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Archive for May, 2012

What is Public Liability Insurance?

Public liability insurance for the moment is not a compulsory level of coverage for businesses though there is currently a great debate raging regarding whether it should be mandatory or not. However, many businesses they are finding that customers are taking their business elsewhere if they do not have this level of coverage.

So what exactly is public liability insurance? To put it very simply, public liability insurance offers businesses protection against their liability for causing accidental bodily injury to third persons, and also against damage to a third party’s property while you undertake your business activities.

Say you are a plumber, and you are called in to fix a leak. If you accidentally knock something over and damage it, you are covered. Or if you a builder and the client comes on to the construction site and something falls on them, you are covered.

Public liability insurance covers businesses if the third party is on the business premises or if you are on the third party’s property, it is especially important to take out public liability insurance if you work on customer’s sites. If you do all your business by phone or email – for example you are an accountant or IT consultant – it is less important for you to take out public liability insurance as you won’t enter your client’s homes and they are less likely to come to your office.

It is important to note that public liability insurance does not cover any damages awarded as a result of your negligence, so if this is the case you would have to pay the damages and both sets of legal fees. However, if it is not found to be a result of your negligence then the public liability insurance policy would cover the cost of the damages, your legal fees and the claimant’s legal fees.

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2 comments - What do you think?  Posted by Cash Flow Mantra - May 31, 2012 at 9:19 am

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One Year of Cash Flow Mantra

One year ago on May 26, 2011, I published the first post on Cash Flow Mantra and got 4 visitors (I bet 3 of them were me).  I wasn’t sure that I knew what I was doing at the time and am not so sure that I know what I am doing now, but at least I continue to try.  I would like to take a quick look back at this past year, and then look ahead to the next one.

First Year Stats:

Number of Posts:  156

Visits:  19,768

Page Views:  30,100

Time on Site:  1:28

Subscribers:  120

Current Alexa Rank:  199,732

Search Traffic:  39.76%

Five Most Popular Posts:

Warren Buffett, Intel, and Me

My Investing Strategy for the Next Decade

CFM Celebrating 100 Posts with Cash Giveaway

Bloggers that Make $1000 Per Month

Follow Up On Bloggers Making $1000 Per Month

Now the stats are nice to look at, but don’t tell the whole story.  Since starting CFM (which was my first Word Press blog), I have managed to start two more (although with writing assistance).  I have met a lot of nice fellow personal financial bloggers online and hope to meet some in person someday.

I have also been able to make a little bit of money and pay off some debt on a business credit card and a business credit line.  The public accountability and being able to share my personal trials and triumphs has been helpful for focusing on the task at hand.

Although I would love to have hosted another giveaway, it just isn’t feasible with the fact that earnings are way down.  I still want to be prudent, but maybe things will work out for the next anniversary.

Goals for Year Number Two

Overall, I think I would like to roughly double many of the stats for the next year.  Now I have been doing a twice weekly posting schedule due to the fact that I am working on 2 other blogs.  That would mean the number of posts would likely only increase by 100.  But I would like to double the number of visits and page views although I should be able to do more than that since I did start from zero on day one.  Plus, maybe I will get to meet a fellow blogger or two in person as well.

I would also like to see the number of subscribers double.  So if you haven’t done so, feel free to subscribe.  I would like to see the time on the site stay over 1 minute.  I know that at times, search traffic can be in and out rather quickly so figuring that search traffic will increase, keeping time over 1 minute is a good goal.

But no matter what happens, I hope to be able to inspire some good discussion and teach my readers about some things that they might not know about.  I also want to learn a few things as well.

Thanks for reading, and I hope to have as much fun in year two as I did in year number one.

 

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14 comments - What do you think?  Posted by Cash Flow Mantra - May 29, 2012 at 5:30 am

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Calculating ROI When Selling Covered Calls

There has been a lot of option activity in my retirement accounts recently so I wanted to take some time and explain how to calculate the return on investment (ROI) using a real example of a trade that I did yesterday.  As you know, I am working on increasing the exposure that my portfolio has to dividend paying stocks.  Well, one of the stocks that I was looking at was Nucor (NUE).  I was able to purchase some shares using the proceeds that resulted from the exercise of ONXX $46 puts last week.

My goal is to get a 1% return per month on my retirement account on average.  Part of this should come from the increased focus on dividends while the rest will come from capital gains and covered call premiums.  I believe that this is an achievable goal on average, although there will be times when the value will fluctuate above or below that target.

Nucor Trade

So, here is what I did yesterday.  I started by purchasing the June $32 strike put options for $0.49 per share.  Then I picked up the stock itself for $34.70 and put in an order to sell the June $35 strike calls at $1.10.  This was about 5 cents above the ask at the time, but I figured that given the normal daily volatility, it would get filled if NUE approached $34.90.  This did occur so at the end of the day, this is what my basis looked like before commissions:

$34.70 for the stock + $0.49 for the puts – $1.10 for the calls = $34.09

So, $34.09 per share is the amount that I have in the stock.  Now commissions can have a big impact upon return, and I always hate it when those aren’t figured into the equation.  I keep an Excel spreadsheet and add them in automatically based upon cash in and cash of the account.  When I add in commissions for trading, my basis becomes $34.15322 ($34.16) per share.  This is the number I will use for the calculations, but it is a little cleaner to look at the numbers without when you are learning.

Return on Investment If Called

If NUE is at or above $35 per share on June 16, 2012, it will get called away.  If that is the case, let’s calculate the ROI for these four weeks.  The general formula is the amount of profit divided by the amount invested (basis) multiplied by 100 to express in a percentage and would look like this:

($35.00 – $34.16) (profit)/ $34.16 (amount invested) * 100 = 2.459%

This meets my criteria of gaining 1% in a month.  But what if the stock does not increase and does not get called out?

ROI if Not Called

This is a little more difficult situation to calculate because you really don’t know if there will ultimately be any profit.  This is where the 1% monthly criteria comes into play for me.  I want the premium income itself to equal 1% of the basis.  So in this case, I use the amount of price reduction of the stock price for my “profit” and the basis as the amount invested to make the equation look like this:

$34.70 (purchase price) – $34.16/ $34.16 * 100 = 1.58%

The Nucor trade meets my criteria for 1% monthly.

Capital Losses

Now what happens if the stock drops like a rock.  Obviously, these percentages mean nothing.  But this is where tracking a basis over time becomes useful.  Ultimately, if the stock drops below $32 rapidly, I will not be in any additional danger of loss since I own the put options.  I can add additional shares to the position each time meeting the above criteria.  Eventually, the stock will stabilize and the ‘ROI if called’ will get realized.

By managing the position and adding shares at lower prices, it is possible to not lose money on a declining stock and break even.

So, if one-third of my stock picks fall into each category, the overall net impact is that the 1% monthly target will be met on a portfolio wide basis.  The fact that I am starting to work with dividend stocks should help to minimize the volatility.  That is the goal anyway.

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2 comments - What do you think?  Posted by Cash Flow Mantra - May 22, 2012 at 9:39 am

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