Category: Wealth management

Nurture State Treasures

There are many schools of thought on how to manage natural resources. The idea that a non-renewable resource “gifted” by nature to a country is something that should be considered a once-off benefit shows how forward-thinking that nation is.

If your country happens to have a wealth of a mineral resource, should the current generation use it for their benefit alone or should future generations of the country also benefit?

This also raises prognosis into an important distinction is between wealth and income.

Defining wealth

A non-renewable resource is a good that can only be consumed once such as oil and gas.
They are distinct from renewable resources such as forests and fisheries in such a way that, if managed properly can give you a sustainable stream of income for all time.

Some non-renewable resources can, of course, be recycled, and most metals and some fossil fuels fall into this category.

A goldmine, for example, should be viewed as a source of wealth (and not just income and profits for the company mining the yellow stuff).
And while this sounds normative, no single generation has the mandate to spend that wealth in their lifetime.

The wealth must instead be preserved for future generations and only the income from that wealth be used by the current generation.

A shining example

Norway* (if not now one of a few) is the only country in the world that consistently applies the principle of intergenerational fairness.
The revenue that Norway contracts from oil and gas has since 1990 been collected in a fund that currently stands at over $1 trillion. This number is growing every second!

The wealth is converted into money and the value preserved. This (sovereign) fund is maintained for future generations, and only the interest earned from this wealth is used for the current generation.

In this way, all future generations will benefit from the ‘lucky situation’ of the country.

The Government Pension Fund Global is saving for future generations in Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population – Norges Bank (The managers of the public fund)

In intergenerational economic terms, this is the only correct way of using the non-renewable assets of the country. It is encouraging that other countries are looking to the Norwegian model.

Other ways of re-investing

A different school of thought is that some of the wealth can be invested to create future growth that will provide better sustainable income for the country.

Many Middle Eastern countries are prime examples. They invest the revenue in construction projects to create a platform for economic prosperity.

This is seen in the vast projects in the UAE cities of Dubai and Abu-Dhabi. They aim to produce sustainable income for the region when the oil runs out.

It is an interesting illustration of Say’s law – in which supply creates its own demand.

Will the investment in infrastructure enable these countries to sustain their level of wealth for all future generations or will they 200 years from now be vast cities in the desert. A legacy to a time where opulence and abundance purveyed?

Read more about sustainabilty and human irrational behaviour here.

In most developing countries, like most of Africa, there is no consideration for future generations. The wealth of non-renewable resources such as gold, platinum, and diamonds are used in today’s budgets. This is with little thought that this wealth could one day not be there and should not be spent now.

The wealth inherited from previous generations is used to finance an unsustainable level of consumption.

Conclusion

The main lesson to take from this is that a non-renewable resource can only be used once. It is a precious endowment that is bestowed upon the country by luck or good fortune and it is therefore selfish to use it on the current population.

It is not income, but wealth. This distinction is alien to most but is very important. Wealth is something that should be preserved.

The three basic options facing a country are: spending it, preserving it, or you can simply invest it in future sustainable growth.

The choice is ours.

*Revised and originally written by a Norwegian economist working for a Sovereign Fund company that has since moved to the Private Equity sector.

3 April 2018
Nine Reasons Why Globalization Can’t Be Permanent

We spoke about globalization in an earlier post on some general terms – citing that it has taken a different shape or evolved. This article below however, delves deeper and highlights on nine reasons why this evolution will be forced to happen.

It is so well written, it covers all salient points and asks all the right questions – such as what we have pondered on the validity of GDP as a measure of success. The Intelligence Quotient (IQ) has of late been questioned as the main determinant of intelligence in the advent of Emotional Intelligence (EQ) and soon Artificial Intelligence (AI). Likewise, we must question the accuracy in the way the success (or disguised failures) of a nation is presented, and what we are told is required for this success to materialize.

We especially loved this analogy of the current world situation and if anything is to be taken from this article, this is it:

Again kudos to the author Gail Tverberg for this in-depth piece (featured on her website on 31 Jan 2018). In it, Gail touches on issues such as a population growth, a growing wage-disparity, heavy energy consumption, and the demand for cheaper alternative energy:

Read about the 9 reasons here: https://wp.me/p3dRG-b4w

Also read more on how Globalization has evolved here

Hope you enjoy it as much as we did, and that it has the same effect it had – getting one to think outside the box and look at the big picture.

31 March 2018
Piggybacking on company shares

It is clear that the business of share trading and its intricacies still create a dark cloud for many of you. This is, however, a rather unnecessary element of sophistication.

It is only fair to, therefore, delve in and break it down by discussing not just the way to trade, but the whole point of it.

While trading may seem like something only smart people engage in, this is, however, not the case.

What are shares?

The first thing to understand is that shares (referred to as stocks) entitle the holder to have part ownership in a company.

So, if you own a share in, Amazon, Manchester United, or a Cryptocurrency company like Ripple – you literally OWN a part of that company.

You are basically co-owning with other stakeholders of the company. This with the hopes that the people who run it will increase the monetary value of your shareholding by making the company a success.

Now your share will determine what level of control (decision-making) you have when it comes to the company’s operations.

Naturally, owning just one, ten, or even 1000 shares of Amazon (a hefty $1400 each today), still does not entitle you to have a say in how it is run.

As the majority shareholder, you would probably be the company owner (chairman/founder) or one of its board of directors. To gain such a majority shareholding and full control of a company, the minimum number of shares you would need would be 51% of all shares issued. Good luck obtaining that many!

The rationale for issuing shares

But let’s take a further step back and unravel why shares are issued in the first place. Your company (hopefully) has value because of its ability to generate revenue. This makes it a constant target for investors in a capitalistic market. Wealthy individuals carefully monitor its value to brace for a potential takeover or for just a piece of the pie.

To get listed on a stock exchange your company will decide how much of its equity to publicly issue as shares. You can even issue shares to raise more capital to help grow your business.

