling successful stories and make them spread among people is a part of marketing strategy. You should not believe in it unless you personally know that investor.

I know some investors that lost their big money by playing in Forex market; however, I don't know personally anyone who earned money in currency trading, so I would suggest staying away from Forex. Of course someone can make profits in Forex those are large institutions or other very large investors that can manipulate the market and control media.





Question about investing. Ben:
Is the stock market crash and depression the same thing?
Investment consultancies. Rokas Lukosius:

No, those are different things. As stock market crash is a sharp fall in stock market indices while economical depression is strong and long economical contraction measured in GDP terms. However, market crash can be a cause for such economic depression especially if people are heavily investing in stock market.





Question about investing. Rick:

I would like to start investing but don’t know how to do it?


Investment consultancies. Rokas Lukosius:

At first you should build your knowledge: read books and articles on investing. Then build your wealth and start saving money. Start to invest small amounts because it is better to take losses till amounts are smaller than later and I would suggest choosing stocks instead of bonds until you are young. If you are afraid of risk, then chose some defensive stocks as high dividend stocks.





Question about investing. Andrew:

Which investments are more liquid stocks or bonds?


Investment consultancies. Rokas Lukosius:

The liquidity of any investment depends on how liquid the particular stock or bond is. Liquidity of bond or stock may be equal if both investments are traded on stock exchange and trading volume is high. Basically, liquidity of an investment is ability to convert investment in to cash, so if trading volume is equal, probably, bond would suffer less losses if you would sell a lot of securities in short time and that would mean that liquidity of a bond could be little higher (if trading volumes are equal) but in practice it would depends on demand's structure.





Question about investing. Mike :

I am trying to figure out fund fees versus returns. If a management fee is 1.58% annually. (Oppenheimer International Growth N (OIGNX) Fund) And assume the ten year average return is 10%. Would the management fees be 15.8% for ten years? If so doesn't this put you at a loss of 5.8%? Thanks


Investment consultancies. Rokas Lukosius:

Your mentioned fee is correct for the OIGNX fund, because 'total expense ratio' for this fund was 1.56% for the last year, which is quiet normal for the equity fund. If you are also paying a load fee or deferred load in this case, it will increase your cost some more but for the long period as 10 years it won't be very significant. And you are correct that in 10 years those fees will take 15.8% (rough calculation because of geometrical progression) of yours portfolio, but those aren't only management fees but all other fees used for fund's administration. But if the annual return will be at 10%, then after ten years your portfolio should be 159% up (fees are not extracted). But what is really happens: you are giving for the manager 1.58% from 10% potential each year, so you earn each year net 8.42%. So after ten years your growth of the portfolio would be equal to 124% if annual pre-fee growth of the portfolio would be 10% annually.






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