You work hard for your money, your money should work hard for you.
TwitterFacebookYouTube

Monthly Archives: January 2010

Price to Earnings (P/E Ratio)

Posted on by Posted in Investing, Ratios, Strategy 1 Comment

Price To Earnings

  • Calculation of the Price of the stock divided by the Earnings Per Share (EPS) of the company.
  • Helps an investor estimate, based on company earnings, how the market has priced a stock against other similar companies.
  • PE is based on an annual earnings number.
    • Earnings can be quoted as a historical number (past year) or a projection (next year).
  • Example: Stock Price = $10  Earnings Per Share (EPS) = $2
      • P/E – $10/$2 = 5
        • You’re paying 5 times EPS for this stock
  • A high P/E is not bad or good.
    • Typically growth stocks have high and value stocks have low P/E ratios.
  • If a company doesn’t have any earnings, then it can’t have a P/E ratio based on historical numbers.

Master Limited Partnerships

Posted on by Posted in Dividends, Investing, Partnerships, Strategy Leave a comment

Master Limited Partnerships

  • When buying shares you become a partner rather than simply a stockholder.
  • MLPs are required to pay 90% of earned income to its partners.
  • Dividends typically range between 5%-10% annually.
  • Income is not taxed at the corporate level…Double taxation avoided.
  • Most MLPs are involved in the infrastructure needed to transfer energy (oil/natural gas).
  • It’s important to look at past dividend payment history when evaluating MLPs.
  • MLPs are not known for a high pace of share price appreciation…dividends are the main source of investment value.

Earnings Per Share & Dividend Yield

Posted on by Posted in Dividends, Investing 1 Comment

Earnings Per Share (EPS)

  • The earnings of a company divided by the number of shares outstanding.
  • Are positive is a company has earnings.
  • Will be negative is a company has a loss.
    • Negative earnings are necessarily a bad thing.  A new company developing a product will have negative earnings until they begin selling the product…maybe even after.

Dividend Yield

  • A company’s dividend yeild is quoted in annual terms (The % you will earn after owning the stock for 1 year).
  • The dividend yeild is computed using previous dividend payments throughout the past year.
  • Companies can increase or decrease their dividend payment.
  • It is best to look at a historical chart of a stock that shows dividend activity to get a sense of the regularity of dividend payments.
  • Most companies pay dividends per quarter (others pay by month, bi annually or annually).
    • It’s better as an investor to receive dividend payments monthly or quarterly.
  • The quoted dividend yeild from companies that have declared a special dividend should be ignored.

New Information Moves the Market

Posted on by Posted in Investing, Strategy Leave a comment

  • Old and expected information is already priced into a stock.
    • Investors have acted on this information – have bought or sold
  • Unexpected/New information moves the price of a stock.
  • Stocks that are not on a major exchange and are not followed by analysts may not follow this rule.
    • If not many investors (particularly large investors), know or understand a certain piece of news, then the price of a stock might not accurately reflect the impact of the news.
  • The market is always chasing tomorrow; not today or yesterday.

Part 1 – Exchange Traded Funds (ETFs)

Posted on by Posted in Funds, Investing 2 Comments

Exchange Traded Fund (ETF)

  • Can be very broad or very narrow in scope.
  • Provide diversification
  • Have low annual fees compared to mutual funds
  • Most seek to match their benchmark – not beat their benchmark
  • Some ETFs enable investors to gain exposure in markets they cannot reach directly
  • Trade just like a stock
  • Are an easy way to gain exposure to an industry or sector that you like, while not placing a large bet on one company.

Part 2 – Mutual Funds

Posted on by Posted in Funds, Investing Leave a comment

Mutual Funds

  • Can be broad or very narrow in investment scope
  • Are actively managed by fund managers
  • Aim to beat the market (their benchmark)
  • Charge higher management fees than ETFs
  • Pass marketing charges on to their fund holders
  • Some charge an entry or exit sales charge
  • Do not trade on an exchange like a stock or ETF would
  • Can provide access to investment areas unreachable by the individual investor