This form of equity will be backed against your total assets (and its debts) on the balance sheet. So hypothetically, a company with 100 Euros worth of assets and liabilities has 100 Euros worth of (owners) equity.

This basically enables you to determine its net worth at a given point in time.

The easiest way to remember this is through this basic accountant’s formula:

Total Owner’s Equity (OE) = Assets (A) + liabilities (L).

The shares are accounted for in the OE and are issued in denominations based on various factors. This helps to provide you with an indication of the relative strength (or weakness), or potential growth rate of the company.

What do they tell us?

The (snapshot) total value of the company is thus determined by its share price multiplied by total number issued. This is referred to as its market capitalization. There are several other measures and tools to evaluate the general health of a company.

Rising share prices, though always good, does not always necessarily mean that the company is great value for money. This is because share prices can also be undervalued or overvalued.

Shares for large companies are naturally offered in millions and via an initial public offering (IPO) from as little as one cent (penny stock), or much more (depending on its valuation). Thereon, it can rise astronomically to what was quoted for Amazon earlier.

Where to get them

The open market or local bourse is where you can buy and sell shares at specific times depending on side of the world it is located.

Obtaining shares come with additional costs (brokerage fees, commission, interest payments in cases of leverage buying, etc.). Depending on the terms and conditions in the overall market (regulations), but more specifically, on the company or broker offering you access to shares.

A good company share will also give you a return on an annual dividend. This is basically a share of the company’s profits over and above its share price.

It is a good idea to include high dividend-yielding shares like Coca-Cola, in your trading portfolio – if you can afford them.

Influencers

Once you purchase your stake in the company, you will naturally, even if you don’t have a controlling say in how the company is operated, take a keen interest in the company’s activities.

Everything it does whether internal operations or outside for that matter, will have an impact on its valuation.

Naturally, investors follow the age-long rule of common sense: buy when the price is low. If you missed the IPO and the price dips, you can always get in at a good (low) price. The stock market runs like a rollercoaster – you just need the right time to hop on!

“Unless a company goes belly-up, a share-stock price that is going down is actually going up – in the long run.”

Obviously, the price (trend) is not always upward and one must be prepared to weather such storms. You shouldn’t have to be continuously focusing on the price after thorough due diligence on your chosen company.

Read more about Due Diligence here

Choosing a good stock and leaving it to work is the best advice you will get. This is because you can become emotionally attached to the performance of the shares and that can affect your mood.

There are also a lot of trading tools to help prevent a total meltdown if the company folds-up. This can be due to external factors like fraudulent scandals or government intervention. Keep tags now and then – this is important.

The recent events and scandal faced by Facebook saw it lose a significant amount (billions of dollars) in it the value of its share price.

Read more about investing here.

Short-selling of shares/stocks

There are also ways to “have your bread buttered both ways” in investing. This is where the concept of short-selling comes in.

So, while we all inclined to bet on a company’s stock to go up – there are groups of investors who bet the other way. They have the hopes (based on indicators) that the price will rather drop.

This seemingly dubious form of trading is perfectly legit but comes, naturally, with an even higher level of risk. If the price increases in favour of all ‘normal’ long-term investors – the short position starts losing money. You may even have to fork out more to cover the amount borrowed to make the short-sell in the first place.

Short-selling is, therefore, if you are inexperienced and ill-informed!

So, you “buy” or rather borrow (leverage) the future value of the share/stock price usually at its apparent peak and hope that it will drop. You will continue to profit from the bet by as much as the share price continues to drop.

Earlier in the year, one such investor dubbed “50 Cent” bagged 200-million-dollars in a major shorting stint.

Shorting a stock is a complex, risky but highly lucrative method of balancing out a portfolio. A seasoned trader will, therefore, have several positions including some “buy” and “sell” positions on their chosen shares.

You should have various mechanisms (take profits and stop losses) set in place to execute their trades based on those positions.

Naturally, you wouldn’t just short a stock if you didn’t know something about what factors were to lead to a sharp/large drop in the share price.

But getting this right is often an exercise that straddles a fine line between being well-informed and intuitive and blatant insider trading.

The bigger picture

So, in summary, shareholding generally occurs when you acquire a stake in a business. You can own intellectual capital, founding rights, or be s a funder/seed investor to help start the business.

So why do companies issue out shares to the public again you might still ask?

Think of share listing as a way for your company to hold itself publicly accountable. is the ultimate branding weaponry in its arsenal and quest to exponentially increase its profits.

24 March 2018
Rare tangible coins

With all the talk of digital (altcoins) and Bitcoin, it is hard to even fathom the value or point of holding physical coins.

They are still nevertheless being minted so it will be quite a while before the clunky things are done away with.
Some coins, however, though not very publicized, still hold significant value – even as much as Bitcoins!
It reminds me of a time way back in 2006 while routinely wandering through the pages of a local magazine, I paused at an advertisement that caught my eye.
An institution dubbed the South African Coin Corporation was offering R100 000 (the present-day equivalent of $8400) for a 5 Rand coin with the face of Nelson Mandela engraved on the back.
Unable to contain my excitement at the prospect of being a couple of hundred thousand Rands richer, I rang up the number supplied at the bottom of the advert to claim my bounty. I had five of the coins.
Unfortunately, the coins were worth little more than their intended 5 Rand in value because they were ‘used’.

