an idiots guide to investing and economics

The Uberman polyphasic sleep cycle and its economic impact

2010-05-04T19:35:00.000Z

I recently came across this really strange idea where people can adapt their body clock to be able to go through the day sleeping only 2-3 hours a day. Now I'm currently setting up my own business and "hourly rates" seem to be a recurring theme.
So what would be the result if everyone started living life according to the Uberman sleep pattern? Well we'd gain huge amounts of revenue in terms of worker output (if of course Uberman results in longer working hours...which I think it would) and we would become as a country (the UK I'm talking about here) able to compete with some of the bigger countries who have bigger workforces.
But all is not hunky dory. At the same time there would be major losses due to the rise in the number of accidents. Insurance companies would have a field day as a result as they would be bringing out new products to cater for the accidents caused by lack of sleep. Roads would become more dangerous, as would anywhere involving high concentration. This would mean a mounting amount of costs for industries and businesses.
But at the same time the money attracted to the UK due to its artificially "large" workforce, would be paid out in workers fees. These same workers would then buy stuff and this would stimulate the economy further. There would be an increase in demand and we would become an artificially larger consumer base as more of us have more time to spare to use all these other products we are buying. But this is all of course if the law can be enforced.
In fact, it would be very hard to "enforce" the new law of uberman sleep as people love sleeping, and they can easily secretly hide away and sleep. In that sense, uberman being adopted would have to be entirely voluntary. Otherwise the costs would be prohibitive.
As you can see, there is a very fine line in improving worker output through increased hours, and decreasing output due to deterioration of work. And remember, even in Uberman we would have to have free time proportional to what we have now. Otherwise there wouldn't be enough time to spend our money, and then the economy would really suffer.

Anyway, you can still buy my trading guide on how to make money investing online here. Or alternatively, you can purchase it direct from here:

Why I wrote a trading guide on how I made £300 with 30 minutes work

2010-05-02T11:14:00.020Z

Hi,

Before I start, let it be noted that that title is tongue in cheek. I did make £300, but it wasn't really half an hour. The actual research and analysis takes more like about three to five hours cumulatively over the month. But the £300 is in reference to a couple of trades I did over the course of a week in which I spent only half an hour or so researching. But I'll be perfectly honest, if you are going to be a good trader, you'll need to spend months and years honing your skills. The good side is, the basics can be learnt in a couple of hours.

Anyway, It's been a long time and I've been up to a lot of different things, not least setting up my first company and finishing off my second novel. The investment fund I manage has also been going well. There was a 8.56% rise in the last month. In this time I also managed to write up a book that I've been wanting to write up for a long, long time. People regularly ask me how to trade, how I make money by trading, and all these other questions that I get sick of giving the same answers to every time. Read on to see how you could get this book for free!

Now, my cousin is big in internet marketing and he has his own products that he sells and others that he recommends to his readers, and he said to me, "hey Ibrahim, why don't you write a book about how you make your money?"

So I gave it a bit of thought and I decided, yeah, why not, let's give it a go. I wrote up the book, then started researching my competition who were also hawking their products. Very soon I got seriously pissed off. These people are offering trading systems that never go wrong. They offer get-rich-quick schemes, they offer massive profits for little time. They offer trading systems where you don't need to know anything and just need to press a few buttons. What rubbish. And its not just one of them or a few of them, its the whole bloody bunch of them!

Well, I'm not getting into that sick and twisted world of selling abstract profits and pipe dreams. My "sales pitch" is just a couple of lines rather than a bunch of red writing telling me to buy now before I die and its too late. I'm leaving it up to the person to decide - as it should be. I don't particularly care about the profits to be perfectly honest - in fact I got talked out of giving it free by my cousin - but, as my cousin argued, something you pay for makes it more valuable and then people actually read it.

[Above is a share.com statement of my accounts for the previous month. As you can see I've turned £2787.56 into £3018. That's a profit of about 8.3%. So if you'd used my system with £100,000 you'd have made £8000, which is a well paid job. Or you could just use it like I do, and build up your 100k yourself. The point is I made profit using my system.]

So I'm setting a nominal price of £2.50 on my book and leave it up to you guys to decide. In fact, if you approach me and seem like a decent guy, I might even just trust you and give the book for free in return for £10 once you start turning a profit.

In the book I go through my trading system which I use on shares and have used on Forex, both successfully, and the places I get my info from, and how I analyse the market. Simple stuff really, but stuff that's taken me years of enthusiastic involvement in the markets and reading to compile. Stuff that will take you years of trading and making losses to compile.

Buy this book or not, just don't ask me again for trading advice because I'll just point you to this website!

an interesting stock trading system

2010-03-30T07:05:00.004Z

Hi,

Recently I cam across this site where apparently the guy made a million from $1000. Now this sounds fairly unbelievable to me, but after I read a bit more about him I realised that he had actually done some research into it as Maths major looking at similarities between past stocks that had really rocketed and then working out a common factor which preceded their rise.

And because he gives an 8 week money back guarantee, the buyer isn't actually losing out if he finds the system to be rubbish. The fact that there is a money back guarantee also adds to the credibility of course too.

Anyway, here's the link:
http://f1c5652n5agf3ncbg0k7j39q2r.hop.clickbank.net/

http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

An idiots guide to investing

2009-09-15T22:43:00.003Z

Hi,

Part 5 - Hedging

Okay, a short entry coming up today on the art of "hedging", which gives rise to the term "Hedge funds". Strictly speaking of course, this little foray into explaining hedging isn't actually going to be practically useful to the average private investor who's reading this guide looking for a step-by-step guide to investing, but hey, its a topical subject and the concept is a brilliant one to get your head around.

