You may have heard recently about Coca Cola’s stocks splitting. But what does that really mean? Is it a good or bad thing? Why do stocks split in the first place? Let’s dive in to the matter.

April 2012 – Coca Cola announced it was going to split its stock 2 for 1. This means if you own 100 shares, you are going to have 200 now. At the time they announced the split in April, the stock was trading at $78. Therefore if you owned 100 shares you were worth $7,800. In August 2012, the stock became $39 but if you previously owned 100 shares, you now own 200 shares. You’re still worth $7800. So why split a company’s stock? Most stock splits occur when companies feel positive about their future. Companies split their stock when they feel the price is too high and is keeping investors from buying their stock. In Coca Cola’s case the stock was $78/share at the announcement and will trade around $39 at the date of split. They also may have looked at stocks that are similar to them in the S&P 500. At the time of the split announcement the average price of a stock in the S&P was $56/shr. Coke was almost 40% higher than other stocks similar to them.

Some history: In 1919 - Cocoa Cola came out in its IPO at $40/share. This is the 10th split since 1919. If you have held the stock since then and reinvested all dividends and received all the stock splits your $40 stock would be worth $10,000,000.   Not a bad long term investment.

Be careful if you hear about a reverse stock split. Stock trading at $1/share and you own 100 shares. The company announces a 1:10 reverse split. You now own 10 shares at a price of $10/shr. As you can see in this example and most reverse splits they are done on low priced stocks. Investors look unfavorable on low priced stocks, sometimes called penny stocks, because of increased risk either real or perceived. Also many mutual funds and large pension funds can not invest in stocks priced less than $5/shr.

Stock splits usually are a positive but results still reflect a company’s earnings now and in the future. Stock splits should not be the only reason to invest in a particular company but it could be positive among other positives. Reverse stock splits are usually a sign of negatives, but again it should be part of your research.

 Give your advisor a call when you hear about a stock split to get details about the split and the possible   positives or negatives. For more on stock splits or any financial advice visit www.dlgwealthmanagement.com or call 518 348-0060.

                                                                                   

Today many investors are very worried about the stock market. The volatility in the equity markets has made many investors draw out money from equity funds and put the money in bond funds at a record pace.

When you invest in bonds you are lending your dollar. Lending your dollar means to give your dollar to an entity that will pay you interest on your dollar for a specific length of time. The basic concept that bond investors must understand is how bonds fluctuate in value. When interest rates go up the value of bonds you hold goes down & when interest rates go down the bonds you hold go up in value. Today, interest rates are being kept at very low levels by the Federal Reserve policies. There will come a time when the Federal Reserve will not be able to hold interest down. They are sitting on a very tightly coiled spring (interest rates), when the Fed starts to release this coiled spring rates will rise very fast causing large losses in bond portfolios.

Investors should make sure portfolios are not over weighted in bonds. Not sure about your portfolio? Be sure to bring this up with your investment advisor. For more information on investing in bonds, portfolio management or for other financial advice, speak with an investment advisor at DLG Wealth Management today, located in Albany, Saratoga or Utica NY.



For more Money Monday segments, visit DLG Wealth Management's News page.

Managing Director, Andy Guzzetti breaks down the numbers of JPMorgan’s $2 billion loss

JPMorgan lost $2 billion dollars on its London trading desk when a derivative hedge blew up. CEO Jamie Dimon had to announce the loss before the trade was unwound, this could cause the loss to go as high as $4 billion. The pro “increase regulations” crowd, has jumped on with both feet. Instead of allowing the markets to punish JPM and its poor handling of risk, the political positioning has begun. Congressional investigation, DOJ probe into possible criminal charges and the public outcry for additional regulations all because a publicly traded U.S. company lost money. We must understand that JPM lost money on this trading desk, approx. $2 billion, the company did not lose money for the 1st quarter and will report approx. $15 billion of profit for the year. $2 billion is a lot of money but JPM is a well run company that can handle that loss and still make money for its shareholders. A very important point to make is that JPMorgan will not need a government bailout. It’s just a loss they do not want to take and one that shows they did not handle risk very well.

