Catastrophe Bonds (or CAT Bonds) are high-yield, risk-linked securities used to transfer explicitly to the capital markets major catastrophe exposures such as low  probability disastrous losses due to hurricanes and earthquakes.  It has a special condition that states that if the issuer (Insurance or Reinsurance Company) suffers a particular predefined catastrophe loss, then payment of interest and/or repayment of principal is either deferred or completely waived.  These bonds were first introduced as a solution to problems resulting from traditional  insurance market capacity constraints, excessive insurance premia, and insolvency risk  due to catastrophic losses. Catastrophe Bonds or CAT Bonds are complex financial tools which transfer peril specific risks  to the capital markets instead of an insurance company. The peril risk is transferred through a complex system of events which include creation of a special purpose vehicle by a sponsor, modeling event  scenarios by qualified risk management firms, drafting of a bond Continue reading
Investment Ideas
Case Study: The Story of Warren Buffett
Warren Edward Buffett, born August 30, 1930 is a U.S. investor, and philanthropist. He is one of the most eminent investors in chronicle, the basic shareholder and chief executive officer of Berkshire Hathaway and in 2008 was ordered by Forbes as the 2nd most robust person in the world on an approximated net worth of around $62 billion. Buffett is often called the “Oracle of Omaha” or the “Sage of Omaha’ and is noted for his adhesiveness to the value investing philosophy and for his own frugalness in spite of his huge riches. Buffett is also a famed altruist, having engaged to impart 85 percentage of his fate to the Gates cornerstone. He as well assists as a appendage of the board of trustees at Grinnell College. In 1999, Buffett personified described as the greatest money manager of the twentieth century in a survey by the Carson Group, leading Peter Continue reading
Investments when entire Stock Market is Under or Over Valued
Should management proceed with investing in a project with a satisfactory NPV (Net Present Value) if it has sufficient funds to do so, and if (a) the entire stock market is significantly undervalued and may well rise by 25 or 30% over the next year, or (b) the entire stock market is significantly overvalued and may well fall by 25 or 30% over the next year? In case (a), it could be argued that management should postpone the investment for a year, and invest the cash in a general portfolio of shares, realize them after a year, then take up the postponed investment, and use the capital gain either for future investment or a special dividend payment to shareholders. However, most shareholders do not expect or want the company to use their money for speculative share investments since most companies are unlikely to possess the appropriate skills to do so. Continue reading
Role of Financial Statements Analysis in Making Investment Decisions
One of the most important long-term decisions for any business is investment with the aim of making gains in the future. Investment decisions are concerned with the use of funds including buying, holding or selling and each decision could be vital to a firm. A careless decision may result in a long-term loss or even worse, bankruptcy. Therefore, an in-depth understanding and analysis is necessary for a high quality investment decision process. This is also even more critical to investors who invest in stock of company or shareholders. Financial statement analysis is critical in making effective stock investment decisions. By study the balance sheet, income statement, cash flow statement and statement of owners’ equity separately and combined, an analyst might have a good sense of a company’s overall financial picture; therefore, the investment decisions are likely to be reasonable and profitable. Financial Statements Analysis In order to understand the analysis Continue reading
Margin Trading or Buying on Margin
Buying on margin means borrowing money from a broker to purchase stock. Margin trading allows one to buy more stock than normal. To trade on margin an account is required. The margin account is a credit based account. In an account one can avail loan to buy stocks. Marginable securities act as collateral for the loan. Securities traded in the margin account are the marginable securities. Like any other loan there is interest charged on the amount borrowed. One should read the margin agreement and understand its implications. One is required to maintain an equity amount that ranges from 50-90%. This is otherwise called as maintenance margin. There are certain costs included in margin trading. They are trade commissions, and interests charged on margin debt. Interest is calculated daily and debited in the margin account say every 15th of the month. Margin trading offers another avenue to the brokers for Continue reading
Liquid Mutual Fund Schemes
The objective of liquid mutual fund schemes  is to invest in short-term money market instruments of good credit quality. The fund predominantly invests in money market instruments and provides investors the returns that are available on these instruments. The investment portfolio is very liquid, and enables investors to hold their investments for very short horizons of a day or more. The liquid funds are normally open-ended. It provides with the following options/schemes, which are sub-products within the liquid fund. Overnight Option (Growth): This option is meant to be used by investors with very short-term investment horizon and is fully invested in the call money market. Overnight Option (Dividend): This option is meant for investors who have short-term funds to deploy but would like to earn some income on such deployment. The portfolio in this option is invested in short-term floating rate instruments, call markets and in repos. The average maturity Continue reading