Right, to demonstrate hedging, I think an example should suffice: Lets say that this sinusoidal curve is actually the graph for a stock. and now lets assume that we are currently at the coordinates (pi, 0) with the graph heading upwards. Now we can see that the graph is moseying along nicely in a fairly regular pattern so can assume that this will continue. So what a normal person would do at this point normally is to buy in and then sell as the graph reaches its peak.
But a hedge fund is much cleverer than that. they want to make a profit without betting on hunches, so they hedge their bets by buying the stock as well as shorting the stock at the same time...
[What is "shorting"!!? I hear some of you scream. This process will be explained properly at one of the more advanced points in the guide, but suffice to say for now that all it means is that a person who holds a "short" contract on a stock will profit if the stock goes down in price.]
...But all this will mean is that they will continue along without profit or loss as the longing (buying with the expectation of a rise in price) and shorting of the stock will cancel each other out. Ah, you would think that but hedgeys are cleverer than that. They wait until the two respective long and short positions reach their maximum value, then sell them.
So at the peak at the top, the long value will be at its peak profit, and the short position will be at its peak loss - so they close out their long position at the peak, and as the graph declines to a trough again, they wait...and when it gets to the trough, their "short" position is now in profit, so they close that out here too. In other words, it didn't matter where the stock went, the hedgey's were in profit.

This is just one example of hedging. It comes in many shapes and sizes, but the principle is the same - and its a principle we need to engrave on our hearts. ALWAYS THINK THAT YOU WILL BE WRONG AND PLAN FOR THE WORST.
If you do that...well can it get worse than the worst that could happen? of course not, so if you prepare for that, you will survive.

Okay, and now for my recommended book to buy for this week...

Fear, Greed and Panic: The Psychology of the Stock Market

Fear and greed are the things that drive the market, infact some people go as far as to say that the market is actually not a reflection of value but of the human emotions of fear and greed. Those graphs are actually mapping humanity at its worst in other words. Self awareness is vital for success in the market. Its actually less about skill, than about being in control of yourself and keeping your nerve. So buy that book!

The Guide so far:

1. The basic introduction

2. Choosing a stock

3. the tools of the trade

4. managing risk

5. hedging (this post)

My new trading book that takes you through money-making step-by-step:
http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

The idiots guide to investing on the stockmarket

2009-09-14T11:10:00.002Z

Hi,

The Guide:

1. The basic introduction

2. Choosing a stock

3. the tools of the trade

4. managing risk

My tips for the coming week

2009-09-12T17:10:00.003Z

DSG International - WATCH
Lonmin - WATCH
Segro -WATCH
DC Smith (SMDS) - WATCH

All the above are surrounded by talks of takeovers, and generally seem decent solid companies. I especially like Segro.

Rentokil Initial-LIKE
Yell Group - LIKE - BUT HOLD FOR A BIT BEFORE INVESTING. Its doubled in price over the last few days...and it seems to be consolidating at the moment. But then will probably move upwards again, at a slower rate. Long term prospects are good.

a good day in the market

2009-09-09T16:17:00.000Z

I'm feeling rather pleased with myself after investing another £400 just hours before the FTSE went through the 5000 mark, which signals a return to levels of investment which have not been seen since last October.

It remains to be seen however if this rise continues - I'm still sticking to my prediction of a mild drawback sometime this September.

http://news.bbc.co.uk/1/hi/business/8246846.stm

An idiots guide to investing on the stockmarket - part 4

2009-09-08T23:23:00.003Z

Risk

Okay, before I start, I'm going to tip "Northgate" and "Tullow Oil" as my two stocks to watch for the next few weeks. They are going places, especially Northgate. Its currently 23.8p but used to be £2.60...and now its recovering, and I've heard some positive inside info from people in the know.

Now onto the idiots guide to investing. As promised, I shall explain that wonderfully wispy concept of diversification of risk and why investing is a rich man's game.

Basically its like this: You are a human and will always be fallible. Stocks can go up or down. You think a stock will go up...it might do, or it might go down. Every time we make an investment, we are increasing our exposure to the market, and thus also our risk of loss.

All this means that we need to take steps to reduce the risk of being wrong. How? Well there are a number of ways, but the simplest is "diversification of the portfolio". Basically this means buy a whole load of stock in various different sectors of the market, rather than just a single stock.

Okay lets understand that.

The stock-market is made up of many different smaller sectors where similar companies are listed, for example the Pharmaceutical sector lists companies likes GlaxoSmithKline, Astrazeneca and Shire, while the Oil lists BP, Heritage Oil, and Tullow Oil.

Also, the entire market is cyclical in its ups-and-downs, as are the sectors...generally. But crucially, the ups-and-downs of the various sectors come at different times...So it makes sense to not buy, say, all three of Glaxo, Astra, and Shire, but rather only one of them, and one of the Oil companies. As at any one point you won't be exposed to the risk of the Pharmaceuticals or Oil sectors being wiped out.

In other words, chances are if one sector of the market is hit, another is doing well - so if you spread your bets across the board, you will strike lucky somewhere and perhaps lose somewhere too - but the net result is that you're still breaking even at least.

An example of this is the direct link between airline stocks and oil stocks. Airplane companies' main expenditure is on fuel - oil. So when oil prices rise, their expenditure increases and their stock prices fall. So in other words, when oil stocks rise, airplane stocks fall. So either you can buy one or the other and do REALLY well at one point and then REALLY bad at another, or you can do the sensible thing and buy both stocks, and do your buying and selling in the grey areas between the two peaks, meaning you take advantage of both extremes, but with less extreme profits, but also don't lose out in an extreme way.

