STOCKS & BONDS

If a company needs to raise capital, one option for that company is to “go public” by issuing new shares through an IPO (initial public offering) and then engage the services of an “underwriter” (usually a bank owned investment brokerage) to market the newly issued shares to the general public by way of the publicly traded stock market after which the general public can buy and sell these shares on a daily basis (these companies are now considered “public companies”). We consider this marketplace, ie the buying and selling of individual stocks, somewhat risky but it has the potential to earn higher gains with the understanding that significant losses are also possible. The publicly traded stock market is for investors who are willing to take the understood risks in return for the potential of higher gains. We consider this marketplace more suitable for the quest of higher returns without as much concern about the protection of an investors capital (we consider this your “gambling money”, ie, your trip to Casino Rama). With that said it is not uncommon for many clients to want to “play the stock market” so, for those clients, we set up a self-directed brokerage account for them to do their own stock trading.

Advantages of Stocks & Bonds very liquid (in and out immediately), daily valuations : Disadvantages of Stocks & Bonds very volatile, direct exposure to global stock markets :


Some additional comments about the publicly traded stock markets, ie individual stocks, which create some concerns investors need to be aware of. In our opinion the publicly traded stock markets are significantly overvalued and individual stocks can trade 30, 40 or 50 times the “real value” of the underlying company. Also, the publicly traded stock markets are directly linked to the ups and downs of the global marketplace so, as we found out in 2008, your investments can experience a significant drop in a very short period of time. In our opinion, when investing in the publicly traded stock market, ie individual stocks, we “chase rates of return” at the expense of “protecting our investment capital”. Most of our clients share our view that it is better to first “protect your investment capital” before “chasing rates of return” so if we can better educate our clients about the investment marketplace, they are better equipped to make decisions about the utilization of individual stocks in our investment planning process.