Investors' Education

Careful research is extremely important when evaluating any investment. One of the requirements the SEC has for Equity Funding Portals is the continuous education of our Investors.

Therefore, these pages are dedicated for reprints of educational materials and articles relating to "Equity Crowdfunding" by industry legends and professionals.

Crowdfunded IPO-s

Traditional IPO-s (Initial Public Offerings) are extremely expensive and are offered to the public, mostly to institutional investors through one or more underwriters. To give an opportunity to individual investors to participate, Crowdfunded IPO-s are offered direct by the Issuer through Securities and Exchange Commission approved intermediaries called: Funding Portals like this website to facilitate the transactions. All buying and selling are between Issuer and Investors or their Brokers or Agents.

Funding Portals are not permitted to buy, sell or solicit to buy or purchase shares in the companies they display on their website.

Funding Portals Owners, Directors and Officers must go through extensive financial and criminal background checks by the FBI and the Department of Justice and required to be a member in good standing of FINRA, who supervises all Stockbrokers in the United States of America.

Investing vs. Speculation

At first we might think the answer is simple because the distinction seams obvious. After all, that subject was first debated in a 1688 book: Confusion of Confusions. Then since the Dutch shipping firm Vereenigde Oost-Indische became the first company to trade its shares on the Amsterdam Stock Exchange 400 years ago, investors and speculators have coexisted in the marketplace. There is one thing appears to have held constant, and that is that human behavior (psychology) hasn't changed appreciably over hundreds of years.

Philip Carret in 1930 believed "motive" was the best test for determining the difference. "The man who bought United States Steel at $60 in 1915 in anticipation of selling at a profit is a speculator" he wrote. On the other hand, "the gentleman who bought American Telephone at $95 in 1921 to enjoy the dividend return of better than 8% is an investor"

Benjamin Graham, defined it as: "An investment operation is one which, upon through analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

John Maynard Keynes got right to the point, deciding to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term investment for the activity of forecasting the prospective yield of assets over their whole life. Fortunately, crowdfunded IPO shares are less volatile than shares traded on the Big Boards, they are not going up or down with headline news. Therefore a great choice for long term investment.

Carret concurred, writing: "The time requisite for the accomplishment of the adjustment of prices to values is a factor of great weight to the speculator." Here he parts company with the investor, "to whom it is of little concerns."

An investor is one who seeks dividend returns from the underlying asset itself, and puts less emphasize and expectation on price appreciation. A speculator on the other hand seek returns exclusively from pure price appreciation, exploiting the market's volatility. A speculator doesn't care about the underlying value of the company, but only for the demand of buyers and sellers in the stock.

Some speculation is necessary and unavoidable. Investing contains a component of speculating, and speculating contains a component of investing. The distinction between investment and speculation in common stocks has always been a useful one, and its disappearance would be a cause for concern. Today speculators are talented researchers who work aggressively to close the price-value gap. They looking for hidden weak spots in the market, seeking always to bring market prices into line with investment values.

To capture the essence, speculation is when buying a stock with the hope that you will trade it as soon as you can realize a favorable price, while investing would imply a willingness to own that stock for an extended period of time without worrying much about its temporary volatility (price fluctuation) but relying only on its dividend paying capacity.

It also has a lot to do how much work you have put into analyzing and to understand the underlying (intrinsic) value of that stock, and especially, to see if the offer fits your investment objectives. Although, reputable equity funding portals and the SEC already done some of the work for you, it is highly recommended to do your own due diligence on the Issuers and on the valuation of the offering before you invest your retirement nest eggs.

Berkshire Hathaway's Warren Buffett is not concerned about the stock's volatility, he buys shares of companies with solid economic fundamentals, which regularly pay dividends during both, good and bad economic times. (he refers to it as: "cockroach mentality". A cockroach can adapt, and able to survive in the worst conditions)

Which crowdfunded IPO should you invest in?

Due diligence start with analyzing the company's fundamentals for the long term. Study the financial statements, management, competitors, prospects for growth and other factors to determine the stock's value and the health of the business. It's important to determine how it stacks up to its peers and industry benchmarks. These are just a few of the many metrics you might want to consider. With this approach you identify first a sector of the market that appears ripe for appreciation or growth.

Growth factors: starting with the company's historical growth rate and projected future growth rate. Consistent earnings growth considered to be the primary driver of a stock's price over the long run. Projected growth looks at the rate at which a company is expected to increase its earnings. Whether the company is beating or missing earnings estimates, and by what margin, can provide insight into the health of the business.

