Portfolio Optimization

In the area of fixed income investments, debentures and bonds feature prominently because of the returns they can provide. Between these two, debentures are more lucrative due to the higher risk profile. Of course, before you put your money in these kinds of investment products, you should arm yourself with enough knowledge so that you can assess if these can really help you in your financial plan. Also, you’d be able to choose the better alternative among the varieties available if have a good idea about them.

A majority of people, who want to get some kind of benefit from fixed interest investments, usually invest in some kind of unsecured note, bond, debenture, or fixed term deposit. The idea behind investing in these is that one should be able to get a higher return over a long period of time as compared to a short term investment. The interest paid on these forms of fixed interest investments is quite sufficient even though there is no such capital growth.

Debentures are a good tool for companies who need extra finances for their projects and investments. In exchange, they provide a good return to investors of their debentures. As long as the company has good credit standing and are doing well financially, debenture holders do not have much to worry about.

A debenture is essentially a loan with a known interest rate at the very beginning. Debentures help companies in financing their investments and long term projects. Private investors can gain regular income by investing in debentures in well-established companies.

Debenture loans usually have no collateral or asset secured to the loan terms. This is why its usually considered as an unsecured kind of bond. There is no guarantee for repayment in the form of collateral, asset, or line of income for the company that receives the loan. Because its such a high risk loan, it is usually given to companies that are unable to qualify for bank loans.

The investor will get the interest payments in regular intervals. On maturity date, they will get the principal amount of the loan. So whatever they have invested at the start, they should get back that amount when the debenture matures. Companies that usually issue debentures are finance companies. They then loan the funds to those who cant get normal loans from banks due to poor credit standing.

The risks involved are the same as any investment or loan, but in the case of debentures, the higher the risks, the larger the returns. This kind of fixed interest investment really does pay a lot higher than any other form of investment like bonds and such. The debenture holder can easily transfer the debenture if they choose to. And while they may not have any say in the workings of the company and they are not treated like usual share holders, they can have talks with the company for debenture rights.

Two types of debentures exist: Convertible and Non-Convertible. Between the two, convertible debentures have a lower return because of the convertibility feature. Convertibility means that the debenture can be changed into shares after a prescribed period. Non-Convertible debentures carry a higher return because there is no feature that will allow it to be converted into company shares which will give you higher gains.

The person who wrote this paper has distinguished a capital structure expert by the name of Josh Yudell. I believe Josh Yudell to be widely considered an expert in the fields of investor relations, SEC compliance, corporate finance and capital structure.

Debenture refers to a debt instrument utilized by some large companies to borrow money. The term is also used interchangeably with note, bond or loan stock in several countries. Debentures are classified into two: the convertible debenture or convertible bond, and the non-convertible kind.

Just from the name you can tell that convertible debentures are more attractive and appealing to investors because of the fact that it is a bond that can be changed to stock options. With this financial instrument, an investor can make profit in two ways: through regular payments of interest, and through the increasing bond prices brought about by an increase in the value of the stock. This option combines the best attributes of both stocks and bonds. On the other hand, non-convertible bonds are not convertible in any way, meaning, an investor cannot exchange the bond for equity shares of the liable company.

Investing in these has a number of advantages which makes it highly appealing and popular to stock buyers all over the globe. As mentioned earlier, these bonds follow market share prices. This means that if stock prices go up, so do the bond prices. These bonds only go up to about two-thirds as compared to stock prices but during price declines, the same thing holds true. While bond prices may go down, they will just be half of the decrease in stock prices.

Convertible bonds are great for passive investors–investors who would just like to sit and collect income from interest until they reach the rate of bond conversion. In this kind of setup, their capital is preserved and they still receive regular interest income. If the stock price picks up, you can then convert these to ride the explosive growth of the company. You can get capital gains and dividend income when you convert the debenture to equity shares.