Coin dealers

The company required rare coins that had been untouched and uncirculated. The South African Mint in 2000/2001 minted and encapsulated a few of the 5 Rand Mandela coins and sold them to a few collectors. They are now valuable and had a high demand from overseas collectors.
The South African Coin Corporation was one of the many coin dealers in the country that dealt exclusively in graded, encapsulated rare (uncommon)South African coins.
For the past 18 years prior to my visit, the company traded in rare coins ranging from the Veld pond, the 1892 one penny to Krugerrands. All these coins come with (often) dramatic and important historical backgrounds.
“Roman emperors were printed on their coins and that’s how one could tell who ruled and through which period,” a senior broker and spokesman for the corporation explained.
“The coins encompass historical periods in time from the Anglo-Boer war to Paul Kruger, and the gold mines – the stories are all in the coins.”
The coins are graded on an internationally guaranteed system by two recognized American firms namely NGC and PCGS. They work on a grading system ranging from categories such as ‘good’, ‘fine’ and ‘uncirculated’.
The grading system helps to determine authenticity and originality of the coins – eliminating counterfeits and circulated coins. A ‘proof 70’ coin is basically a flawless coin and is worth a small fortune.
Lower and medium coins on average collect growth levels of 8% to 15%. Low-grade coins are basically coins that have been in circulation or ‘used’.
Therefore, a 5 Rand coin obtained from banks and shops (such as the ones I had at the time) are deemed as heavily circulated. Therefore it is only worth the printed value.

Point of interest

The industry was briefly brought into the spotlight about a decade ago with the record sale of the single fine ‘proof 69’ Mandela 5 Rand coin. It sold for a whooping 100 000 Rands (worth $13, 300 at the time).
A senior broker at the Coin Corporation carried out the record sale. “That specific coin was bought by an overseas investor,” he said.
The near flawless coin according to the company is earmarked to break the $100 000-mark in years to come when it becomes rarer. “And we are yet to see a ‘proof 70’ coin,” he added.
If that sounds impressive you will be further astounded to know that even lower grades of the coin such as the proof 66 5 Rand Mandela cost 735 Rands ($62) in 2006. It then commanded growth of over an astonishing 900%.
And like our digital friend Bitcoin, it shot up to 8500 Rands ($715) within a year in that year – spurred by speculation and the knowledge of its existence and intrinsic value.
Some of the lower grades (Proof ‘62s and ‘64s) are now currently worth about $200 – $300 today and can be bought off private investors via online marketplaces. Some banks like this German-based Bank called Netbank offers the option to invest directly in Krugerrands.

The US market has the largest rare coin markets in the world valued at billions and billions of dollars.

For those that are looking for something more secure and long term, there is only one trend with this type of investment – and it’s upwards. It does however, take a long time. A lot longer than holding shares/stock or the digital variation.

Market research is key

As with any trading instrument, industry experts caution investors about the use of the coins as investment vehicles.
It is advised that the coins were subjected to various grading tests and you have to ensure that you are getting the right price for the value of your coins.
As a potential investor in a coins, you need to have them valued professionally – preferably with any of the accredited coin makers.
The market for rare coins is also highly subjected to supply and demand factors. There is always a shortage of rare coins with a steady demand from collectors – so naturally, prices are generally always going up albeit slowly.
External factors (albeit not heavily) can also affect the value of your rare coin. Aspects such as the economic or even political climate of the country can corrode or improve your coin’s value.
So, just as we advised about researching Cryptocurrency for their intrinsic value, it is key to learn about the coins you plan to invest in. Furthermore, it is of greater value to have a collection of rare coins than just having one or two.
Many people, for instance, do not know that there are two types of Krugerrands because they look the same. One is mass produced – making it less rare and therefore less valuable.

Concluding

The main impetus behind investing in rare coins besides the diversification of your portfolio includes the fact that they add to your personal assets as it is free of capital gains tax.
It, therefore, serves as collateral or surety for bigger investments.
There are also perks such as the absence of hidden costs, administration costs and commission deductions – which are paramount ingredients of other forms of investments.
Once you purchase the coin, it is yours for the keeping – we are still holding on to ours! 😊

5 March 2018
How countries operate

At times, we can all become frustrated by political agendas, misfortunes, and perceived lack of planning by various governments around the world. As a result, not quite often see the bigger picture – or the economics of how countries work.

Naturally, the political fracases provide fuel for media companies who in turn bombard us with their 24-hour news cycles. But we need to understand that politicians are only temporary custodians of the country and its economy. Each economic model is built on the same premise that started many hundreds of years ago – that of bartering.

Two pillars of government

There are two main mandates or rather tasks that a ruling party is assigned by the electorate when it comes to governing. These are: controlling the country’s fiscal and monetary policy.

Fiscal policy is the internal running of the country and basically deals with tax and how it is allocated. The fiscal budget is then awarded to the various sectors of any economy.

These include education, transport, healthcare, finance, trade and industry, defense, agriculture, and many other building blocks of your country.
How the government prioritizes the spending on each of these sectors will determine its policy priorities.

It will also be a signal of its wider political intentions. And this not only to voters but also to its neighbouring countries in regard to international trade and security.

A nation concerned with information and its human capital will prioritize education in its budget. There are however other approaches to budgetary allocation such as funding trade and industrial activities.
This leads to job creation that will, in turn, drive a need for tradesmen and women to diversify and obtain the new skills required.

This also provides an incentive for state-run schools, privately funded schools, and institutions to develop new skill sets. Doing both is ideal – as governments must foster innovation by promoting and funding higher learning institutions where top talent can be nurtured and developed.

Fiscal policy forms the larger mandate as this budget is derived from the collective taxation of income, capital gains, trading and customs, sin taxes, corporate, and simple public services.
That way allocation of the fiscal budget to finance will pave the way for monetary policy to function.

International trade is the key to generating further income as a government cannot rely on an internally driven economy to sustain wealth. The same applies to business so an agreed trade policy would need to accommodate all aspects of the country’s economy.

National specialization

Every thriving nation has been built on either skilfully utilizing internal resources or have created global demand for a service or industry.
The UK has strong financial and corporate offerings plus its geo-positioning (GMT) allows it to be a central commercial trading point for the world.
Germany has always had a rich source of steel enabling the production of cars, rail brands, and manufacturing.

In addition, it continues to be a market leader in developing technologies to complement those industries thus allowing the country to thrive as a major European power.

The Nordic countries are rich in mineral resources of which they have converted the revenues into national trust funds. These are used to aid its citizens; many of whom develop skills in trade, innovation, and finance (and now Fintech).

Though Japan is geographically smaller and is made up of two islands it continues to prosper by becoming a global leader. This comes from its exports of tech innovation, artificial intelligence (robotics), and fishing stocks.
It even ‘exports’ financial aid (loans) to other countries due to its strong and disciplined monetary policy.

The US has invested heavily in services, human capital, and innovation – to large extent immigration has played a major role in these areas of growth.

The emerging economies

Russia is mineral-rich and has outsourced its intelligence gathering skills, military technology, and training for years.

China continues to grow and subsidizes its agriculture and manufacturing industries fully utilizing the abundance of manual labour at its disposal.

China even exports this labour thus gaining influence and soft power enabling Chinese goods and services to be exported more freely to other economies.

The ability to offer the global economy a form of expertise or goods/service can attribute hugely to each country’s economic wealth. Israel – military and intelligence; Brazil agriculture and tourism not to mention countries in the Far East – oil and fossil fuels.

Most African countries obtain their sources of income (though not as much as they should) from natural minerals, agriculture, and tourism.

Ghana has gold and cocoa; Nigeria – oil; South Africa – gold and many mineral resources; Kenya and Tanzania – tourism. Even a poor country like Zambia has survived because of its coal and coffee reserves.

Any country without resources or the ability to offer goods and services would have to be more subsistence-like. This usually means having to rely on aid or import goods and services.

That, however, comes at a price and leads to the country functioning with an unsustainable debt burden.

Application of policies

Interesting food for thought by Dr. Jagdish Bhagwati, a famous Indian-born economist in the US:

Americans spend, save little. Also US imports more than it exports.

Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger.

The Japanese on a contrary, save a lot. They do not spend much. Also, Japan exports far more than it imports, has an annual trade surplus of over 100 billion. Yet Japanese economy is considered weak, even collapsing.

Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings rates, even charged the savers. Even then the Japanese did not spend (habits don’t change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillion.

Thus, savings, far from being the strength of Japan, has become its pain.

International trade

This then gives way to various trading blocs, which over time have been built, broken, or renegotiated when it was not suiting either of the participants.

The strength of a country’s currency is primarily determined by supply and demand for its sovereign currency. This demand can only be fostered by trade.

The more the demand for a countries commodity the greater the demand for its currency. This is the medium we use to compensate for transactions. In terms of a country’s monetary policy, it is more of a singular relationship between a government and its banks.

The banking system

Banking is the system to which you can place your disposable income (gross income after-tax) in a digital repository. The central (reserve) bank regulates the money supply into the economy ensuring that locally, inflation does not corrode the value of its currency. The central bank controls how much it lends to local banks and at which payable interest rate.

The central bank is independent of the government. They have their policies shaped by fiscal influences and are under obligation to impact the strength of the economy through its interest rates and exchange rates.
So, the central bank sets the mandate by which banks offer security interest, loans, and building deposits to help you benefit from their hard-earned cash.

Banks, however, have a wide range of consumer charges so transacting doesn’t offer much protection against inflation. In some cases, banks offer you zero interest on savings deposited!

You can therefore understand the frustration of citizens who would like to see increased corporate taxes, especially for banks. This especially as they reward executives with excessive remuneration packages even in a failing economy.

Financial governance and regulations

The new wave of Cryptocurrency aims to shake-up these long-standing benefits banks have enjoyed. Benefits such as the bailouts from taxpayers’ money from risk-taking behaviour that nearly brought the global economy to its knees.

Banks behave like a petulant child knowing well that their ‘parents’ will only mildly reprimand them. This ultimately enables the continuation of behaviour with as they get away with only a slap on the wrist.

Governments tolerate bank’s excessive salary packages and risk-taking because they play a strategic role in the stability and growth of an economy.

This is just the tip of the iceberg and paints a big picture of how a country is managed – or indeed can be mismanaged.

24 February 2018
Forex on steroids!

With all the negative and positive commotion surrounding the Crypto market – it still begs the question, for those still curious. What does it take to engage in the trading of Cryptocurrency?

And by trading, we are not referring to the price speculation in a portfolio as one would with the price of a company’s shares or even CFDs.

We are rather referring to trading it as a commodity against other ‘Cryptos’ in a properly regulated online market setting. Similar to how a Foreign Exchange (Forex) market operates.

As with trading traditional fiat currencies, the price is purely determined by good old supply and demand for the currency and monitored by the availability versus volume traded.

It is therefore just a medium between traders where they can set limit orders to buy/sell Bitcoins for a certain price.

So, in the true approach of Debunqed, we will decipher crypto-exchange trading by looking at what you need to do to get into it, and what you stand to gain.

Here are the quick steps:

The first step would be to open a secure Crypto wallet to physically purchase (own) some altcoins. Bitcoin, Ethereum, and Litecoin are the main coins offered by Crypto wallet providers.

They hold the most value and can thus be broken down into smaller denominations (Altcoins). The same way the dollar is used as the main exchange for other fiat currencies. This example helps to put things into perspective.

Make sure you do your research into which wallet you will use. Obviously, if you are mining a certain Cryptocurrency you would naturally purchase them directly from that software provider of the Altcoin.

Using Ripple mining as an example, the platform is supplied by RippleNet and naturally, it follows that the Ripple company mines all the volume and controls its supply.
Getting the digital currency into a wallet can be a quick exercise.

It can take as quickly as between 5 – 20 minutes via a peer-to-peer Bitcoin marketplace connecting buyers with sellers like at Paxful.

Make sure you deal with reputable sellers. This wallet provider rates suppliers based on how reliable they are so only deal with sellers of the highest ratings.

The actual purchase (mostly conducted via online chat) can be made via a Credit/Debit Card, online banking or convenient money transfer facilities like (Europe-based) N26 Bank, Skrill or PayPal.

You can even purchase and send gift cards from Amazon for instance, to the seller (to the value of the currency being purchased) for the seller to release the Altcoins.