Free Cashflow tells you how much money the company generates after subtracting the capital expenditures required to grow the business. A company with strong free cashflow can develop new products, make acquisitions and service its debt more easily than a company with weak cashflow. Established companies instead of using all of their cash to reinvest for growth, will return excess capital to shareholders in the form of dividends, share buybacks or retirement of debt. (share buybacks makes all other outstanding shares more valuable)

For new technology companies, you might also want to consider traction; the number of subscribers, potential users, or returning customers, beside the competition and how well the company adapts to changing trends. Keep in mind, these new companies' sales and earnings are starting out with a relatively low base. But a high rate of revenue growth may justify a higher stock price valuation, practically if the company has a competitive advantage in its market.

Value factors: one of the most important consideration for investors is whether a company's asking price accurately reflects the true value of the business. One way to asses it is to compare it to its peers. Other one is to look at the growth of their sales, which should be in an upward trajectory to considered investment worthy. Conservative investors, those approaching their financial goals are more risk averse and may pay closer attention to the stocks current valuation, and dividend paying ability.

Understanding fundamental analysis can help identify potentially profitable opportunities with crowdfunded IPO-s.

Timing the Market

When it's a good time to get in and out of the market, especially when the markets are volatile or the bull market is extending for a longer period, are on every investors' mind. It's very unlikely that anybody could predict the market's ups and downs with some degree of consistency over decades, because the biggest gains tend to be randomly concentrated in just a few days. For example, in 2014 the S&P 500 index delivered a 13.6 % return, but missing only 10 days would result in a 3% loss for the year. More important is to factor in your personal risk tolerance.

Therefore, to keep the big picture and your long term goals in mind, and balancing the risk against your desired outcome are the most important in managing your portfolio.

Business and Financial Risks

Evaluating the business and financial risks of a corporation involves examining the Business Model and the Management Team of the Corporation. Successful investors "bet on the jockey and less on the horse"! For each Offering there are direct links to the Management Team of the Corporation, link to the Financials (past and current performance) and to the Business Plan (for the future planned activities and the use of proceeds from this IPO). To make a wise decision those should be carefully analyzed and researched. Investors are encouraged to call the members of the Management Team should they have any unanswered questions, prior to investing in that company.

Quantitative Stock Figures

Quantitative analysis reveals the driving force behind the company's financial numbers, the income statement, balance sheet, and cashflow statement. Included is a summary of assets, liabilities, shareholders, equity, and the uses of cash. These figures are a good starting point, but it is important to remember that financial statements and ratios do not always tell the full story.

Understanding the breadth of a company's product lines and customer base can help better assess its strengths, potential, and weaknesses. Quantitative assessment of the figures enables investors to better judge the company as a whole. It provides an understanding of the driving force behind the numbers and allows for a clearer judgement of a firm's prospects going forward.

Other useful resources include the company earnings reports and conference calls with analysts, if any. Annual reports can usually be found on the company's website.

Measuring Value with Price-to-Book ratio

Some investors may be familiar with price-to-earning (P/E) ratio, the measure of a stock price compared to its per share earnings. Less well known are price-to-book (P/B) ratios, which measure a stock's price compared to the company's book value (total assets minus intangible assets and liabilities).

Intangible assets is: "an identifiable non-monetary resource, from which current and future economic benefits are expected" This could be a patent, a brand or goodwill etc.

A low P/B ratio, typically less than 1, could indicate that a stock is undervalued and merits investment consideration. Value investors who hunt for stocks trading below their intrinsic worth tend to favor low P/B ratios to help them identify attractive investments. Others use P/B ratios to help determine how much the stock could fetch if the company were acquired, or what could potentially be left if the company went bankrupt.

As with any ratios, investors shouldn't consider P/B ratios by themselves. One reason is that P/B ratios tend be more informative about companies with a lot of hard assets on their books. The ratio could be less telling for companies with significant non-physical assets, such as intellectual property and brands, which don't show up as can tangible assets. High debt levels can also distort a P/B ratio, as can recent acquisitions.

Bottom line is: P/B ratios can be helpful in determining whether a stock is attractively valued, but don't rely on this ratio alone when deciding if a stock is worth of investment.

Historic Stock Market Valuation Measured by CAPE

The basic idea about CAPE is that it measures the value relative to fundamentals. Earnings is one of the best measure of the price of a stock. However, last year's earnings is too short of a period because earnings are volatile and they jump around.

