September 29th, 2008 | Investing |
When it comes to investing in good companies, there has been much debate on the top-down and bottom-up approaches. Most fund management companies use the top-down approach and recommend that investors examine the economic and industry outlooks first before deciding on which stocks to purchase.
On the other hand, investment experts like Warren Buffet and Peter Lynch favor the bottom-up approach. They say that macroeconomic forecasts are actually major distractions for investors as the projections might turn out to be wrong. Instead, investors’ efforts should be placed more on detecting the quality of earnings and asset value of the company.
Both approaches have their strengths and weaknesses, but they share a common goal, which is identifying good fundamental companies to invest in.
With the top-down approach, investors study the economic trends and then determine the industries and companies that are likely to benefit the most from them. Say, for instance, the reduction in prices of imported paper will contribute to lower operating costs for media companies and increase their earnings. Investors will then search for more efficient and cheaply priced media companies. On the other hand, negative events like high interest and inflation rates or currency depreciation, can affect a country’s economy and definitely cause stock prices to tumble.
Top-down investors will first look at the entire forest instead of specific trees and try to identify the main market theme ahead of the market in general. They believe that picking individual companies comes second because if the economic conditions are not right for the industry that a company operates in, it will be difficult for the company to generate profits, regardless of how efficient it is. However, such investors may sometimes miss good companies that are still performing well, even in a depressed sector.
Conversely, bottom-up investors conduct extensive research on individual companies. As long as the company’s future prospects look strong, the economic, market or industry cycles are of no concern. In fact, the downturn in the stock market may provide investors with a good margin of safety to buy stocks at depressed levels and ride them up to big gains.
So, bottom-up managers will buy stocks even though the macroeconomic and industry outlooks look uncertain. When the industry may be out of favor and most investors are ignoring the true earnings of companies, bottom-up managers can detect good and well-managed ones selling at prices that are far lower than the intrinsic value.
However, to top-down managers, bottom-up managers may be attempting to catch a ‘falling knife’ (a stock whose price has fallen tremendously in a short period of time) in a down market. Unless bottom-up managers have plenty of bullets to average down on their purchase prices, they may run out of cash if the stock prices continue to lower. Moreover, they may sometimes fail to see the wood for the trees; they may identify certain companies but miss the overall industry trend.
The top-down and bottom-up approaches are two distinct and fundamentally very different approaches to investing. Investors can combine the top-down and bottom-up approaches by applying top-down analysis on asset allocation decisions while using a bottom-up approach to select the individual securities in the portfolio.
September 23rd, 2008 | Accounting |
As their trusted advisor, you need quick and easy access to their data. How do you get the information you need exactly when you need it? Answer: software application hosting.
Application hosting simply means that registered software, like QuickBooks, resides on a third party server, versus individual desktop or laptop machines. Having the software on a third-part server allows for easy access from any computer, at any time. This type of hosting helps business owners keep their accounting software and financial data in an ultra-secure environment where they have 24/7 access and the ability to easily work with their accountant or business advisor.
How does application hosting work? Typically an account sets up their business client files a “data center” where existing files are moved. The data center allows permitted users access to financial data regardless of location, through the Internet immediately. In addition, businesses can view their client’s books in real time and view the same screens without additional software or fees.
Why should accountants consider application hosting? Just some of the are :
1. A reduction in overhead expenses
2. Freeing up of resources
3. Improved efficiency
4. A reduction in operating costs
5. Greater service to your clients
6. Reliability and state of the art security
7. The ability to work from anywhere
8. Easy administration–no more moving or emailing files and ZIP folders
9. Most importantly greater client satisfaction therefore increased profits.
Deciding to use an application hosting service can provide firms both a strong competitive advantage and operational efficiencies.
September 21st, 2008 | Tax |
Tax time and comprehending our deductions can be an overwhelming task for some, especially non-accountants and non-tax attorneys. We are torn between taking the standard deductions or itemizing them. Let us tackle item per item the definition of each, examples of deductions, requirements, and advantages of claiming them. When the water gets unclear, you can always consult an accountant for more detailed IRS assistance.
Tax deductions are expenses that have been incurred by the taxpayer for many reasons or purposes. This deduction is effected on the gross income. As a result, the taxable income is cut down, requiring less money for taxes. Let us take a gross income of $100,000 as an example. The deductions mean less tax because your taxable income is significantly lowered.
The two kinds of deductions are standardized and itemized deduction. A standard deduction is dependent on your civil status: single, married, head of household, and is a fixed dollar amount deducted from your gross income. An itemized deduction, which will be the central theme of this write-up, is a corresponding amount for certain expenses incurred. Asking for IRS or professional assistance will surely be of great help if you are in doubt as to which type of deduction you can claim.
Tax credits, which are different from deductions are also available. You can get them from certain expenses such as having children, adopting children, paying college tuition for your children, earned income tax credit, energy efficiency. The IRS online system and tax forms can provide you the criteria for evaluating your qualifications for certain tax credits. Credits are different from deductions in a way that the former are taken from the total taxable income, not the gross income.
Outlined hereafter are some of the common tax deductions:
Fees for professional and business-related associations Job-hunting costs Fees for job agencies Professional books and magazines Union fees Work clothes or uniforms Expenses for the house and office Legal fees to collect taxable income, such as alimony Tax preparation and advice charges Costs Incurred from moving to a new job Fees for IRS set-up and administration Other legal fees Donations to charitable institutions Business liability insurance premiums Tuition fees for job-related classes
Always ask for IRS assistance in computing for your taxes so you do not overpay. On the contrary, a number of supplementary references are available should you decideto do the itemization on your own.How do you avail of these deductions? If you are doing your taxes on paper, then the instruction booklet will have notes that will help you determine if you qualify for these deductions. If you go online, the system will guide you through the process. In addition, a professional will be able to tell you which deductions you can claim for. The list of miscellaneous deductions is available online for more assistance on taxes.
Increasing the amount for refund or reducing the amount of taxes due are lawfully addressed through tax deductions. To make sure you are claiming all the deductions to which you are entitled to – or not wrongfully claiming for deductions- IRS assistance or professional help is always helpful. Otherwise, take time to conscientiously go over the instructions in your booklet. Several taxpayers in reality, pay too much, so be sure you know what you can and cannot use as deductions.