Security and storage

The actual coins are stored as an alpha-numeric key code – with the currency value in the wallet once acquired.

This after the wallet-broker takes a small fee for the transaction. This code/key needs to be kept secure – backed up online and offline (highly recommended). This is possible on special flash-drive (Crypto wallet) like the Trezor or a Ledger Nano. The device would hold the deposit key if you were transferring it to another wallet or to an exchange to trade.

Time to go shopping!

Finding a good exchange

The next step would be then to source a robust and user-friendly platform to trade your newly acquired currency on.

The best cryptocurrency exchanges would allow you to swap fiat currency such as dollar/euro for the digital currency directly. Naturally, you can trade one digital currency for another as well.

There are quite a few to choose from so it is good to read the reviews. You should then select one based on the number of deposit/withdrawal methods, the fee structure level, number of countries served, availability of security tools and features.
The last aspect is a huge determining factor: exchanges can be prone to hacking, or loss from outages. Lastly, their margins and exchange trading functions are good to observe too.

For serious and equally secure trading, you will likely need to use an exchange like Binance that requires the user to verify their ID before being opening an account. Make sure you have all your documents ready and up to date!

Trading

When it comes to the actual trading, let’s take a scenario where two people want to sell an altcoin but not for the market price. One sets a limit order for lower and the other for a slightly higher price. So, the best price to purchase Bitcoins, in this case, would be the median of the two prices.

If the buyer wants to purchase more than one altcoin, they will continually take the lowest price available. By doing this, the “price” of the altcoin will increase as the lower-price sell orders are no longer available.

You will then, as with Forex, purchase pairs of where you think your digital currency will be stronger against another e.g. BTC (Bitcoin) vs XRP (Ripple).
This combo would look like this on the exchange: BTC/ XRP – 0.00011960. What this means is that one Ripple coin is worth that much Bitcoin for instance.

The little details

This type of trading, like commodities or forex, requires constant attention and the monitoring of prices. But there are tools that can also help you set prices and have the trades auto-execute.

So, a platform which provides such tools conveniently allows you the time to do other important things. Like paying attention to your spouse, formal job or family and friends. That would be ideal.
If you have the cash, time, expertise and financial clout, it is even possible to run your own Crypto Exchange!

This is another benefit of a decentralized currency system that will allow you to earn some cash by charging for the usage of your robust platform.
Well, this may be until the fiscal authorities’ crackdown on all of the platforms with restrictive legislation.

Finally, like many platforms that provide opportunities to purchase something, the software must be stable and be cost-effective to use.

ADVERT

21 January 2018
Manage your own trading portfolio

The natural inclination for anyone that hears about a new means of making money is: “how do I get involved?” It is therefore only right to not just dangle the carrot in front of faces but also to share tips.

Despite the fact that investing in shares, securities and now Cryptocurrency, as mentioned in the previous blog, comes with a very high risk.

Your portfolio can be managed carefully to minimize the risk and here is how. Before we progress, please note that this is not fail-safe advice but only a guide, so do take heed of our disclaimer.

Preparation

As a rule, this applies to any website offering advice. We would like to warn you that just like eating regularly at a fast food joint – the risks are clear.

So if you know your appetite for risk or have a lack of financial discipline and take this as information gathering to enhance your awareness.

Additionally, we would like to reiterate that running and maintaining your personal investment portfolio requires practice before jumping straight in.

The first step is to identify the types of securities available. Research new articles and the respective financial statements. Once you’ve done that, start a free trial with an online trading account.

There are several institutions offering online trading (each with its criteria for entry and for trading).

Banks also offer this service but might charge a monthly service fee for it so the first step is to do a little shopping around.

Not all online trading platforms are offered globally so one must find one that follows the financial compliance laws in your country/continent or territory.

Taxation

This is important because, like any other investment, your profits from trading are subject to tax (tax evasion is fraud). The type of tax, in this case, is Capital Gains Tax (CGT).

This is payable as a percentage of up to 25% of your profits once you have closed a position and cashed out from the trading account.

The CGT would have to be declared and paid for directly to your local authorities when you fill out your tax returns.

There is still a grey area as to whether Cryptocurrencies are to be classified as taxable assets – which might work to your advantage.

In Germany apparently, if you hold (without selling) Crypto on an online platform for more than a year – you are not liable for taxes.

Nevertheless, be sure to factor CGT into your calculations, and don’t get caught out with that!

The act of trading

The actual trading itself requires some strategy. you should be including a combination of high risk and lower risk asset classes in your portfolio. ETFs and Equities are more on the “lower risk” side as they are purchased on a long-term outlook.

Purchasing equities in well-grounded tech companies such as Amazon; Microsoft; Google; telecommunications and energy companies are considered as long buying. We highly recommend this option.

However, while you sit on those over the months or years you would still want to make some short-term gains. This is where your high-risk high returns securities (Forex, Indices, Options, and Cryptos) come into play.

As a rule of thumb, your high-risk assets should only be between 15-20% or less of your overall portfolio.

This way any losses incurred can be absorbed or regained over the following few months allowing you to accumulate more stable/longer-term equities.

Like a business, your trading portfolio can grow exponentially if you continue to re-invest your gains-profits.

Your gains made in the short-term can be used to purchase the next long-term security. But n case of emergencies, they can be withdrawn to cover other needs (holidays, unexpected debts). It is better to regard your collective portfolio as a long-term asset.

Four quick basic steps to getting into trading.

Step 1:

Decide on an amount outside your other investment vehicles (property, savings, mutual funds, or bonds) that you would set aside for trading. Again, this must only be a fraction of your overall investment.

Most online trading platforms require a minimum amount to open a trading account of between 50 – 200 USD/EURs (you can use that amount for trading).

You will need to ensure you have a good enough Laptop/PC and broadband with all the required security software installed. You can also use your mobile phone for short-term securities such as for binary options etc.

Platforms such as IQOption and are available via Apps for phones and tablets as well.

Step 2:

Before choosing the platform, make sure you understand the costs to be incurred while trading (it’s wise to compare options).

One main charge is commission. You pay it with a purchase of an online traded asset, interest from leverage (margin trading) to purchase the asset, deposit fees, and some even charge for withdrawal of funds.

So, while one platform may charge a 0% commission on trading with some securities, they may offer other securities that require leverage or just charge a higher deposit fee. They are after all there to make money as well.

Use your free trial to work out which pricing model suits your trading needs in addition to learning the market trends and getting a handle on technical analysis tools.

Click here to see a video below of one of such tools.

As part of the service, you would also get access to online chat, a personal assistant to call during office hours about anything to do with your account/portfolio and the option to upgrade your account. So you are never on your own really!

Some trading platforms offer you benefits (in the form of cashable tokens or direct cash commission) for trading profitably, referring someone onto the platform and when they make money.

One such platform called eToro is known as a social trading platform.
It allows you to “shadow” successful traders and pays “leaders” handsomely in return for the number of “followers” you acquire.

Many platforms like IQOption will reward you if the person you referred makes profitable sales of their assets. This comes in the form of a direct cash commission paid to their account.

Step 3:

So now that you have familiarised yourself with the tools, and have analyzed the technical aspects of the platform, you can begin real-time trading. This means switching from a trial to a paid account. You will need to provide your banking details (chequing account, credit card, or digital wallet). This is where deposits and withdrawals will be made from.

Most platforms, which are usually located in your geographical region, allow you to pay from your local (debit) bank account, a PayPal, or other types of online money transfer services.

The next step, which is important for security from both parties as well as for the financial and monetary authorities, is account verification.

You will need multiple forms of identity: passport, proof of residence, social security or tax reference number, and of course contact details such as email and mobile (cell) phone number for various forms of authentication (e.g. two-step authentication to protect your account from unauthorized access or in case of password resets).

Once completed and have been approved/verified you are good to go! This can all take 30 mins (and processed online) if you have everything in place.

Step 4:

The final step to running your own successful trading portfolio is to exercise the skill of patience. Learn to watch the market trends and do not act on impulse.

The rule is simple: buy low and hold. Selling should only be done if you have credible information on the impending total meltdown of a company you own shares in. Otherwise, like a rollercoaster, be prepared to watch your stocks go up and down.

When it comes to the risk of a downward trend you will have the tools on most of the platforms to help you control losses from price movements automatically (Stop Loss). with this tool, you don’t have to always be glued to your PC to monitor the longer-term securities.

Binary Options (illegal in some countries) are different though and require quick execution of trades. Have a look at the first section of the resources page to familiarise yourself with how high-risk securities work.

But for all others, you will have tools such as stop-loss orders, take profit/limit orders, pending orders, and trailing stop orders. These will help you protect your profits and prevent colossal losses.
Go forth and make a fortune – or at least some passive income and a decently rewarding long-term investment supplement!

Start with a demo trading account now!

RISK WARNING: YOUR CAPITAL MIGHT BE AT RISK.

8 January 2018
An investor state of mind

As an Arsenal Football Club fan, one has the natural tendency to follow the progress of both present and past players of the revered North London title-winning institution.

The prestige of playing for the club comes along with all the bell and whistles required to make life living in the small yet expensive hub city often dubbed to be the centre of modern Europe, a breeze.

It was rather sad to read about the unfortunate fortune of a former player who had a big heart and passion for the beautiful game. He was, however, a bit aloof and care-free on the pitch. It turns out this was a character trait that perhaps extended to his financial affairs.

He was recently reported as sleeping on the couch of a friend without a penny to his name. How can that happen, you might ask?

His weekly wages were a reported 50 000 Great Britain Pounds! So how did he go from earning that figure, to being dead broke?

Such a bad turn of fortune is not uncommon for celebrities, qualified professionals, and lottery winners. This can be explained by a simple lack of ‘investor mentality’.

The right state of mind

This mindset can be instilled in us from a relatively young age if you have had the luxury of growing up with parents, teachers or a mentor who imparts this knowledge to you. It can also be learned later in life – often the hard way.

Similar to starting a business, the biggest barrier to entry into any form of investment is always the initial capital. Once you have it, coupled with the investor mentality, it’s hard to fail financially in life: just ask the current sitting American president!

Now as obvious as this sounds, you need to put in money to make money. That is why investing, for instance, is mainly carried out on a large scale by banks – with your money!

What you do with the money when you inherit it, win it, or save up from a weekly or monthly project-based income is more important than just having it in the first place.

Wouldn’t you agree that money comes then often goes faster than you realize? Having a grasp on why it leaves so fast is what we should be paying attention to.

Let’s firstly be sensible about this – investing is always a long-term project. A desire to reap short-term gains or having such a mentality is paramount to risky gambling or betting against the odds.

“Patience is an investor’s game – if you don’t have any, don’t bother with the mechanisms that don’t lock you in for a few months to enable you to realize a return.”

Enough of the rhetorical questions and statements. Let’s briefly look at a few investment vehicles in the true fashion of Debunqed.

Savings

This is the least risky investing vehicle and tends to suit patient investors. Usually, it is for you if yo are the kind that loves to watch paint dry. 🙂

Your only risk would be using a non-government backed bank for it. The higher the amount you invest, the better the interest rate you get. So this basically benefits the already wealthy. Some savings accounts are even known to offer you 0% or fractional decimal interest rates which are calculated nominally.

So it begs the question – why would you even consider putting your money in savings? Well, using this investment strategy helps with a good credit score. That comes in handy when you apply for loans or obtaining financial backing to start your new business. So they do have some use.
Risk level: Little to none.

Property (residential or commercial)

This is the golden nest egg of investing – that is if you can raise the bond for property or inherit one.

Property is one asset class that tends to only appreciate and relatively well over the years depending on what is happening in the area/town or economy.
Getting in is the difference between having a spender or an investor’s mentality.

What do we mean by this? Well, if you can save up for a deposit to buy a brand-new luxury car, you could and should do the same for a house.

That way each “monthly rent” payment goes towards something you will eventually own. You could also buy-to-rent. The income generated from the tenant (rent) will help you pay off the bond.

Consider the appreciation value of property in your local area over the years. But like anything valuable, you must be prepared to maintain its upkeep – the costs will be more than your weekly carwash.

In the long-run when you realize the greater future value, you could even downgrade to have some extra cash to spend. You could then get that car of your dreams or travel and see the world.
Risk level: Low to moderate.

Share/Stocks

The days of stockbrokers are numbered. Trading firms and hedge fund companies are slowly being replaced by AI computers. These days, you can take full charge of a portfolio of equities, CFDs, Futures, Commodities, Options, Forex and Cryptocurrency directly from your laptop.

There are a number of online trading platforms out there so it is a good idea to go with the accredited ones.

One of the key benefits is that they all offer a free trial – which often gives you a mock .account. That’s a great way to learn about the tools and the above-mentioned markets.

There are aspects you need to pay attention to. One of them is leverage trading . It is essentially borrowing money to trade (payable with interest) – a double whammy if or when things go south for you.
Risk level: High to Excessive.

Mutual funds

As the name suggests it is derived from a pool of funds from a specific institution or industry. Mutual funds are offered by institutions as a supplement to retirement plans (pensions and annuities).

They offer you a return (often a stable monthly or quarterly pay-out) based on a fixed term that you agree on with your portfolio manager.
The offering institution would then apply your pooled monthly contributions into a diverse portfolio to spread your risk exposure.

This, however, requires the attention of a (paid) portfolio manager and is thus susceptible to the principal-agent problem.
Risk level: Low to moderate.

Venture Capitalism/Angel funds

If you have some spare cash and don’t want to bear the risk and burden of running a business yourself, you can fund other people you believe will be successful.

In this arrangement, confidence is placed by you on the owner and the offering. You can then state the terms for the release of your funds such as a quarterly return on investment or a larger stake in the business and its profits.

Rapper Nas is known for his investment in Silicon Valley start-ups as a Venture Capitalist – which gives him a share in the companies he backs with the hope of it growing exponentially to increase that shareholding’s worth.

Celebrities and sports stars usually have the capital to diversify their portfolio by investing in or starting up a new business. One such notable venture was the one where Rapper/Producer Dre’s Beats brand got bought by Apple for three billion USD.
Risk level: Moderate to high.

Rare items

Though not an easy commodity to come by because often the initial value can be quite high (unless of course, you are lucky to find an item at a junk sale or low-key auction), rare commodities can also form part of your future financial security.

Rare coins tend to take a long time to mature in value. Likewise, a painting can appreciate quickly in value if the artist’s “interesting” background comes to light in the press for good or bad reasons.

As an example, a rare Nelson Mandela coin once sold for 100 000 USD while he was still living. So, one can only imagine what the few in circulation are worth now.

Read more about rare coins here.

A rummage around old antique shops and secondhand sales can reap rewards if you know what you’re looking for.
Risk level: Low to moderate.

Bonds

These are long-term interest-bearing certificates issued primarily by governments (via monetary policy) but also by certain large public institutions.

Bonds give you a guarantee of a future value using a specially controlled interest rate. They are usually issued with fixed terms and can only be accessed after 3 to 10 years.

This locks you in, to hold the bond for the agreed period regardless of which way the interest rates are going.

Naturally the higher the rates the better for you. As a cautionary note, you will be subjected to the regulatory activities and monetary policies of the country in which you hold the bonds. Choose where you buy very wisely.
and research your product.

Accessing bond markets is also not easy and you may be subject to complex rules pertaining to the country, residence status and your credit score, and so on.

It is really for the long-term investor and can be used in the same way mutual funds tend to be applied, to supplement one’s retirement annuity package.
Risk level: Moderate to high.

All things investment

You need to remember the importance of imparting this knowledge to our youth, friends, and family so as to continue the cycle.

The simple answer being: Education. The lack of it is one of the fundamental causes of poverty.

A number of celebrities and sports stars have overlooked it’s true importance so as to follow their true passion and skill. This is not necessarily a bad thing. If you have the right people around you to help you manage your finances.

It was reported he signed documents without knowing the full content and liability of what was being presented to him. It was also said that she would even bring paperwork to the football club’s training ground for him to sign.

Let’s be honest, we don’t know the full facts but there is a lesson. This “wife” character could be anyone that you entrust with managing your finances so, be wise as to who you choose to oversee your accounts.

Make a plan

Having a grasp of your assets (if any) less your liabilities is the first place to start. Once you know what you have or don’t have, you can then set goals.
Think about what you need to do to achieve a net worth that will sustain you for the long term.

Granted we all must pay bills. We will write down that part of our income but we need to focus on what is being done with the money that is left once your overheads are met.

Educate yourself (skip a binge session on Netflix). Take a deeper dive into the investment vehicles briefly spoken about. The resources page will provide more comprehensive details about all seven vehicles discussed.

It will also guide you on where to go to find out more once you have decided and which vehicle or combo would fit your investment type and appetite for risk.

Make 2018 a sensible year finance-wise and happy investing!

1 January 2018
A digital force awakens

When it comes to providing means of storing, sending, and receiving money, banks and their affiliated institutions, have enjoyed a monopoly for centuries.

They (especially central banks which allegedly are owned powerful families) have the authority to influence countries and their governments. We will not go into the level of control as this paves the way for conspiracy theories which though not proven – are not farfetched.

So, it’s only expected that when some new and unknown entity threatens their prosperity, they start to react.

Blockchain frenzy

How banks are responding is evident by how they are fervently building their own blockchains. This, however, defeats the purpose of a having decentralized system.

Bitcoin and cryptocurrencies get their appeal not just because they are very secure. But because unlike fiat money, they are not heavily regulated and can be mathematically restricted.

The 21 million unit limit on Bitcoin by default places it closer to the status of gold (which is also not infinite). But what happens when all are mined in 2041?
Bitcoin’s current ‘value’ of over $30 000 (adjusted), could move up again, according to the traditional laws of supply and demand as it becomes rare.

To unlock more value the creators will split it again. The first major splits (forks) gave rise to Litecoin and Bitcoin Cash. Both cryptocurrencies are racing to newer heights daily.

How banks operate

Now back to the banks – they make money from our deposits and these deposits are backed up by our reserve banks.
Reserve banks lend retail banks money which they essentially just print. The banks must ‘turn it’ and pay it back with interest (repo rate).

So, technically we ‘empower’ banks by depositing our money so they can invest the funds in all sorts of mechanisms. Such mechanisms include the credit and loans to you, your businesses, equities, and property.

Then, they also invest in high-risk investment vehicles like currency trading, derivatives (futures). They are essentially the biggest regulated and legal Ponzi-schemes. They also make a significant amount of the daily fees they charge you.

A quick example

Let’s quickly put things into context. A bank with over a million customers transacting daily. Let’s say they charge you a 10 cent (conservative figure) transaction fee for depositing, withdrawing from another bank, or an intra-bank transfer.

They then make 0.10c x 1 000 000 = 100 000 units of the currency on the day. This equates to 1,2 million Euros, Dollars, Rands, or Yen annually. And that is just off your transactional fees!

Then they also charge you monthly service/maintenance fees. Those are to cover the convenience of you having an account and, for services like online banking.

This is what cryptocurrencies can potentially wipe away from banks we all go the digital currencies route. Granted, how you acquire and transfer Cryptocurrencies are not as straightforward as receiving paper money – yet.

That, coupled with the stigma around ‘Cryptos’, means there is still a barrier to entry for the ‘open-source’ monetary system.

Banks will try and bring about their own blockchains to address security concerns around making transactions. For them, however, it would still be business as usual when it comes to the charges.

Birth of Fintech

Some newer financial institutions, however, are already progressing in the favour of you and me – one such is the European based N26 Bank.

We often end up paying for things all month without even having to go to an ATM. It works as a traditional bank would, however, allows the (smart) card to be used as a credit card (backed by Mastercard) would.

This allows you to quickly purchase goods online, book events, flights ticket, and accommodation. Basically, all things you still can’t do with your debit card.

In countries like Sweden and Estonia, card and digital systems have been a thing for a long time now.

Some of these Fintechs are adopting or partnering with Cryptos companies to deliver their services. One such as the relationship the one between a German bank and the crypto Ripple.

Click image to purchase Ripple here

It would be interesting to see what governments and financial institutions do to ‘protect’ their payment systems. Likewise, it will be equally fascinating to observe how they adapt in general to the new digital era upon us.

25 November 2017
Elasticity and Sin Tax

We can change our dependence on certain goods and services so that we don’t take too high a knock when their prices fluctuate.

Life is about making choices. As rational beings, we tend to make choices that benefit our wealth and well-being.

But some choices have to be made on our behalf — especially when it comes to the provision of commonly used goods and services.

What is elsaticity?

The prices of government-regulated products such as fuel, alcohol, and cigarettes are examples. How we react to the price change (whether an increase or decrease) is referred to in economics as elasticity.

It is a general term for a ratio of change and scientifically attempts to capture your sensitivity to price movements. It is the percentage change in the quantity demanded (or supplied) of something brought about by a percentage change in its price.

A 10% increase in the price of bread, resulting in a decrease in the quantity demanded by 8%, means your price elasticity of demand for bread is 0,8.

The ratio is expressed as a number between negative infinity and infinity, with one being the midpoint. The number has no unit — it is not expressed in centimetres, litres or as a percentage.

But that number tells us a great deal. If it is higher than one, the product is said to be elastic. This means the quantity you demand responds strongly to price changes.

Anything under one is inelastic. This means a price change doesn’t affect your demand for it much.

When a product is said to be unit elastic, it means the change in quantity demanded is equal to the change in price.

Practical examples

On the commercial side, the concept becomes more useful when formulating and studying consumer trends. It is especially beneficial to brand managers who need to set prices for their products while paying attention to sales.

Income elasticity of demand measures the responsiveness of the quantity of a good to changes to your disposable income.

Generally, the more inelastic the product, the easier it is for firms to maximize profit by increasing their price.

Taking advantage of addictions

If you’ve ever wondered why the prices of your alcohol and cigarettes — commonly referred to as “sin taxes” — always rise, it is because they are inelastic.

If you were addicted to nicotine, for instance, you would rather cut down on movie tickets to still afford a box of smokes. This makes you inelastic to the increase in cigarette prices.

Likewise, we industrialize, we become heavily reliant on oil. Our dependence on oil was reiterated in the latest Organisation of Petroleum Exporting Countries (Opec) oil outlook, which paints a gloomy picture. The West’s demand for oil is predicted to surpass the available supply in the coming years.

Globally, over the decade of 1994-2004, about five times more passenger cars appeared on our roads than commercial vehicles. In South Africa, alone, commercial vehicle sales for July were up 13% in the same period.
Concurrently, increases in lorry volumes worldwide have been observed.

The more inelastic your product is, the easier it is for you to slap your consumers with high price increases.

At the time of writing in 2007, the oil price once hovered around $73/barrel and threatened to reach a record high of $80*

Concluding remarks

By using other means of energy (oil substitutes, wind, electricity, and solar) we could reduce our reliance on oil. this would make it less inelastic.

In South Africa, for example, using trains for cargo transport would ease our dependence on petrol and diesel-powered commercial vehicles.

Carmaker Tesla recently launched its future truck and alleged fastest production car in a big to reduce our reliance on fossil fuels. Tesla is gaining steady ground to introduce its electric cars to the world and has surpassed the net worth of Ford.

18 November 2017

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