Business cycles affects earnings. In a recession, earnings tend to be low. Therefore, we should not overreact to short-term fluctuations in earnings.

CAPE stands for Cyclical Adjusted Price-Earnings ratio. It averages the earnings over a longer interval, usually 5 to 10 years. CAPE does not predict what the earnings will be the next year very well. It is for long term investments. But, it does predict the next 5 to 10 year period. For long term investors, it makes sense to follow CAPE as an indicator of value.

Value and Momentum

For value investors, the "sweet spot" in investing is being able to buy an undervalued stock right before its value recognized by the market and just before its price begins to take off. Many investors often base their investment decision on whether a stock is overvalued or undervalued or whether it has excellent competitive advantages or other qualitative measures.

Investors who focus only on value, growth or competitive advantage analysis may not be using everything in their tool kit to maximise returns. For long time "value investing" and "growth investing" were mistakenly viewed as separate and incompatible styles of investing. Legendary investor Warren Buffett debunked this myth when he said:

"growth and value investing are joined at the hip. Value is the discounted present value of an investment's future cash flow. Growth is simply a calculation used to determine value".

Modern portfolio theory indicates that when you combine assets that are not perfectly correlated or move in opposite directions, both portfolio volatility and overall risk are reduced. An investor can garner significant benefits of diversification by combining the best elements of value and momentum strategies. Value (momentum) in one asset class is positively correlated with value (momentum) in other asset classes, and value and momentum are negatively correlated within and cross asset classes. University of Chicago published the following report in October 2012 :

"generally a value investor can expect to outperform the market by about 3% to 4% a year, while a momentum investor is likely to outperform the market by about 4% to 5% per year. Combining value and momentum strategies outperforms the market on average by 5% per year"

This may not look like much of an advantage over using either value or momentum alone, but portfolio volatility is reduced by about 50%.

During the technology boom of the mid 90-s momentum investors produced much better returns than value investors who stayed away from technology stocks. But when the technology stocks crashed and burned, value investors generated better returns because they were invested in a completely different group of stocks. A strategy that combines value and momentum in a situation like this would have allowed an investor to profit from these market extremes without being exposed to the probability of a major loss!

Riding the Inflation

The great depression proved once again that conserving cash wisely not only helps a business survive difficult times, it can position a company to thrive once things turned around and moderate inflation begins.

A little inflation is good for the "bottom line". Equities (stocks) have long been viewed as a good hedge against inflation because of their record of delivering mostly higher real returns. But rising prices after depression come in distinct stages.

STAGE I: As the economy improves, consumers and businesses start spending again. That pushes prices up ! Earnings improve not just from the revenue growth but also as the results of the previous cost cutting. Inflation of about 1% to 2% where things are today, isn't a threat and can be a tailwind for stocks.

STAGE II: Once inflation grows faster than 3%, profits get pinched as business begin to feel the effects of rising labor and material costs. This is generally bad news for the market, and investors focus on companies and sectors that can pass along rising costs to the consumers.

STAGE III: Mostly bad news. Those years where inflation topped 4%, such as 1973, 1974 and 1977 often see losses for stocks. Even in positive years, they may not keep up with the higher cost of living. But then that's exactly when you want to be a buyer. Markets overreacted to inflationary gloom. Periods of 4% plus price hikes coincided with P/E-s sinking below 14. But over the next 10 years, stocks gained 9% annually ... and that's after allowing for inflation!

Posted August 2013

Identifying Attractive Growth Stocks

Althrough the market does an excellent job for the long run, but high price to book value companies do not perform well as a group in the short term. It can over-react for hype, trend or glamour.

In the bull market, most companies shares sells at or above book value per share. During the last bear market of 2009, the median price to book value was 0.82.

After completing the usual due diligence on the issue, it is highly recommended to do some additional analysis on the issuer's finances. The following is a useful checklist for investors examining an issue's growth potential.

(Stocks with strong growth fundamentals has a better
chance of expanding and to beat their earnings forecast).

To help separate the winners from the loser among stocks trading with high price-to-book value ratio, we need to consider the following:

(Price-to-book value is arrived by dividing market price
per share by book value per share).

  • a, Stability of the earnings may help to distinguish between firms with solid prospect and firms that are over valued because of hype.
  • b, For startups cashflow is more important than earnings, to finance growth.
  • c, Try to avoid firms making accounting adjustments to boost earnings for the short term which may weaken long term profitability.
  • d, Considering growth stability of sales, rather than earnings. Sales are less subject to accounting adjustments than sales.
  • e, Unusual (compared to the sectors average) intensity of advertising for mature companies may suggest a need for a second, closer look.

