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VC Market in the 80s

stock market collapse

Stock Market Crash

There were many public successes in the venture capital industry as the 70s came to a close and the decade of the 80s began. During the 80s there was a huge increase in the activities and growth of VC investment firms. In the early 80s there were only a few dozen of these firms but by the end of the decade there were over 650. Each of these VC firms was all looking for the next “big deal.” However, even though the firms increased greatly numerically, the capital that was actually managed by the firms only increased by 11%. Over the entire decade, the capital managed by these firms only rose from around $28 billion to $31 billion. Read the rest of this entry

What are the different types of Stocks?

Common Stocks

Common Stocks

The basic difference in stocks and bonds is that bonds are a debt while stocks are part ownership in a company. These are both valid and profitable ways to raise capital for a business. Effi Enterprises offers advice to companies which need to create value. They can help businesses achieve their financial goals and offer them many strategies for financial advancement to expand their marketing potential. There are many options for today’s business owners including stocks and bonds. There are two different types of stock options for investors to choose from.

Common Stocks

Common stocks are the most common and most of the stocks that are issued are common stocks. These stocks actually represent partial ownership in a company and therefore will receive dividends as a result. Those who purchase stocks are investing in the company so that the company can expand and realize profit. Each investor will also get one vote for each share that is purchased. With this vote they will elect board members who will make or oversee all the management’s major decisions.  This type of investment usually offers some of the highest returns over other investment options. Of course this is also associated with more risks as well. If the company is forced to liquidate those who hold common shares will not receive any money until after the creditors including bondholders have been paid.

Preferred Stock

The preferred stock also represents some ownership in a company, but without the same level of voting rights. Investors who purchase preferred shares are typically guaranteed a dividend which is fixed and ongoing. With common stock the dividends are not guaranteed at any time. And should the company be forced into liquidation, the preferred stock owner has a slight advantage over common stocks. They would be paid off after the debt holders, but before the common stockholders in this event. Preferred stock is also “callable.” This means that the company can choose to purchase the shares from the shareholders any time they decide to and for any reason. There are many who think that preferred stocks are more like a debt than equity. One way to classify them is to think of them as sitting between bonds and common shares in a company.

Different Classes of Stocks

Even though common and preferred stocks are the two basic types of stocks, companies always have the option of customizing their particular stocks into any package they feel will be appealing to their stockholders. Usually when stocks are customized it is because the company wants the voting power to be contained within a particular group. This way the company can classify the stocks so that they can manage their voters and still achieve the financial objectives. For instance they can set it up so that one group of stocks allows ten votes per share and another class of stocks only gets one vote per share. Berkshire Hathaway is an example of a business who offers more than one class of stocks. Usually they are assigned terms like Class A stocks and Class B stocks.

Advantages for Stockholders

Even though a person becomes a stockholder in a public company does not automatically mean that they have a large say in the day to day operations of the business. They will have the right to vote to elect a board of directors and thereby have some say in how the business is run. The goal is for it to all work together in the end so that the business benefits and can become more profitable from the investment; and the shareholder can profit from the company’s overall profits as well.

What are Bonds?

Bonds

Bonds

Companies need funds for many reasons such as expansions into new markets. The trouble with larger organizations and emerging companies is that they need more money than what they can obtain from a bank loan. Effi Enterprises works with companies to secure various means of financing such as venture capital, private equity financing, stocks and bonds or IPO’s. One solution that is offered to raise money for these companies is to issue bonds to the public market. Through offering bonds publically, it means that rather than looking for one huge investor, thousands of investors can lend a small portion of needed capital. A bond is essentially a loan in which the company is the lender. The company which sells a bond is called the issuer. It is sort of like an IOU given to a lender (the investor) by a borrower (the issuer).

There is a little more depth to it than a simple loan because most people do not loan out their money without expecting something in return. This means that the issuer must offer the investor something in exchange for the loan of their money. This comes from interest payments the rate of which is predetermined and they are made according to a schedule. The date which the issuer has to finish paying the borrowed amount is referred to as the maturity date. Bonds are classified as a fixed-income security because the amount that an investor will get in return is fixed as long as the bond is held until it matures.

What is the difference between stocks and bonds?

The difference in bonds and stocks is that bonds are a debt but stocks are equity. An investor can become part owner of a company by purchasing stock, or equity. But when an investor purchases debt, or bonds they become a creditor to the company. There is an advantage of becoming a creditor in that they will have a higher claim on assets than a shareholder will and if there was a failure causing a bankruptcy they would receive their money before the shareholders. The disadvantage is that a bondholder does not own shares of the company and it the company realizes large profits they will still only get their fixed amount in return. This means that owning bonds is less risky than owning stocks but there is also a much lower return.

Why purchase bonds?

It is true that stocks can offer a larger return than bonds, especially for time periods of at least 10 years. But that does not mean that investing in bonds is a bad investment. Bonds can be a good investment if you are unsure of the stock market’s short term volatility.

What types of bonds are available?

There are two basic types of bonds: municipal and corporate. Municipal bonds are also called “munis.” The returns on this type of bond will incur no federal taxes. Oftentimes local governments will also make their bonds tax free for residents which make them a completely tax free investment. These can be a great investment for many individuals. Corporations offer bonds in the say way it issues stocks. Sometimes a corporate bond is as short as a 5 year term, intermediate are 5 to 12 years and long term is anything over 12 years. These have a higher yield, but it also has higher risk involved. They are more likely to default than a government; but they can also be one of the most rewarding of all the fixed income investments. The credit quality of the company is also very important. Companies can also offer convertible bonds which can later be converted to stocks. Or they can offer callable bonds which the company can redeem before maturity.