POLITICS
The index JPMorgan lost money on was the CDX.NA.IG.9 Index. This index is made up of 125 company’s credit default swaps. This is a very intricate investment vehicle that is used to hedge bank positions. CEO, Jamie Dimon has been an advocate of getting rid of regulations and fighting with the administration about the DODD FRANK LAW and its Volcker Rule. The Volcker Rule is a rule that would prohibit banks from using their own capital to make bets on the direction of the market. This proposed rule states that commercial banks cannot proprietary trade (they can’t trade to make money, they can trade to hedge. In other words, to hedge some of the risk in their other investments).

The 2008 financial crisis began with investment banks and insurance companies, not commercial banks. In 2008 there were hundreds of billions of mortgage related securities which were rated AAA by rating agencies that should have rated them as junk. To equate JPM loss to the 2008 crisis is crazy. Proprietary trading in the banking industry did not lead to the 2008 crisis and has never led to any other financial crisis. Let the markets punish banks for poor risk management. Additional regulation is not needed.

What Are Exchange Traded Funds?

Andy Guzzetti, Managing Director of DLG Wealth Management firm near Saratoga Springs, NY, breaks down what you should know about Exchange Traded Funds.

Exchange Traded Funds began in 1993. They are mutual funds that trade on the NYSE or the NASDAQ. They track a specific index in stocks, bonds, commodities, etc. They can also track a sector. If you want to invest in utilities, instead of buying a group of utilities, you can buy an Exchange Traded Fund that indexes that utility.

Exchange Traded Funds are a nice way to make your bet without buying a lot of stocks. They are low cost and have minimal management fees. For more information on Exchange Traded Funds, Asset Allocation, Portfolio Management or other financial advice, contact DLG Wealth Management. Watch the entire WXXA Fox 23 News Money Monday segment about Exchange Traded Funds below:

Investment Advisors at DLG Wealth Management Discuss the Basics of Investing in Bonds

There is no question that the volatility in the equity markets has many investors worried about the stock market and drawing out money from equity funds and putting the money in bond funds at a record pace. With the state of the market, it is important to discuss the basics of investing in Bonds and the reasons why investors should be careful about being in bonds.

When you invest in bonds you are lending your dollar. Lending your dollar means to give your dollar to an entity that will pay you interest on your dollar for a specific length of time.  What are some common ways of lending your dollar?

•    The most common way is to lend your money to a bank by opening a savings account. The bank will pay you interest on your money in return, as long as the money stays in the account.
•    Certificates of Deposits or CD’s pay a higher rate of interest because you tie up your dollar for a specific time (typically 1 month to 5yrs).
•    You can lend to the U.S Government (Treasuries). The government will pay you an interest rate depending on the maturity. The longer you go out the higher the rate of interest.
•    Corporate Bonds – let you lend your dollar to a corporation (IBM, APPLE). You will receive a fixed interest payment usually paid every 6 months for a specific amount of time. These corporate bonds usually pay higher interest rates than the bank but do have more risk. The longer the maturity is the higher the rate of interest. The higher the risk (can the corporation make its interest payments and pay the bond back at maturity) the higher the interest rate. All of the above examples of lending are taxable.
•    Municipal Bonds are issued by states, state agencies & local governments. The interest is federal tax free and can be state tax free if you lend within the state you reside.

All these lending vehicles can be done within a mutual fund that can specialize in all or certain areas listed above. By investing in a mutual fund you can diversify your lending which can lessen risk. This lending is known as “fixed income” investing.


It is important to understand that bonds fluctuate in value. When interest rates go up, the value of bonds you hold go down. When interest rates go down, the bonds you hold go up in value. Today interest rates are being kept at very low levels by the Federal Reserve policies. There will come a time when the Fed will not be able to hold interest down. They are sitting on a very tightly coiled spring (interest rates), when the Fed starts to release this coiled spring, rates will rise very fast causing large losses in bond portfolios. Investors should make sure portfolios are not over weighted in bonds. If you have a question about your portfolio, make sure to contact your advisor. For more information, contact us.