Profitability indicators:

  • 1, Return on assets above the industry (sector) average. High ratio indicates that the assets are productive and well managed. (Return on asset (ROA) as net income before extra ordinary items, for the fiscal year ended, divided by total assets at the beginning of that same fiscal year)
  • 2, Ratio of cashflow from operations to assets is above the sector median. Positive cashflow from operations indicates that a firm was able to generate enough cash to continue its growth without the need for additional funds. A negative cashflow suggest that additional cash infusion may be needed to finance its operation or growth.
  • 3, Cashflow from operations exceeds income. This is the final profitability variable between earnings and cashflow. A company is more desirable when cashflow exceeds net income.

Investing in Turnarounds

One of the favored asset class of the Contrarian Value Investors is companies in transition for a turnaround. Those having once high flier stocks, which now are depressed and trading in low volume, but still have most of their core values and customer base intact.

Getting turnaround right is difficult and challenging . It requires new upper management, mostly a well qualified CEO or at least assistance from an outside top consulting firm dealing with Fortune 1000 companies. Deep cuts in operating expenses, selling assets to pay off debts, reducing inventories and re-examining product mix or adding and improving new products or services and outsourcing, are some of the options. However changing management's compensation from salaried to performance based is mandatory to regain investor's confidence.

To identify potential investment grade turnaround companies with undervalued shares takes months of careful study and analysis but a rewards of 2 to 300 % gain are not unusual. When once again the now Lean & Mean company's core business becomes healthy, debt has been re-structured, gross margins improving, order books are filling, then and only then the company's stock worth considering. Usually it takes the market 6 to 8 months to realize the success of a turnaround since the new leadership hesitates to talk to Wall Street analyst to early in the game. Therefore Contrarian Value Investors have time to beat the market by grabbing some of those still depressed shares in advance.

Keep in mind that not all turnarounds are successful, and there are the same risk factors as with any other investment. Therefore if one sees evidence of positive improvement in Balance Sheet, confidence in the the new management, investors are encouraged to ask questions from management or talk to suppliers, competitors or even users of their product or services before jumping in and investing in any turnaround company.

TENCENT buying into

Tencent Holding Ltd., China's largest Technology firm best known for its QQ, WeiXin and WeChat messaging platforms has purchased a 19.9% stake in, Inc., dubbed as the �Craigslist of China�, for $ 736 million USD. will use most of the proceeds to buy back its shares from pre-IPO holders with a large premium, creating a Bonanza for early investors. The partnership will leverage their combined strength and the share buy-back by itself will increase the price of the remaining outstanding shares.

Reported by Reuters on 6-27-2014

IN AN UNRELATED event earlier this year, Takayama, Japan microbrewer, Sauro Setsuda in just 18 hrs time raised 4 million Yen through equity crowdfunding for a new bottling equipment to double his production output. Now once a month he is enjoying sampling his beer with his new shareholders.

Identifying Major Trends

Identifying major trends is crucial for ensuring a company's success. Leading innovation consultants reveal how to tell the difference so you can find the next big thing to invest in.

Don't place your bets on things that are merely popular, lookfor something with lasting potential.
3D television was a fad, it was not something the consumer wanted. Contrast that with smart phones which has changed the way we do business, and entertain ourselves.

You need to hedge your bets.
Don't look to spot the next big thing. Look for the next big things. That way you can insulate yourself from the fads that inevitably fall by the wayside.

Source of Retirement Income

Dividend-paying small cap stocks can be a potential source of income and returns. They can offer a relatively regular source of cash-flow, which resonate with retirees who often rely on recurring income sources to help pay their bills. They offer value even at times of economic uncertainty.
When The Russell 2000 Index, a proxy for small-cap stocks, returned 4.4% during the first quarter of 2015, the Dow-Jones Industrial Average (for large caps) fell 0.3%! The difference is noteworthy. In that case the rising dollar did hurt the earnings of larger companies doing business overseas.

Historically crowdfunded IPO stocks still provide income and stability, while other income focused Big Board stocks tumbling. They don't go up or down with Headline News.
But not all dividend-paying stocks are the same, and just like any other stocks, are not without risk. You want your stock to have a strong balance sheet behind it, or at least a great upside potential.
A number of factors affect a company's value and dividend-paying ability. If a start-up slow growing and debt laden, those will put pressure on their ability to pay dividend. Therefore it is important to do the research, beware of hype, and pay attention to the company's fundamentals.