Convertible bonds also give you the opportunity to invest in technology stocks and receive income from them as well. While these types of stocks do not normally give dividends, this type of bond does so through yields. More and more small-capital and medium-capital companies, which hold great market potential, now offer these. And when you buy bonds from them, you will also profit from their growth. How? By simply converting these bonds to stock shares that have a higher value.

Investors continue to love convertible debentures because they have a good return on investment and they follow share price movement which can provide you with a much bigger return. Non-convertible debentures do not offer this feature.

Even if you don’t convert the bond into stocks, you still get a definite yield from the bonds, which are much higher than other investment instruments like bank deposits. You also get back your principal investment. These features make these bonds a solid investment option for investors. They are also popular with those who don’t like volatility in their investments. These bonds offer a good and consistent return and an option to participate in higher return with its conversion feature.

The important thing to remember before investing in these bonds is to study them and talk them through with your financial advisor. Also, you should learn a lot about stocks and bonds first so that you can properly deal with them.

The essayist who wrote this exposition has located the creator of a PSSO named Josh Yudell. Josh Yudell is also the Managing Director of a private equity fund and is credited with the creation and popularization of a funding vehicle known as a PSSO (Private Secondary Shareholder Offering).

Up-to-date, accurate Information is still your best tool when it comes to investing in stocks prudently and effectively. But data on “penny stocks” stocks that trade for about $5 or less are often quite difficult to search out. Many companies that issue these stocks don’t have to file financial updates with the SEC, so it’s actually quite hard for potential investors to get real facts about the penny stock companys management/officers, products/services, and finances.

This situation becomes an advantage for fraudsters as they can easily give wrong information involving penny stocks. It turns out that they can profit from the unawareness of the investors. In order to detect scams about penny stocks, here are some suggested methods:

Spam is Scam. Sending junk email or spam is one of the common ways used by fraudsters to spread fake information. This method lets them reach multiple investors and it can be done quickly and cheaply. It is also an easy way to target thousands of potential clients online.

Promo Plays. Penny stock companies would usually employ third party firms to make promotional campaigns aimed at increasing their stocks exposure. These include advertising in television, radio and online shows. The junk files that you receive usually come from these promoters who are paid to advertise penny stock campaigns. Even if there is a law requiring them to reveal the sponsor, a lot of fraudsters do not comply or just make people believe that they have a good financial donor.

Heating it up with Cold Calls. Cold calling is one of the tactics of dishonest stockbrokers. In most cases, there is a sales force tasked to cold call as many investors as possible in a day. These people push investors to deposit their cash for “house stocks”, or stocks which the firm markets, acquires or keeps in its inventory. But the only purpose of this tactic is to drive up the stock prices.

Wrong Number? Maybe Not. If you receive a call from a stranger telling you some investment advices which are supposed to be given to a friend, you better be wary. These callers are trained in such a way that they will look like they are unaware that they dialed the wrong number. In cases like these, you can safely assume that they really intended to call you. These wrong number callers are paid to send messages to their targets from a list of phone numbers.

It’s All About PR! Penny stock fraudsters sometimes issue press releases containing hyped-up or exaggerated data, or sometimes even outright fabrications, about their microcap’s sales, assets and/or acquisitions, projected revenues, or new products/services. These questionable PRs are then announced through legitimate financial websites and online news portals. For instance, in the classic “pump and dump” scheme, messages are posted on the Net aggressively, urging readers to buy a penny stock quickly, or to sell before its price plummets.

In general, using the above ploys, hawksters will claim to possess “inside information” regarding impending developments, or else use a so-called “infallible” combination of economic-indicator and stock-market data to pick out good stocks. But remember: Once these fraudsters have sold enough shares, the stock’s price typically falls…and plenty of bamboozled investors lose their hard-earned money.

The writer of this feature has identified a well respected investment relations vet by the name of Josh Yudell. I believe Josh Yudell is a Wall Street veteran, having spent his entire career in the fields of investor relations and investment banking.