The principle also implies that we shouldn't invest in only one company, as then we are leaving ourselves open to the vagaries of the market, but rather we should invest in at least 5+. We also shouldn't invest in one kind of stock (e.g. just miners) and also we shouldn't invest in just one area (e.g. just the British stock market) as well as diversifying in the risks of the stock we hold (e.g. buy some high risk stock and other more solid ones). And also, we should diversify in the types of investments we make - so buy things like foreign currencies, gold, silver, and bonds etc. (though I would recommend against buying bonds and other financial instruments which involve interest - as interest is morally unacceptable with the rich getting richer and the poor getting poorer, and Islamically it is forbidden.)

So to conclude diversify in:
1. numbers of stocks
2. sectors
3. geography
4. volatility of stocks (high risk/low risk)
5. kinds of financial instruments

My portfolio is currently diversified in the following way:

The results of that diversification check are fairly amusing actually, as I go on and on about how risky my stocks are...by in reality my actions show how risk-averse my investments are. Pharmas are a low risk sector, industrial transportation is a medium/high risk, oil and gas is a medium risk, and mining is high risk. But I'm adding another mining stock today...so I increase my exposure to volatility and lean my overall risk exposure more towards "high" again.

All this diversification theory (of which I've mentioned only a really basic version) leads onto the next-level crazy, wacky, shadowy world of hedging, and what hedge funds get up to. Next blog I'll be focusing on this rather tasty subject, after which we'll move onto the more placid and rarefied fields of share-price determinants.

But up till now, this is what the "idiots guide to investing" looks like:
1. basic introduction
2. choosing a stock
3. the weapons to understanding the market and some general advice
4. risk control (this post)

And finally, the diversification of risk is even mentioned in Shakespeare's "Merchant of Venice"!

My ventures are not in one bottom trusted,

Nor to one place; nor is my whole estate

Upon the fortune of this present year:

Therefore, my merchandise makes me not sad.

Lets hope our investing doesn't make us sad either!
The Merchant of Venice [DVD] [2004]

An idiots guide to investing on the stockmarket - part 3

2009-09-05T11:56:00.005Z

I've not been posting for a long time, what with exams, novel writing and stuff, but now with an entire 13 months stretching melodiously ahead of me, I thought I'd write a proper little guide, an "idiots guide to investing on the stock market" if you will, which could actually be useful to someone out there. And if you get stuck about something I say, please don't hesitate in posting a question! I'll reply pretty promptly, seeing as though I'm on the computer editing my novel most days anyway.

Okay, the first few part of my guide can be found at my earlier posts, and the second one, starting to expound on how to choose stocks - here.

Before I start, I would just like to point out that I've been investing for roughly a year now, and been managing my own investment fund, which is in profit - so I do have some basic expertise. I correctly predicted the bottom of the recession in late summer, and predict a minor slump (or drawback if you will) in September, after which things will once again rise and get better...hopefully.

Right, first of all, I would recommend a few simple steps to take before you embark on your dream of earning millions on the stock-market:

1. Start reading and watching business news, politics news, and international news VERY carefully. An investment opportunity lies behind pretty much every news story you can think of. "Stabbed boy dies - Hospital sued for negligence". There, we're looking at investing in a company that sells stab-proof vests, lawyer firms that specialise in NHS claims, and perhaps policing related investments (as the Government might make a knee-jerk announcement to increase police etc.) so a company that supplies the police force is going to be profitable. START THINKING LIKE THAT.

2. Buy a few good books that give a basic overview of the stock-market. This one is a good one called "Investing in stocks and shares: a step-by-step guide", and is the first book I read when i started, and it really is a treasure-trove of information. Then once you have read that, move onto books such as this. This book goes into quite extensive detail about basic reading of a graph. Then once you have read that, read "The Truth About Markets by John Kay", and "Undercover Economist" by Tim Hartford, which are an excellent - and light - general introduction to economics - which is the main discipline you have to understanding the stock-market. (Links to the books are in the sidebar.)

3. Buy the Financial Times a few times a week, and read their analysis, because its very useful to read the words of people who understand the markets much better than you and I, and it also helps with the whole MINDSET thing that I keep hammering on about.

4. Save up until you have £1000 to invest, or at least £500 - anything lower than this is just gambling - unless of course you invest in a fund - but more about this later. Suffice for now to say that this is called "diversification of risk", which an incredibly cool title, and when you understand the concept, you too will become from amongst the cool and initiated.

5. Once you have a bit of an idea about what you're doing, register with a website that allows you to open a practise account, and trade with them for a bit, to really get your eye in and hone your skills a bit more. I use Share.com, and they do a practise account for free...so try that out. Alternatively, there's loads of other websites that offer the same facility.

6. To invest, you have three weapons: 1) a general knowledge of the market, economics, and the world, 2) a specific knowledge of the company you want to invest in i.e. is it in loads of debt? 3) technical analysis of the companies stock charts. Some people lean to one of the three, and I lean towards the third approach, rigorous technical analysis. To get your eye in for the whole graph-reading situation, I would advise that you spend about a month or so trading on this website. This site is actually for foreign-exchange trading (and that's a whole different kettle of fish) but the technical analysis is very heavy here, and the practise you get here can easily be carried across and applied to stock-market trading.

7. Finally...be enthusiastic about it all! No-one has ever fully understood the market, and no-one ever will, but people can slowly become competent over the years, and this is a long process that you are embarking upon. You will need energy and enthusiasm to continue. So if I were you, just like exercise trainers tell enthusiastic beginners, "don't do too much and burn out all your enthusiasm", because then you won't ever experience the thrill of calling a stock correctly and watching it rise.

In the next post I will explain that oh-so-cool concept of "diversification of risk", and why investing is a rich man's game.

My new trading book that takes you through money-making step-by-step:

http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

the prisoners dilemna

2008-06-18T13:43:00.007Z

Hi,

This is a famous dilemma, invented by Albert Tucker, shows the paradox between self-interest and working for a mutual benefit. It goes thus:

A policeman arrests two suspects and puts them in separate cells and confesses to them that he has no evidence against them. Instead he offers them a few alternatives; If one confesses, then he will go free whilst the other will get a 10 year sentence. If both confess, then they will get a lighter punishment of 7 years. If neither confesses, then both go to prison for 1 year on trumped up charges.