Stock Market Computer Glitches

Computer Glitches

Computer Glitches

Many people depend on the stability of the stock market from day to day. It is understood of course that there are times when it can have greater fluctuations than others. And there are times when the market becomes volatile which can be advantageous to some and a detriment to others depending on the types of trades occurring at the time. But for regular investors such as Effi Enterprises a glitch in the system can be disastrous. Efraim Landa helps business owners organize and maintain investments, offer IPOs, learn about brokers and dealers, and use many other aspects of financial resources to increase the value of their business or company. A glitch can mean real trouble for a business which is trying to achieve valuation. But we must remember that the market is primarily computer based and occasionally there are those times when a glitch will occur. Such was the case on May 6, 2010 when the Flash Crash occurred.

On this date the crisis occurred in a very short time frame of about 5 minutes just before 3 p.m. In this short amount of time the Dow Jones Industrial Average suddenly dropped almost 600 points. It was nick named the “flash crash.” Most blame it on a computer glitch of some sort while others tried to look at several trades which occurred shortly before the crash happened.

This year in May Facebook anticipated very good first day trades but on May 18 their jump into the market with their IPO ended up in chaos. A NASDAQ computer glitch delayed the opening by about 30 minutes which meant that investors were unable to purchase shares in the morning and then sell them later that day. They couldn’t even tell if their orders had gone through. NASDAQ is looking to pay nearly $62 million to different firms who suffered financial harm due to the glitch.

March of this year there was a glitch of some sort which affected at least one market which was trying to offer an IPO. Kansas City based BATS Global Markets, Inc. ended up canceling the IPO because a series of glitches never allowed the stock to open for trade. Later the CEO, Joe Ratterman, resigned as the chairman and offered a public apology.

Even though the specific details of what happened are sketchy, most of them seem to come from issues with the algorithms which keep high frequency trading afloat. These types of trades are conducted at a rate of millions in just nanoseconds. The large volume of stock trading is all computerized this means that the chance of malfunction is relatively high with the biggest problem being that a human cannot stop them before it’s too late and the damage is usually already done.

For investors such as Efraim Landa these glitches can be very detrimental. They rely on the constant working of the market and place automatic orders expecting that their brokers will sell the stocks when they hit a particular price. Kevin Callahan, the spokesman for the Securities and Exchange Commission (SEC) made a statement in which he said that they “are closely monitoring the situation.” He also stated that they were in constant contact with the New York Stock Exchange and various other market participants. Many leading businessmen are asking for better oversight of some of the practices such as high frequency trading which seems to be the culprit leading to these types of glitches.

The most interesting thing about this recent glitch is that it occurred on the same day that the SEC published a rule which was set up to prevent glitches such as the “flash crash” of 2010. The goal of the rule was to establish one consolidated record of all the day’s trades. Many are calling for tighter regulations and closer monitoring to help prevent these glitches from occurring.

How Does the Stock Market Work?

Efraim Landa and investment firms like Effi Enterprises are well acquainted with the workings of the stock market. They work with emerging businesses and help them gain value. One of the greatest steps for a company or a business is when they have become profitable enough to go public and make an Initial Public Offering (IPO) of their stocks. Typically a business idea begins with an entrepreneur who gets started and then outgrows their sources. This is when they look for a venture capitalist such as Efraim Landato help get them with funding options with the hope that there will be a day where they can make an IPO. This is when stocks in the company are available to the public through the stock market.

Stock Market

Stock Market

The stock market can be very confusing and those who are unsure about how it works can stand to lose a lot of money when they first start out. However, it is not as complex as it appears to be. Basically, you have the option of purchasing stocks in a company. Companies make these shares available as a way of funding their business. When someone purchases a company’s stock they do not own part of the company but are providing funds by which the company can grow. The more the company is worth, the more value their stocks become. Stocks are frequently traded back and forth on the “stock market.” There can be a few things that affect the price of stocks.

In one way it is as simple as the law of supply and demand. Stocks are available in a limited number and when there are a lot of people who want to buy stocks in a particular company the price will increase on their stocks. But when there is a decline in the number of buyers who want them, or there are a large number of people who want to sell the ones they have then the price on the stocks decreases. Theoretically the demand for stocks for a particular company will depend on how profitable the company is. However, what the company is expected to do in the future will also factor in to the value of the company’s stocks.

When a company goes public with their stock it is generally a way of increasing revenue. This is generally to be used for some form of expansion. Perhaps the business needs to add a new product or offer more services to their clientele. An IPO can be a way of raising those funds. The public can then invest in the company by purchasing the stocks.

The main goal of an investor is to make money on the stocks that are purchased. They will need to buy stock at a lower price and then when the price on the stocks goes up they will sell it off before it takes a downward turn. This will mean that stock holders will need to pay particular attention to the company’s value and the projected value of the company later on. Many times stock prices will go up before an earnings announcement but then decline if these earnings were much higher than what was generally expected.

A lot of novice investors think that when they purchase stocks they are going to receive from the company’s profits but this is not so. Some very large companies may pay a dividend and this is done a per share basis. But most companies hold on to their profits in order to pay for future growth. There are two schools of thought on this, some investors are interested in the company growing so that the stocks are worth more and others are more interested in investing in companies who are profitable enough to pay dividends. The type of stocks purchased will depend largely on a person’s investment goals.