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Posts Tagged ‘aig’

Investing in cheap stocks isn’t just looking for the lowest priced stock out there to invest in. It’s about finding a stock that is cheap compared to its value. It this type of investing that has made Warren Buffet a billionaire. Mere mortals like us can also invest in cheap stocks like that too.

Cheap stocks is a relative term. yes something priced at $1 per share can be cheap, but is it good value?even at $1 a stock can be overvalued and hence not be cheap.

What you are looking for is value. As you witness the stock market meltdown in 2008-2009, you saw plenty of stocks get cheaper. AIG went form a high of over $60 to under $2 a share. When is went from $60 to $30, its was cheap comparatively, but did it represent good value? obviously the answer is no.

So what should you look for in cheap stock trading? This is where you will have to do some research. You could simply try out or subscribe to newsletter that will comb over stock reports looking for undervalued cheap stocks. Value Line has been publishing a table with stock trading below their assets value. This is known as value investing made popular by Benjamin Graham and Warrant Buffet. This type of investing looks for companies that sell for below their breakup value. by investing like this, you have a degree of safety in your investment. As Warren Buffet as said, there are 2 rules to investing, rule 1, don’t lose money. Rule 2, if you lose money, see rule 1.

That is one way to invest in cheap stocks. another way is to look for mutual funds that invest in undervalued or cheap stocks. This allows you to spread your investment dollars into several stocks that the mutual fund regards as cheap. by using a mutual fund, you are having professional money manager’s research and invest for you. Some funds you might want to look into are TRowePrice, Fidelity and USAA Mutual Funds.

You could also do your own research. You can look for cheap stocks that haven’t been discovered by Wall Street yet. Doing your own stock picking can be very rewarding. Some treat it like a puzzle, sifting through information looking for a buried gem of a stock.

So begin your search for the right cheap stock. Check out some newsletters, look at some of the mutual fund families and see which is the right way for you to go. Then find the best cheap stock and increase your investment returns.

Looking For Cheap Stocks

George Soros (AP Photo/Manish Swarup)

by Frank James

George Soros, billionaire financial speculator, philanthropist and liberal boogeyman to many conservatives, doesn’t like Treasury Secretary Henry Paulson Jr. $700 billion bailout plan.

Indeed, from his Financial Times opinion piece, it doesn’t sound like he’d allow Paulson to manage any of his billions of dollars.

Here’s an excerpt. Pay close attention to what he says about “asymmetric information,” one of his favorite subjects. it’s the idea that not all parties in financial transactions have equal access to best-informed party usually has the upper hand:

Mr Paulson’s record does not inspire the confidence necessary to give him discretion over $700bn. His actions last week brought on the crisis that makes rescue necessary. On Monday he allowed Lehman Brothers to fail and refused to make government funds available to save AIG. by Tuesday he had to reverse himself and provide an $85bn loan to AIG on punitive terms. The demise of Lehman disrupted the commercial paper market. A large money market fund “broke the buck” and investment banks that relied on the commercial paper market had difficulty financing their operations. by Thursday a run on money market funds was in full swing and we came as close to a meltdown as at any time since the 1930s. mr Paulson reversed again and proposed a systemic rescue.

Mr Paulson had got a blank cheque from Congress once before. that was to deal with Fannie Mae and Freddie Mac. His solution landed the housing market in the worst of all worlds: their managements knew that if the blank cheques were filled out they would lose their jobs, so they retrenched and made mortgages more expensive and less available. Within a few weeks the market forced mr Paulson’s hand and he had to take them over.

Mr Paulson’s proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues. unless the Treasury overpays for the securities, the scheme would not bring relief. but if the scheme is used to bail out insolvent banks, what will the taxpayers get in return?

Soros then gives a big shout out to Sen. Barack Obama.

Barack Obama has outlined four conditions that ought to be imposed: an upside for the taxpayers as well as a downside; a bipartisan board to oversee the process; help for the homeowners as well as the holders of the mortgages; and some limits on the compensation of those who benefit from taxpayers’ money. these are the right principles. They could be applied more effectively by capitalising the institutions that are burdened by distressed securities directly rather than by relieving them of the distressed securities.

The injection of government funds would be much less problematic if it were applied to the equity rather than the balance sheet. $700bn in preferred stock with warrants may be sufficient to make up the hole created by the bursting of the housing bubble. by contrast, the addition of $700bn on the demand side of an $11,000bn market may not be sufficient to arrest the decline of housing prices.

Something also needs to be done on the supply side. to prevent housing prices from overshooting on the downside, the number of foreclosures has to be kept to a minimum. The terms of mortgages need to be adjusted to the homeowners’ ability to pay.

George Soros hates Paulson's bailout.