The prisoner deduces the following: If his partner confesses, then he gets 7 years if he too confesses or 10 years if he remains silent. If his partner doesn't confess, then he goes free if he confesses, whilst going to prison for a year if he doesn't confess. Whatever his partner does, it is better for him if he confesses, so he does. They both go to prison for 7 years.

The dilemma seems an innocuous at first glance, but its results are significant. as John Kay (Economist and author) puts it "The self-interested benefits of cooperation are not enough to persuade the self-interested people to achieve them."

We generally work best in teams, we are genetically communal animals, with the best teams consisting of people who complement each other and have a mix of relative strengths.

This however all breaks down in the dilemma, where mutual suspicions drive people to make sure their own fate is not worse than their partners. The separate cells element is also very important as this produces information asymmetry (lack of information) for the prisoners about what their partner is doing. If they were in the same room, then chances are they would both remain silent until the last moment of the allocated time given to confess, and then confess, in an attempt to undercut each other, with the result being the same.

My new trading book that takes you through money-making step-by-step:

http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

The causes of unemployment

2008-05-11T22:13:00.003Z

Unemployment is a very basic problem faced by all economies, with varying degrees of intensity. There are many different causes of unemployment, and I think the best way to understand them is to look at the unemployed and their reasons for being so:
1. Disincentive to work, i.e. the government pays their keep, they are better off unemployed than having a low-paying job and pay taxes and still be in the same economic state.
2. Drop in demand of their product. So for example big British industries such as the chemicals and steel industry have declined, so people have been laid off because the output required needs few workers.
3. Similarly the rise of new technology means that many peoples jobs have been taken over by machines, for example the farmhand has been replaced by the combine harvester and cow milking machine etc.
4. The trade unions have forced up the wages of their members, creating an unnatural strain on a companies finances, meaning they will have to lay off some of their workers.
5. People in transition from one job to another, so people like newly graduated people etc.

My new trading book that takes you through money-making step-by-step:

http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

$100 barrels of oil...or just a shot at fame

2008-01-03T20:18:00.001Z

In recent days the news websites' business sections are having field days, I mean lets face it, disaster and doom make for good material to report on. You can take your pick really from: mortgages going bad, political unrest, falling house prices...and expensive oil. Now here is an interesting story from the BBC:
http://news.bbc.co.uk/1/hi/business/7169543.stm

basically some market analysts claim that the actual raising of the oil prices to $100 per barrel was actually caused by a rich trader who lost $600 to be the first one ever to buy $100 oil. So that's that crisis sorted out then, next we'll find out that the world economy slowing down is down to the fact that a random guy in America failed to honour his mortgage payments and this meant that the economy had reached a critical mass and suddenly the world economy collapsed....because of this random guy.

The truth is, that all of these crises are always going to have a build-up and then finally something is going to flick that last domino. Its not the fault of the last domino, it is the fault of the ones who set up the line of domino's such that it would cause a mass collapse, i.e. the financial market's recklessness and their intent on basing the entire system on interest-loans, or in other words solely for their own benefit.

Now here's an interesting suggestion: The banks bleed the masses dry, then as the masses don't have anything else to be relieved of, the banks experience "The Credit Crunch" etc, and allow the masses to develop some blubber (MPC and Fed cut interest-rates), which in a short while allow the banks renewed targets to feast on. The boom and bust cycle in reality.

Any cycle that busts so often can surely be said to be intrinsically flawed. It seems that even the booms are only a reflection of condition of the top of the pile, not to the overall well-being of society as a whole. Whats the point of a booming economy if the people still live in filth.

Why after all does the number of poor increase all the time, kids die of lack of clean water and people get AIDS - all more or less unrelated to the economic cycle? Because the entire system is flawed, self-centred with little scope for caring for the community as a whole.

My new trading book that takes you through money-making step-by-step:

http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

The Economy in Turmoil - Sub-Prime Mortagages

2007-12-07T22:23:00.001Z

A lot has happened over the last few months, the sub-prime mortgages fiasco, the banking crisis in Britain, housing prices dropping, the inevitable slowing down of the economy and the recent cuts in interest rates by the MPC (Monetary Policy Committee) and of course rising oil prices.

All of these can be seen to be linked. America, being the worlds biggest economy, affects the world economy by events taking place in its economy. So the Sub-prime mortgage lending that was going on, where basically the banks were giving loans to people with bad credit history, and being extremely lax about it, meant that suddenly, as a lot of loans went bad (people couldn't pay them back) you have major banking firms reporting losses on a gigantic scale, and we are talking billions of dollars. CitiGroup's chief executive and chairman resigned after it was announced that profits for the quarter were down 57%, and their $55 billion Sub-Prime mortgages portfolio has lost between $8-$11 billion dollars in value. And most other banks have been hit drastically too. Goldman Sachs forecast a £200 billions of loss to sub-prime mortgaging to the entire financial sector.

This, combined with the rise in oil-prices, (which are influenced by a number of factors such as time of year, middle-eastern situation, trading on the commodities market and the strength of the dollar) has meant consumer confidence has taken a severe beating. Just look at what happened at Northern Rock...if that wasn't a loss of confidence then what it? Now consumer confidence is very important to all countries but especially so to the US. This following statement is from the BBC and explains the impact of consumer confidence or lack of:

"Consumer spending accounts for two thirds of the US economy. Their lack of confidence and falling house prices have hit analysts' forecasts for economic growth. Capital Economics analyst Paul Ashworth said that the data "supports our view that US GDP will contract over the final three months of this year and that falling house prices will constrain consumption and cause GDP growth to average only 1.7% next year."