However, waiting for the right time to invest, could be costly. For most people, building wealth is a long-term endeavor. It's the product of disciplined saving and investing, and the length of time allowed to grow (as opposed to timing). Trying to "time" the market can cause you to miss the biggest market gains. The length of time to grow is one of the most important element toward your future financial security.
If you are not comfortable investing large lump sums, you should make smaller, more-frequent investments.
Investing takes perspective and discipline. But the cost of sitting on the sideline can be catastrophic.

Retirement Planning Myths

Optimistic expectations could put your retirement at risk. Many working-age people haven't bothered to think about their retirement savings at all, much less to calculate how much they will need to save, in order to maintain their lifestyle after retirement or an unfortunate event in the family.

  • a, Could keep working.
    Although people are living longer now, but with the constant automation, downsizing, and outsourcing to overseas, it may not always be possible. Then with advancing age, health problems are always an issue.
  • b, You will need 70% of your current income.
    Unless you save 20% of your paycheck starting in your 30s, chances are you will not reach your financial independence by retirement. Most of us has mortgage and long-term health care insurance to pay, beside the everyday expenses. Then we might want to spend more time with our grandchildren or other family members. (they all will need your help!) Therefore, as with any general rule, there are plenty of exceptions.
  • c, You'll be in lower tax bracket.
    Two things are sure: death and taxes, and taxes will not be much lower after retirement, unless you are at the poverty level. Even for married couples filing jointly, the social security income up to 85% may be taxable. Therefore, it is safer to assume that you will remain in the same tax bracket.
  • d, The stock market will save the day.
    The recent 2008 market decline should convince anyone that that's not a reliable assumption. Whatever is your risk tolerance, you should be planning on a high single digit return by large-cap companies or something between 10% and 15% by crowdfunded IPO shares for the "less volatile" investment choices of your portfolio. (should consult your financial adviser)
  • e, There is always that Social Security.
    The Social Security Administration projects that the current system will remain sound through 2036, but after benefits could be reduced by 22%. Regardless, it covers only a small part of your retirement expenses if you planning to keep your lifestyle after retirement.

Picking a Financial Advisor

The best start is with a recommendation, but you are solely responsible to evaulate your advisor. Don't be afraid to ask questions if he/she will personally handle your account. Many will hand your account off to a junior associate, to a "green horn".

You need someone who has the experience, time, and energy to keep your financial interest in mind - not on the "back burner". You should quiz the advisor on background, education, years in practice, and number of clients he/she has.

One of the most important question you can ask is how the advisor will be paid and what specific services will you receive for it. It could be "fee only" or "fee based". These are not the same!

"Fee based" means a fee plus commission. The commissions are paid to the advisor by the investment provider, not you. However, that arrangement may be could keep you wondering if the advisor always keeps your best interest in mind. But, on the other hand, fee and commission based arrangements could keep your fees lower. Also, you should be aware what services will be outsourced, if any, and who is paying for it.

Keep in mind a minimum asset level might be required before an advisor signs you up. Those that don't meet the criteria may be charged by the hour or charged a flat fee, just like how your CPA or Doctor is charging. Either way, it is strongly recommended to consult an investment advisor who is familiar with your investment objectives and your tolerance for risk before jumping into any investing.

Get Involved

Whether you plan to build your own Portfolio or have it professionally managed, get involved to get the most of it.

It helps to start with a close look what would it take to turn your savings into income for retirement. Technology stocks valuation looks very attractive these days. They are under valued and are the cheapest of any S&P 500-s Sectors. Therefore investors should have some exposure to the Technology Sector.

Frequent breakthroughs are in transportation, healthcare, energy, robotics, consumer products, communications and manufacturing. These innovations are presenting new opportunities for investors looking for better returns on their investment.

Those Technology Companies that survived the Bubble of 2000 have now experienced management, solid Balance Sheet and most are flush with cash. They also have the lowest debt percentage of any S&P 500-s Sector and have the most liquidity.

Based on historical levels and compared to the market, Tech seams way undervalued. The current P/E ratio of the Tech Sector is now at 11.7 times anticipated earnings over the next 12 months, compared to the 15 years average of 23.1 times earnings.

Posted July 2013

If you fall into money, invest it!

A poor person sees an opportunity
to spend more money.

A wealthy person sees that same opportunity
to put that money to work!

Further Reading

You can find more educational materials
on Schwab & Company's website: