Posts Tagged ‘investing’

Josh Cohn ‘GreenWorld BVI’ interview

Friday, January 20th, 2012

These days more and more investors are looking for green investments so they can make money whilst protecting the planet at the same time. Trading Diary talked to Josh Cohn the founder of green alternative investment firm GreenWorld BVI.

What is GreenWorld (BVI)?

Josh Cohn GreenWorld BVIGreenWorld BVI are a boutique green alternative investments firm. We offer investments in such areas as farmland, forestry, renewable energy and carbon credits. All of the investments we offer are actual direct investments in projects. Just to take one example, we have a farmland investment project in Africa in which the investor actually owns a piece of farmland directly and receives income from the sale of crops as well as any increase in the capital value of the land. Likewise, with our timber investments, the investor actually owns a plot of forestry and all of the trees located on it, and is entitled to receive all of the income from the sale of the timber from the trees.

Another salient fact about GreenWorld is that all of our projects are targeted at retail investors. The minimum investment requirement in our projects starts as low as GBP1,950, and none of the projects require a minimum of more than GBP20,000. Since all of these projects are targeted at individual investors, they are all “passive investments”. That is, the investor is not required to actually become a farmer or hire a firm to sell the crop, since everything is done for them.

Why did you set up GreenWorld?

I set up GreenWorld BVI first because I am passionate about green and alternative investments. I actually made a number of green investments myself about two years ago, primarily in farmland and forestry, and I became fascinated by this whole asset class.

Furthermore, I also am quite keen to make individual retail investors aware of the fact these types of investment opportunities are available to them. I am of the personal opinion that stock brokers and investment advisers generally point people to only two asset classes, stocks and bonds, and hence small investors are missing a wonderful opportunity to add some diversification to their portfolios. If you work with a stock-broker, needless to say he or she will be suggesting investments in shares, and I am determined to make the “little guy” aware that there are other options out there.

Why is GreenWorld registered in the British Virgin Isles?

Candidly, there is not a hugely complicated reason for this. Many if not most investment firms are registered offshore just for simplicities sake, and the BVI makes it very easy to register a new company. Plus, the URL “greenworld.com” was already taken, so just by adding BVI I was able to obtain the type of URL I wanted! Pedestrian reasons I suppose, but nonetheless true.

Why should people put money into green alternative investments?

Alternative investment products are those outside of the traditional investments of stocks, bonds, insurance or cash. Alternative investments generally are not influenced by the same things that affect the performance of stocks or bonds, and therefore their return is not correlated to stocks and bonds. Many people do not understand that diversification means that all of an investor’s assets do not move in lockstep with one-another, and so whilst they may think they are diversified because they own many different shares, in reality – as we saw in 2008 – all types of shares have become increasingly correlated with each other and so investors must look for more creative ways to add non-correlated assets to their portfolios. So, even for those who may not be interested to investment with GreenWorld per-se, I am more than happy to at least educate them on the existence of alternative investments they will not hear about from atraditional advisers.

Furthermore, many of the investments GreenWorld offers – especially in farmland – provide high current income from the yearly sale of crops. Given the rock-bottom interest rates and hence very low returns available from traditional savings accounts, the type of investment opportunities that GreenWorld offers allow investors to obtain the current income many crave. In addition, I believe that we are only about half-way through what many are calling a “global commodities supercycle” where commodities will continue to remain high in price and rise over time. This is being driven by the rapid growth in emerging markets, especially China, and our investments are a wonderful way to play this trend. Again, taking agriculture as an example, one could certainly invest into an agricultural commodities ETF that tracks the price of a basket of agriculture, but these types of commodity ETFs in our view are heavily influenced by financial speculation, and may not truly reflect the long-term trends in the ag sector.

What types of green investments do your deal with?

We offer five types of investments:

  1. Farmland
  2. Forestry
  3. Renewable Energy
  4. Carbon Credits
  5. International hotel properties in Morocco and Slovenia

Again, all of these investments are targeted at retail investors, and they are all “passive investments” which require no ongoing effort by the investor. Most of them also pay current income as well, sometimes quite high. I suppose it would be fair to add that the hotel investments are not I guess what one would consider truly “green”, but they are interesting nonetheless. They involve partial ownership of a boutique hotel room in either Marrakesh, Morocco or Slovenia with the investor entitled to receive a portion of the cash-flow from guests who stay there. The investment guarantees 8pc per year for the first three years, and also involves a lifestyle component as the investor is allowed one free week per year stay at their hotel.

Why are farmland investments popular?

Good question, as these are by far the investments we receive the most queries on. Farmland investments are a wonderful way to capitalize on one of the post powerful global trends in existence – the ongoing surge in food prices. As the United Nations Food and Agriculture Organization notes, as the world’s population climbs to 9 billion by 2050, an additional 6 million hectares of new farmland investment is needed every year to prevent food supply crises. Unfortunately, the amount of arable farmland globally is actually shrinking due to development, desertification and climate change, which means that the supply/demand factor is very much in favor of investors in this sector.

In addition to the supply/demand case, there are a number of other specific factors that make farmland investments attractive:

1. Inflation Hedging – Farmland has historically been an incredibly strong hedge against inflation. Unlike gold, however, farmland investments pay a yearly dividend from the sale of crops, in addition to the long-term capital gains on offer. Farmland is a tangible, real asset with a substantial underlying value for human use.

2. Diversification and Lower Risk – Farmland investments have a very low correlation to stocks and bonds therebye lowering overall portfolio risk.

3. Fantastic returns – The returns from farmland investments on a historical basis have been phenomenal. Over the last 10 years, farmland has returned approximately 13% per annum in the UK according to Investment Property Databank (IPD). In the United States, the return is similar at nearly 14% per annum based on data from the National Council of Real Estate Fiduciaries. Finally, if one considers farmland investments internationally, taking African farmland as an example, the returns have the potential to be even higher based on the low purchase price of farmland in Africa. Just as a specific example, GreenWorld BVI’s African farmland investment African farmland investment recently paid an initial dividend of 16.2% whilst the capital gain has already been nearly 30% in just the last year since the land was put into productive use.

Likewise, we believe Australian farmland to be one of the most amazing but unknown investments on the planet. Consider the statistics below:

  • Average Price of quality Farmland in England: Over £6,000/Approximately US$9,300
  • Average Price of quality Farmland in America: Approximately US$10,000
  • Average price of farmland in GreenWorld’s project in the western Australian wheatbelt: Approximately US$600

This Australian farmland project yields less due to the dryer climate in Australia, but nowhere close to the 15-20 times less which is what it is priced at! According to an article in the Australian press, there is approximately US$1.6 billion that will be flowing into Australian farmland imminently. The three investors putting money into Australian farmland are a UK fund that is putting in US$400 million; legendary commodities investor Jim Rogers who is using a rural land fund that has US$600 million into the pipeline; and an Australian government pension fund called called Future Fund. That is US$1.6 billion in high-end institutional money ready to go! I do not wish to push people in any particular direction, but of all of the investments that GreenWorld offers, I must admit that I am most partial to the African and Australian farmland investments.

If someone invests in farmland what do they actually get?

In the farmland projects, our development partners purchase large tracts of farmland. This farmland is then offered to individual investors in increments ranging from as little as one acre in our African and European projects, and 50 acres in the Australian project. The key point here is that the investor receives direct ownership of a plot of farmland, and a portion from the sale of crops which constitutes the investor’s yearly income yield. Therefore, it is important to emphasize that these are NOT financial funds of any sort, but actually investments in the direct asset itself. Investors also are entitled to any increase in the capital value of the land. Investors are free to sell their farmland at any time, which is one way they could cash out, whilst we also believe that one or more of these farmland investments will ultimately be acquired by giant institutional investors. Either way, in addition to the yearly income, we believe there are also very attractive capital gains on offer as well.

What kind of risks come with green investing?

As with any investment, there are certainly some risks investors should be aware of, so allow me to list the two main ones below.

1) First, the types of investments we are offering are inherently “illiquid”. These are not the type of point and click investments you may be used to doing from your brokerage account. I would say that any of the investments are meant to be held for at least two-three years, and some such as the forestry and farmland investments for at least several years. Therefore, the risk is that if an investor suddenly needs money, he or she will not be able to just log-onto their computer one morning and just sell the whole lot.

2) The second risk has to do with the underlying price of the commodities themselves. For example, currently the price of the grain commodities such as wheat and rice are quite high and we do expect them to remain so. Likewise, the market for bamboo is projected to double in value over the next five years, but of course no guarantee – as the old saying goes, “past performance is not a guarantee of future results,” and it is not impossible that some unknown factor may result in the prices of these commodities falling which of course would reduce the yearly income yield and capital value increase of your investment.

How can green investments be made tax efficient?

In general, there is a good argument for putting income generating investments in a tax-advantaged structure such as a SIPP (and all of GreenWorld’s investments are SIPP-eligible by the way). By the same token, the actual tax issues involved are not overly complicated as the yearly income would simply be taxed at the same rate as income from savings accounts, whilst the capital value increase in the asset being sold would be treated no differently than the increase in value when one sells a stock. So, whilst it is fair to say that ideal mechanism for purchasing these types of investments are through a tax-advantaged structure such as a SIPP, the actual tax treatment of these investments is not overly complicated.

Any final words of advice?

Definitely. First, as the old saying goes “all things in moderation,” and this applies to our types of investments as well. We would recommend that individuals put no more than 15 – 20pc of a portfolio into investments of the type that GreenWorld offers. I believe that our investments can add diversity to your portfolio, but they are not meant to be a dominant part.

Second, consider what I noted above, that these investments are illiquid. Do not invest with money that you may suddenly need access to in the short-term. If I ever were to talk to a client in which I discovered this to be the case, I would for their own protection simply not consider it appropriate to work with them just for their own protection.

You can find more about GreenWorld BVI on their website at http://www.greenworldbvi.com/.

Maike Currie ‘The Search for Income’ interview

Tuesday, December 13th, 2011

Maike Currie author of The Search for Income talks to www.tradingdiary.co.uk about investing and how to generate more income from your money.

Who are you?

Maike Currie authorI am a financial journalist covering all aspects of personal finance from investing to pensions and tax issues. In short: I write about income for a living. I have worked as a reporter and editor across the Financial Times Group for a number of years – currently I am deputy personal finance editor of Investors Chronicle, one of the oldest magazines in the world, having provided private investors with investment advice since 1860.

What is your new book ‘The Search for Income’ about?

The book is about how to use the financial assets and capital which you have to build an investment portfolio, in line with your risk appetite, with the aim of generating income to supplement your personal needs.

Why did you write this book?

Since the onslaught of the credit crunch, interest rates in much of the developed world have been cut to historical lows and remained at these paltry levels for almost three years. While this is great news for those on a mortgage, savers and investors leaving their money in the bank are receiving little in the form of a return.
Investors today have work much harder to seek out alternative income generating investments as the traditional channels such as bank savings accounts can no longer be relied upon to produce an adequate income. Income investing in the 21st century is not more important than it was in the past but, as the situation since the financial crisis has shown, more thought and planning is now required by investors to secure the income they desire.

What kind of readers would benefit from your book?

Anyone looking to earn an investment income whether a knowledgeable investor or a novice at the investing game. Readers may range from retirees looking for ways to supplement their pensions, parents who want to generate an income stream to fund their child’s education or another family need to individuals seeking to draw an income from their accumulated wealth whether this be to cover basic living costs, a period of redundancy or illness or to improve their overall standard of living.

What are some of the pieces of advice that you offer?

The merits of drip-feeding money into the market, the power of compounding, the role of different investment vehicles in an income portfolio, how to effectively draw income from a portfolio of aggregated investments, and more. Broadly speaking the book delves into the concepts, vehicles and strategies that can be utilised to earn an income from investing. It is about where to find income, how to grow income and of course, once you have income, how to make sure you keep hold of it.

Where are good places to search for income?

Investment Trusts – these vehicles have an advantage in income terms over open-ended funds in the form of a revenue reserve. This enables them to hold back some of their income in reserve during good times which can then be paid out to maintain income levels when markets are struggling.
Listed infrastructure funds are also attractive. Given the long-term nature of the underlying contracts with the public sector the dividends (income payments) from these vehicles look sustainable. Dividends are also fully covered by cash-flows and the majority are index-linked providing inflation protection. This is a good alternative investment as it shares a low correlation to other assets and is not economically sensitive.

There is a lot of economic turmoil right now. Is this a good time for people to invest?

Absolutely – volatility creates opportunities – and with investors running scared many investments, most notably equities, are cheap. As Warren Buffet (arguably the greatest investor of our time) put it: “Be fearful when others are greedy and greedy when others are fearful.” History also shows that in periods of economic weakness and associated equity market volatility, companies that offer a high dividend yield perform well relative to the wider market. Now is a good time to focus on higher-yielding stocks but remember that high yield can be misleading so good stock selection is critical.

Have you always been good with money?

No. Like most people I had an overdrawn credit card and lived beyond my means. But working as a personal finance journalist I have realised the merits of making your money work harder for you. I have since cut up the credit card, live within my means and am a keen investor.

What do you invest in?

A mixture of shares, property, gold and infrastructure all of which I keep safely wrapped within an ISA to avoid my hard-earned money ending up in the taxman’s coffers. I also regularly top-up my pension. Given issues such as longevity my portfolio is definitely higher risk but as a long term investor I believe there is enough time to ride out the ebbs and flows of the markets.

What other authors do you admire?

Ken Fisher, Jim Slater, currently enjoying fund manager, Gervais William’s new book Slow Finance.


Glenn Martin ‘How to Value Shares and Outperform the Market’ interview

Friday, November 4th, 2011

Glenn Martin, author of the new book ‘How to Value Shares and Outperform the Market’ talks to Trading Diary about investing in the FTSE 100.

1. Who are you?

Glenn Martin author I spent my employed career of 34 years working in Financial Services. The latter part of my career was in Investment Banking, where I was Chief Information Officer for several investment banks.

I have always been a private investor in equities. In 1994 I developed my own system for valuing the FTSE100 and individual UK shares. I was inspired to do this by studying the famous Black-Scholes system for valuing equity options (I was Chief Operating Officer for an equity derivatives house at the time). The Black-Scholes system is complex but entirely logical. I thought a similar logical approach could be used for valuing the underlying cash equities.

I retired from my last employed position (JP Morgan Cazenove CIO) in 2005. As the valuations from my system had repeatedly proved to be correct (e.g. it exposed the dot.com boom to be a bubble ready to pop), I set up ShareMaestro Limited to package and market the system (www.sharemaestro.co.uk). The system has received very positive reviews in the main financial journals (e.g. Investors Chronicle, Daily Telegraph, Shares magazine). ShareMaestro valuations are being used in the IC roadshows which are being held this week.

I am also the Chairman of my local tennis club, which is another limited company and effectively another business, as we have to recruit enough members to cover our costs.

2. What is your new book ‘How to Value Shares and Outperform the Market’ about?

The book is about how to use my value-investing systems and strategies to achieve successful long-term investment in UK equities. It explains how private investors can manage their own equity funds and avoid the huge destruction of value which the fees of commercial fund management will bring.

At the heart of the book are instructions on how to build two spreadsheets for valuing the FTSE100 and individual UK shares. These systems are based on the ShareMaestro software. The book then provides strategies for using the systems together with the detailed long-term (27 year) track records. For example the book shows how a 20-year old could enjoy a pension 8 times larger through using these strategies than he could get from the median-performing commercial UK equity fund/annuity approach.

Finally, as I want this book to be a one-stop shop for UK equity investors, I have included all the practical information needed to manage your own UKequity fund (e.g. best service-providers, tax breaks, risk controls etc.)

3. Why did you write this book?

I was asked to write this book by Harriman House after they had read an article which I wrote for the Investors Chronicle.

I decided to write about how private investors can manage their own UK equity funds as I strongly believe that they should. My father was a great believer in unit trusts and I inherited quite a few from him. I experienced first hand the dismal performance which most of these commercial funds deliver (the median real return of commercial UK equity funds over the last 10 years has been just 1.2%).

4. Can you tell us a bit about your system for investing in the FTSE 100?

In simplified form, the system calculates the current value of the FTSE100 in 7 steps. It:

  1. Projects the value of the FTSE100 dividend in 5 years time by applying a growth factor to the current dividend.
  2. Calculates the projected FTSE100 dividend yield in 5 years time by reference to the market’s expectations of inflation in 5 years time.
  3. Projects the FTSE100 price in 5 years time from 1 and 2.
  4. Adds the value of reinvested dividends over the 5 years to project a total investment value.
  5. Reduces this investment value by the Risk Premium (to compensate for the greater risk of holding equities than cash.
  6. Discounts 5 for 5 years back to today’s value by using the gross redemption yield for 5-year gilts.
  7. Expresses this current FTSE100 value as a percentage of the current market price. Over 100% is good value, under 100% is poor value. The greater the gap above or below 100%, the greater the extent of over or under-pricing of the market price.

5. What skills do you need to successfully invest in FTSE 100 companies?

  1. Basic numeracy.
  2. Common sense.
  3. Inquisitiveness as to how companies generate profits. If you like Dragon’s Den, this is a good sign.
  4. Emotional detachment –the ability to ditch shares when they become poor value, even if the price is less than you paid.
  5. Discipline to stick to a preferred strategy.

6. With the current Eurozone crisis (November 2011), is now a good time to buy FTSE 100 shares?

The most critical factor in my valuation system is the assumed rate of dividend growth, which heavily depends on earnings growth. From a long-term perspective many FTSE100 share prices offer very good value. However, if the Euro collapses, earnings and dividend growth are likely to be severely impacted, thereby changing the values. With my system, you can easily stress test to see the impact of your worst case scenario on any current share valuation.

7. What is the ShareMaestro software?

The ShareMaestro software includes FTSE100 and share valuation systems similar to the one included in the book. As the software is packaged, it includes a lot of added value features such as indexed databases for the valuations, help buttons on each input and results field etc. Most importantly ShareMaestro subscribers can import a data file which we produce in association with ShareScope. The enables valuations of all the shares in the FTSE100 (and of the FTSE100 itself) to be produced in a matter of seconds. The facility to export bulk valuation runs to Excel means, for example, that all the shares can be ranked from highest to lowest valuation (or vice-versa). More information is available from our website www.sharemaestro.co.uk.

8. Apart from the FTSE 100 what else do you invest in?

Apart from the FTSE100, I invest in:

  • The FTSE250.
  • Individual UK shares.
  • A smaller companies fund (smaller companies have the greatest potential for long-term growth and the smaller companies funds have had the best returns of UK commercial funds over the last decade). To avoid the high fees, I would prefer to invest in a low-cost UK smaller companies ETF but one does not exist!
  • Fixed-interest cash deposits (not gilts, which are due for a crash when interest rates rise).

Wherever possible, I hold my investments in tax-free wrappers (ISAs and a SIPP for my money-purchase pensions). Where not, I use the tax-saving measures which I describe in my book.

9. In this time of economic uncertainty what should people be doing to improve their finances?

Employ a three step plan:

  1. Reduce your annual living costs. I wrote a book in 1992, the Personal Prosperity Plan, about how you can do this. Now sites such as moneysavingexpert.com give all the information you need.
  2. Determine according to your personal circumstances how much money you should set aside for an emergency fund. I would opt for 2 years of living expenses. Put this money in easy-access cash deposits, finding the best rates from moneyfacts.co.uk.
  3. When you have got your emergency fund to the size you need, use the strategies in How to Value… to maximise the value of your long-term savings. If you are risk averse, stick to the medium-risk FTSE100/cash strategy.

10. What other authors do you admire?

Some of the investment books which I like are:

Smarter Stock Picking (David Stevenson). This features a section on ShareMaestro.

Simple but not Easy (Richard Oldfield). Full of common sense and has a great chapter demolishing the myth of hedge funds.

The Naked Trader and The Naked Trader’s guide to Spread-betting (Robbie Burns). Both very readable and very shrewd.

I am about to read The Long and the Short of It by John Kay. I think I will enjoy this as, like me, Kay has highlights the high costs of investing through commercial funds.

Glenn Martin’s book ‘How to Value Shares and Outperform the Market’ is available now on Amazon.


The Naked Trader by Robbie Burns – book review

Thursday, September 3rd, 2009

Robbie Burns quit his job in 2001 to become a full time trader in the stock market. He has proved to be a very successful trader building up a substantial sum in his ISA pension.

In this very light hearted book he explains how he goes about picking the right shares to invest in. He discusses how to understand company finances, how to choose when to buy and when to sell.

He talks about how to identify problems in annual reports by using his traffic light system, and there is a brief introduction to more advanced topics such as using Level 2 and direct market access.

His strategies are suitable for trading over a medium term period of weeks or months rather than shorter time frames.

There are some fun chapter with reader’s letters and a section on big mistakes that traders have made.

The book is written in a very chatty style. In between the ‘meat’ are references to eating toast and having a nap. The style will appeal to people who like the easy to read nature of the ‘dummies’ series of book.

This is a quick read, but it is highly recommended – especially if you are new to trading and want a simple introduction to playing in the stock market.

Trader, investor, gambler – which one are you?

Monday, June 29th, 2009

If you have any sort of involvement in shares, commodities, currency, or derivatives of these, then you will probably fit into one or more of the ‘investor’, ‘gambler’ or ‘trader’ categories. What is the difference between them and where do you fit into these categorisations?

Investor

An investor is someone who buys something in the belief that the value will rise over time. Unlike gambling and trading where bets can be on movements in either direction, an investor will always be betting on the price rising. In the case of buying shares in a company the investor is helping the company out by buying part of the company and hoping to benefit from the company’s success. This is in the form of both the rise in the share price and in the receiving of dividends.

In the case of investing in commodities the investor is buying in the belief that the value will increase in the long term.

Investors will buy the product whole – so if the shares cost £4000 they will pay £4000.

Investing is therefore buying something ‘real’ (i.e. not a derivative), in the belief that in a period of many months to many years the value will rise.

Trader

A trader has a much wider scope in what they do than an investor. They buy or sell (go long or short) in order to profit from the change in value. The trader will have an opinion on the direction that the price will move and will then place a trade based on their opinion.

The trader isn’t restricted to buying or selling shares or commodities. They can also trade in derivatives of these, and in a whole host of other financial products such as foreign exchange (forex), futures and even on thing such as interest rates.

The trader can do business on multiple timeframes. They may be willing to wait many months or years, but they can also have much shorter timeframes. Even down to minutes or seconds.

Unlike the investor who buys shares, the trader isn’t trading for the benefit of the company, the trader does what he/she does purely for his/her benefit.

Whereas the investor will generally pay in full the trader can use leverage to take advantage of movements of much greater value than the trader has. E.g. for share prices a trader may well be borrowing 20 to 50 times the value of the money that is being paid upfront. For foreign currency trading the amount being borrowed can be as high as 1:100 or 1:200.

Gambler

The gambler could be adopting any kind of tactics. The gambler could be buying or selling shares, derivatives or in fact anything he/she can think of.

What sets the gambler apart is the lack of real justification for the decisions that are made. Unlike the trader and investor who should be maintaining a cool head, the gambler is likely to get a big adrenaline rush out of each bet. The gambler is also likely to find it hard to control risk, and find it hard to control how many bets are being placed. Even when confronted with mounting loses, the gambler will still continue.

Which one are you?

Which of these characters best describes you? I hope you are either an investor or a trader. Unfortunately if you are a gambler you may still believe you are one of the other two. In this case I hope you discover the truth before it is too late.