And of course the house prices are falling due to the repossession of homes that banks do when people default. This has meant lots of unsold houses which has led to a fall in prices. The following picture shows the situation in a badly struck Cleveland:

Now when America's economy sneezes, the rest of the world seems to get the cold. With the inter-bank trading become much more cautious after this crisis, meant that Northern Rock struggled to get the funds its business required, and hence the run on its branches. And of course the losses were also to some degree shared by the British financial sector.

The British economy has definitely slowed, which isn't a big deal, it was widely forecast to. But the fact it has happened at a time when inflation is slightly high, has meant that the normal way of combating it, by cutting the rates will just mean that inflation gets worse. This is the key reason why stimulating the economy will prove such as difficult task.

As Evan Davis the BBC Economics Editor pointed out that due to the drop in the value of the pound, which is due to the inflation, Britain's exports would become cheaper and drive the economy forward that way. However there are certain problems with that such as the currency value of other countries is cropping too, in fact this is the highest the pound has been to the dollar ever. But hey lets hope.

PS: In my Virtual Trader account (see my review on it in an earlier post) I went on after a long while, what with being in Egypt and things, and imagine my bemusement when I discovered that I had gone and bought shares in Northern Rock which were now gloriously in the red. Goes to show that a thorough look at the figures and an understanding of the business model is the key to buying the right shares. Something I'll keep in mind for next time.

My new trading book that takes you through money-making step-by-step:

http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

opportunity cost

2007-09-02T17:18:00.002Z

Hi,

I went to Egypt for the summer to learn arabic in a two month intensive course. But what is that actually worth? We could look at the empirical value, it cost me about £800 to study, live, tour and explore Egypt. But then that doesn't really account for how much it was worth to me. Say for example, it is worth much more to me than the simple empirical sum, because I enjoy arabic and love exploring new countries much more than £800.

So how to attach a value to this trip then? let continue with the price route: So, the fact that I spent £800 on the trip tells us what? It tells us that this trip was more valuable to me than say spending it on a holiday in France...or buying a new Laptop...or the other millions of things I could do with £800. so thats it: the opportunities I foregoed to go to Egypt is the implicit cost of the trip to Egypt to me.

This opportunity cost can apply to a variety of different things such as time...the time i spent in Egypt is much more valuable to me there than anywhere else....because I spent it there.

My new trading book that takes you through money-making step-by-step:

http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

economic sanctions

2007-08-06T15:17:00.001Z

Recently I was reading a book covering the history of the Ottoman empire. In it I came across a period where Sultan Salim the Grim ( he once got playfully asked by his vizier to inform him in advance about his execution date so that he could put his affairs in order - and he replied that he had been thinking of getting him executed ( he executed 3 viziers during his short reign) and that as soon as he found a suitable replacement he would let him know!) put sanctions on the the rival Safavid empire. This led to the Safavid empire really struggling, but at the same time it led to the Ottoman empire to suffer as well. What happened was that the Safavid's provided the raw goods, which were traded in the Ottoman Empire, and then the final product - silk sold in Italy - so the aftershocks of this embargo was felt all the to Italy. This leads to the question whether, looking at it in a purely economics point of view, whether economics sanctions are actually useful, because though they achieve the primary aim of making the opposition suffer, it kind of defeats the bigger objective of remaining stronger than the enemy, because you just both get weaker together.
However if a trade embargo is called on a country collectively, as in everyone is overwhelmingly ostracising it - such as Iran currently, that means that the losses are in a sense spread around to become negligible, and due to the fact that theres a lot of countries involved, chances are that they also have the raw goods which the embargoed country has to offer.

I'll end this entry from a quote from this Egyptian I met, he wanted me to bribe him...so I told him its against my religion...so he said its not really (he was Muslim too), rather he painted it as such an essential part of the economy so much so that it was in essence the "economy" as a whole. Needless to say I didn't give him anything.

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unequal economy

2007-07-23T19:45:00.001Z

Sorry about the delay, the arabic course takes a hell a lot of my time up, but the real reason to be honest is that its a bit if a chore to come down to the internet cafe.
A thing I noticed though in Egypt was the huge gap between the rich and the poor. One way this shows is that when we cash in a tenner that equals LE100. But the thing is that most things can be bought for under 50p or in LE5 and with most being under LE1 which means about 0.5p. And the thing is people don't have change for the LE100 we carry around - even supermarkets, which just throws up the comparison with the upmarket Egypt even more starkly: Star City Mall. 250 plus shops, probably the most flash shopping centre I have ever been to, we don't do them as well even in Britain. But here LE100 is nothing, and actually the prices are higher than Britain.
So I'll sign off and go and pay my 0.5 pence for the hour of Internet usage I guess.

My new trading book that takes you through money-making step-by-step:

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Making a living out of crumbs

2007-06-23T09:51:00.000Z

Today I was reading a really good post by Evan Davis.
He raises the point that huge events such as the upcoming Glastonbury festival etc create huge cashflows, and when that starts happening, though the cash may be flowing in externally, and then flowing out, the community as a whole, gains incredibly, though most of the gains go elsewhere.

And this got me thinking about a lot of successful businesses kicking around today such as EBay, Amazon, Youtube, or even Google and countless others. What do all these have in common? The main part of their business depends on external sources inputting for their own gain, yet the "hoster" which in a sense is the website, get a cut of the profits - the crumbs. Only Amazon actually sells its own stuff, the rest of them just depend on other people. But the point is, that if a million people come to buy someone else's stuff on your site, chances are that a considerable amount buy from you too.

This leads onto a topic Adam Smith discusses in his Fait Principal , "The Wealth of Nations". Here he highlights that protectionist, isolationist policies are not good for the economic well being of a country. He used the example of China, who only had one port open to other nations to trade, and as a result the economy was stagnant.

An example of why this isn't successful: China is good at making toys. Switzerland is good at making chocolate. If the Chinese chocolate makers get advantages over the Swiss from the government, this would mean, due to the lesser number of chocolate makers in China, and due to the lesser quality, the Chinese masses get a raw deal. And vice versa for Swiss people with the toys. This means that no fresh money is coming into the countries and people are spending more than they need on everything.

However if both countries kept their borders open, everyone would be better off as to the price of toys and chocolate, and at the same time, foreign investment would start flowing into them, as people spot that these countries are sitting on quite a lucrative business, and as the money flows in, invariably some of it is going to leak down to the masses, the result of which is a better economy.

Amazon do this too, as, rather than being in direct competition with these other sellers, they just say "Hey, just sell at our place instead". This is a pretty good advertisement for capitalism and the free-market world economy, as really when we consider, the overall benefit to everyone, this is the way forward.

Its like the shops we see, all selling the same kind of stuff, all lined up together. Ever wondered why they are together, thinking that wouldn't it be better for each shop to be away from each other and not have competition? Wonder no more.

The Internet, is the perfect testing ground for the free-market economy - where there are no restrictions, tariffs etc. Where you have access to all the "prices" of different products at the same time, which would naturally stimulate sales of the lowest, and thus drive prices down.

Price doesn't have to refer to the actual price, it could be quality too. So a good quality information website would be placed higher than a worse one, and thus the quality is driven up as the one that's 2ND improves to be first and the first works hard to remain first etc. And the place where all this comparison takes place....the search engine - the ultimate crumb-earning cash-cow.

Egypt

2007-06-20T14:04:00.000Z

I am off to the land of the Pharoahs, Egypt for the next two months so I may be kinda slow to write so sorry for that, but I'll try to get in a few posts before I go.
I'm going to learn arabic so wish me luck, apparently its really hard.
But I'll take my camera and post some pics as I go along...and somehow work in an Egyptian theme into my improvised novel.

An idiots guide to investing on the stockmarket - part 2

2007-06-20T13:51:00.002Z

I'll basically highlight the desireable things in a stock...

a low P/E (see last post) - this means good returns on investment

high dividends - this means that even in a falling market these stocks will be falling less generally as no-one likes to lose a big fat dividend source. So both ways its win win.

Another is look for a low PEG as then it means that the P/E is low and the gains are high.

As for market cap...well I still don't really have much of a clue as to its effects. drop a line if you know.

Now other factors, look for a company with low debts, look for a blue chip firm - these don't generally go bust....

look for a company with prices that have fallen recently...but ofcourse this may mean they might fall further, but look at their actual value (Another post I think for that (seems kinda scary at first glance)) and if its lower than that, then the market will correct itself, but ofcourse if its higher, then don't be swayed by the emotions and actions of others, rather just sell straight away.

okay, part 3 of the guide is here.

My new trading book that takes you through money-making step-by-step:

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An idiots guide to investing on the stockmarket.

2007-06-16T18:04:00.003Z

Okay first of all what are shares? They are basically (very basically), what a company does to gain some cash to expand. What they do is essentially sell you a share of the business which means you are eligible to receive a share of the profits (called dividends). Obviously a company going in loss means your share price goes down, as no-one wants a stock that's not paying dividends and going down in price due to its failure.

So what next. Well there is two things to consider in investing, one, what shares to buy and two, what strategy to employ in deciding what shares to buy.Here is a clip of the FTSE 100 share index. This is a list of the top 100 companies in the country and they all have a worth of over a billion. They are known as blue-chip companies, and are seen as safer investments, in that they are more reliable in giving dividends, and as they generally don't go bankrupt, never making the shares worthless. There is always a market to buy and sell these shares, meaning you wont struggle to buy or offload any stocks in these companies.

Next how to read the graph, here are a few definitions:
Price: Average price per share.
30 day change: price change in 30 days.
Beta: this is the measure of risk for an investor in investing in this company, the lower the better.
P/E: Price per share/earnings per share. The lower this is the better. This is used as a measure of the investability of a share.
PEG: P/E/annual growth rate of a company. If this is less than 1 then the share is under-priced, and if it is over one then the share is overpriced - though this is only generally.
Div Yield: This is the dividend yield, as in the percentage of money per share compared to the price: the higher the better...generally, and should be couples with a few other variables.
Market Cap: This is the number of shares a company has in circulation multiplied by the price of the shares.

So that's how to read a basic table. Phew. Its hard work for the beginners.
I'm off now, but next post I'll continue the "idiots guide to investing" by expounding further on how to choose a good stock. And then probably the next post after that will concentrate on the real "thing" in investing - the strategy.

My new trading book that takes you through money-making step-by-step:

http://economicsguide.blogspot.com/2010/05/why-i-wrote-trading-guide-to-sell-then.html

2007-06-14T22:31:00.000Z

Heres an interesting and self-proving formula I came across recently:
MV=PT
where M=money in circulation of an economy
v=the velocity of the money circulation (how fast its exchanging hands)
p=the pricing in an economy
t=the number of transactions taking place.

this can be rearranged to find the recommended pricing:
P=MV/T
and this can also be used to show, if assuming that the V, velocity, and T, number of transactions, are constant, that inflation increases steadily with the money supply in the country.

This was proposed by John Stuart Mill who used Hume's work to base his formula. Another thing economics owes to the Great 18Th century Scottish Enlightenment.

Recycling in the Economy and Dickens

2007-06-10T14:53:00.000Z

I was recently reading "Our Mutual Friend" by Charles Dickens. The story revolves around the will of a very rich man, who leaves all his money to his son - as long as he marries this random girl, otherwise all the money is going to be inherited by the old mans faithful servants. Where does this link in with Economics you may ask...

Well the old man actually made his money from recycling, by getting peoples rubbish, arranging it into piles and then sorting through it, with the dust being useful for some random people, with the wood being useful for some other random trade, and of course if any jewels etc are found, then they can be sold. A personification of economy really.

Now the interesting thing is that even in the mid 19Th century, 900,000 tonnes of dust was being produced by the households of London. Nowadays this figure would be far larger, with London's population having increased enormously, and consequently its waste has increased. So actually a vital part of the economy is how we manage our rubbish, and as always, with anything that is described as "vital", there is a lot of money to be made.

Nowadays we know that we definitely need to recycle, as the Earth's resources are finite. This makes this sector even more important. But what is also important is an economical usage of farmland, because when we look at some farmlands, the farmers can either opt for output of £50 per annum for eternity, or he could go for intensive farming techniques, and get about £400 per annum for the next 15 years.

Unfortunately the farmer will often opt for the short-term option. This is further exacerbated by the supposedly "low" interest earning loans given by the IMF and the World Bank. No loans given by these selfish organisations have been paid back yet, and the amount keeps rising too...due to the "reasonable" interest charged on the loans. This usage of Western interest-earning loans is in my opinion the new hidden imperialistic tool of oppression. The debtors are always going to be less well off than the creditors, and due to the very nature of the loans, will be subservient to the Western nations.

But the beautiful thing is, that there is no costs of invasion, maintenance, crushing of the odd rebellion etc to be incurred by the imperialists, rather its just a steady flow of cash flowing in, almost as tributes were being paid to the Caesar by smaller kingdoms who had to pay to be left free, during the Roman Empire.

In the meantime...check out my much lighter blog where I'm writing an improvised novel:
www.history-philosophy.blogspot.com

virtual trader review

2007-06-08T17:52:00.000Z

I came across this neat little program that MSN have started offering:

https://secure.digitallook.com/cgi-bin/digitalcorporate/msn/home.cgi

Basically what this is, is that it offers you £100,000 start-up money and then you can trade real shares with realistic market conditions etc. Its an excellent way of enjoying all the excitement of playing the stock market, but without the money involved, which obviously could be good or bad depending on how good you are.

And basically they rate you on how much you gain on the 100000 in terms of your assets. And then you get put on a ranking table, on which I'm currently 27 (get in!), and for the 15-19 year old league I'm currently 3rd (GET IN!).

Finally to conclude the post here's a few tips I've picked up during my reading of "Investing in Stocks and Shares" by Dr. John Wright

Decide on what you want from these stocks - if its long term growth then look at a company which has been growing in price steadily over the last few years, and that's pretty much most companies in the FTSE 100.
Another thing to consider is the dividends, which is a share of the profits. This will be high for some companies and generally will accompany a high price.
A good way to make money is to do some good research on undervalued companies which generally will be better conducted on less known stocks, which are less analysed and your looking at the AIM 350, FTSE 250 etc.
Finally diversify the portfolio of shares into lots of different sectors. This alleviates the risk of one falling - as then the money from that sector will be invested in other sectors fueling a rise in another sector, so basically you don't lose. Interestingly if you invest in 10 sectors that alleviates 90% of the alpha risk which arises from investing in just one company. Investing in 20 alleviates 95% of the risk.

Finally I'll end with a little stock market axiom "The trend is your friend" - but in true stock market fashion it can also prove totally untrue.

The Goldsmith opens Pandoras box

2007-06-03T19:44:00.000Z

Many years ago, gold used to be the medium for exchange - money in other words. Now goldsmiths had excellent storage facilities, safe from most things, etc. So people would leave their gold at the goldsmiths and get a receipt in return. Now what happened was people started trading these receipts for other things, basically using these receipts as money. So the goldsmith gradually worked out that maybe he should start charging people a basic rate for usage of the facilities which he duly did.

Now the goldsmith got greedy. He realised that the receipt holders very rarely cashed in their receipts and retrieved their gold...so he decided to use this idle wealth for his own purposes: He started lending it out on interest. So now he was making a load of extra cash, none of the holders were any the wiser and the goldsmith bought himself a flashy new horse and cart...made out of pure gold (just the cart).

Now the goldsmith got even more adventurous (eyeing the platinum cart now), he decided that as the receipts were now accepted as money, why couldn't he just write receipts for gold he didn't have and lend that out on interest too. This resulted in a whole load of cash and the aforementioned platinum cart and the goldsmith was enjoying life. All the cash was flowing to him, he could just as easily destroy money which, when returned, would still be worth nothing, and he would basically rip it up and write a new one to dupe people with or just keep using that one. of course the interest was given to him in very much real money, so he was getting all of the "real" money which was actually worth something.

Now the people who had their money in the bank got suspicious and made what is known as a "run on the bank". They basically asked for their gold back...which the goldsmith had loaned out...thus the goldsmith went bankrupt. Life wasn't so rosy any longer.

Nowadays this so blatantly unfair system is practised legally by all the banks in the world (apart from some Islamic Banks), and even "runs" on the bank wont make a difference, because the Central Bank will just lend the bank money and get them out of their spot of bother. money is not backed by anything and is truly "worthless", hence the rising inflation rates we see.

There are a few incy wincy restrictions such as the reserve the banks have to have in comparison to the money they create and loan out on interest...such as it was 10% in the UK but is essentially down to less than 1% now. so for (using the 10% fractional reserve), £10 in the bank, £90 could be loaned out on interest.

This coupled with the scary fact that banks are the source of 95%+ of the money in circulation today, leads us to understand that the interest to be payable to the bank is only payable if the bank creates new interest fueled loans to pour into the economy, and to pay them we will need even more bank money with interest on top of that loan, and to pay that....

This vicious cycle will go on and on. Inflation, economy collapses and the boom and bust cycle can all be traced back to the abolition of the gold standard (not backing the paper money with gold), and by the adoption of fractional reserve banking.

We need to start to realise the crippling effects of interest in the society such as its widening of the rich-poor divide. And we should campaign for breaking of the yolk that the interest earning bankers have placed upon us, and look to establish an interest-free economy.

(My views find their origin in common sense and Islam, which forbids interest)

housing market

2007-05-24T15:21:00.000Z

the current British market i reckon is gonna collapse, as people due to the over-buying to rent is kinda causing the prices to be unnatural, and due to the natural balance of the economy, the prices will right themselves by first collapsing real low when everyone sees the prices going down but will then rebound up slowly. This is further exacerbated by the high interest rates which is going to create pressure on mortgage payers which will result in more houses coming onto the market.
Any ideas to add to these rather rambling ideas is welcome...you all know where the comments button is.

inflation and how to curb it

2007-05-17T19:55:00.000Z

the fresh inflation fears as have been reported in the press recently, lead us to consider that the current methods of addressing inflation, namely increasing the interest rate, may need readdressing.
Before looking at alternative measures to curb inflation, lets look at the effects of inflation:
causes a rise in people spending.
this causes a rise in investment as people are afraid of losing purchasing power in savings, so turn it to real value.
causes increases in wages etc although this is generally not consistent with the inflation.
international trade will suffer as inflation pushes up prices, meaning people will look abroad for cheaper goods, meaning that the import>export.
Her Majesty's Government slyly slips in a few "stealth taxes" so as to disinflate the economy.
and costs will be incurred by businesses as they need to reprice regularly eg print new price tags.

so how to address inflation...well firstly lets understand that a little inflation is good as it allows a little growth, as well as making wages to rise, which generally speaking dont ever get bargained down. The popular way is to get the Central Bank such as the Fed Reserve or the Bank of England to hike up interest rates thus promoting savings and reducing the velocity of the money (how quickly it changes hand)and thus prices. This could have the adverse effect that as many people have debts, their expenditure increases with a interest rate rise, yet their cutting out of unnecessary items still doesnt meet the usurious rates, so the wages have upward pressure applied and this would fuel inflation itself.
Another option that i heard the Chinese recently use, was to raise the reserve money that banks have to have, which reduces money velocity and inflation and hence prices, yet doesnt raise the debts of the public or harm the balance of trade of the country.

the question for this post is: What other methods could be used to curb inflation?

Supply and Demand

2007-05-12T18:18:00.000Z

Once upon a time, in a land far far away, there lived a wookie in a hut. Now the wookie's parents had just died when we join him, so after many intricate, ethereal and suspiciously gothic ceremonies, to mark his parents passage into the great void, the Wookie, being the pragmatic individual he was settled down to look at his inheritance. His parents had left him a brilliant collection of hair from famous wookies from all aver the planet Endor. The wookie was happy.

Now Chewbacca, who had dropped by, in his typically forthright manner informed the wookie, henceforth known as Bob (as its easier to type), that he should sell this hair onwards and maybe keep only a little bit for himself as a momento to his parents, as what the hell was he going to do with a collection of bloody hair, "which was useless" he said. Now Chewbacca didn't know that hair for wookies, isnt grown, rather it is glued on, after obtaining it from any reasonable hairdressers, so after an offended looking Bob tartly informed him of this information, the reasonably chastened Chewbacca realised that due to the scarcity of humans, and thus hairdressers whos business needs humans, the hair was worth a bomb.

so the supply is limited, and demand is huge, hence the price is going to be astronomical...now Bob starts rolling in the big bucks, he has the whole merchandise going, hell at one point he was even going for wookie chieftain...but then a hair mine is discovered and suddenly, along with his own hair collection, Wookie market is flooded with new mined hair. The supply increases, the demand goes down, as wookies mania for new hair is satiated and people dont regard this as the "in-thing" or necessary anymore. No one buys the hairs anymore from Bob's shop, so Bob is forced to price down, and match his price to the relatively low current demand, and he starts selling at the most effective price.
The question is....what would happen if say for example if the mining firm collapsed due to some random tradegy at the mine, or better still, some shocking revelation about the owner, and keeping in mind that wookie demand for hair is relatively inelastic (meaning they dont give a damn about the price and pay whatever to get it) what would happen to the price, and how could Bob improve his business model further.
dicuss

2007-05-11T18:14:00.000Z

The Tripartite theory
Hi, for my first post I'm going to look at basically why the hell I'm not a millionaire. The reasons, once I started a period of deep introspection, are very simple, (and put a damper on my plans):
1. I do not work - and as suggested by Smith (the guy on the £20 note) compensation for labour is one of a tripartite of sources for income.
2. I do not own any property, hence I cannot rent (which they would pay to me for giving them the opportunity to use that land to make a profit) out to people and make money that way.
3. I do sell things...like last week I sold a cricket bat for £7 and making a huge profit on the way too, but not exactly Forbes standard you may agree.

So basically to become a millionaire for all you budding entrepreneurs, you have to either become VERY talented at a job, Buy up land and rent it out or start selling things for a profit.

for every post I'll pose a question for the reader to answer, so as to make this blog an excellent source of combined information and for me to gain in knowledge.
The question for this post is in this scenario...I own a huge farm , I rent it out benevolently to some serfs, who decide to stay at home and employ their kids to work...the kids go up in arms with this arrangement and rapidly gain wages to compensate for their industriousness. Now the serf sells the produce for a high enough price to cover the rent and labour and to still have profit remaining. Good so far...DISASTER strikes, the pitchfork has been broken upon a particularly nuggety rock...the serf pays for it...is this another section of money making, thus proving the tripartite theory of rent, profit and wages wrong, or is this a cunning way of asking the answer for a question I am not entirely sure about?
Discuss.