Owner: Investing for Everyone URL:http://investingforeveryone.blogspot.com Join Date: Mon, 24 Dec 2007 23:39:39 -0600 Rating:0 Site Description: Online Stock Market Investing Lessons and Advice for Beginners. Education, Advice, and Strategies for Successful Stock Market Investing. Site statistics:Click here
Using Screeners to Find the Right Stocks 2008-01-16 11:18:00 So far our lessons have focused on very general aspects of stock analysis like profitability data, basic management research, economic moats, etc. These are all things that you can look up pretty quickly once you know what you're doing.The idea is that you can take a company, put it through the wringer, and if it comes out the other side, you'll know you have a decent prospect on your hands. Most companies will not make it that far, but if they do then from there you can dig deeper, really pull the company apart, and decide if it really is as good as it seems. This is how I do my research for my own investments and for my clients.This is something you can do whenever you hear a stock mentioned on TV or in some financial magazine or from one of your buddies at work. But it's even more helpf Read more:Right
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Mailbag : Income Stocks 2008-01-14 07:17:00 There seems to be a lot of interest lately in income stocks. That is, stocks that pay high dividend yields.One reason is certainly all the baby boomers who are looking towards retirement who want some money coming in every couple of months on top of normal stock appreciation. It's almost like having a savings account where your deposit grows even while you're getting paid interest.Another reason is that the recent drop in stock prices has caused yields to rise (more on that in a moment). So we have a lot of historically high dividends out there grabbing everyone's attention. I have to note, however, that not all of these yields are going to remain so high.First let's take a look at how that yield is calculated. First, the company pays out a certain dollar amount per share as it's dividend Read more:Income
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Link of the Week - 10Q Detective 2008-01-11 13:31:00 I'm going to start posting some of my favorite financial links on here every Friday.This week's link is 10Q Detective
.There may be some dirty laundry hidden deep inside your company's filings. Since the company is, technically, telling you what's going on, it's your responsibility to dig deep and to stay informed and act accordingly. Things like one-time write offs, depreciation policies, off balance sheet transactions, and so on often appear in the fine print, but you won't hear about them until they start adversely affecting your earnings.I would love to do a lesson on all of this because I feel it's very important to look at these things once you've found a company that you're seriously considering. But I admit that I barely even know what to look for myself.Luckily I've learned a lot f
Investing In What You Know 2008-01-09 12:17:00 If I offered you what you thought was a well paying job, but it was in a field that you had no experience in, no knowledge of, and little to no chance of ever understanding it, would you take that job? Would you stake your own and your family's future on that job?Probably not.But that's exactly what people do all the time by investing in stocks of companies that they don't understand. I think the main reason is simply the appeal of the unknown. The less we understand something, the more important we assume it must be. How many people do you think there were who invested in tech stocks in the '90s not in spite of their lack of understanding of the new technology, but BECAUSE of it. Many people just assumed that if it was high-tech and computer-related, then it HAD to be good.Unfortunately, Read more:Investing
Mailbag: Diversification 2008-01-07 07:05:00 Happy new year, everyone. It's been a while since I've been able to post, but I've got some new things in store for the blog. I'll now be updating more frequently (hopefully!) and will be offering more than just the usual lessons. One new feature is the mailbag, where I'll answer some of the questions that I hear more frequently from readers who email me.This week's topic is diversification.The two sides you'll usually hear are, 1)you should diversify because it reduces your risk by reducing your exposure and 2)you should not diversify because it forces you to spread yourself too thin.Both arguments are actually pretty good, but I do NOT believe they are mutually exclusive. It's the way that people interpret them that causes problems.Diversifying into stocks in different sectors will obvio Read more:Diversification
Changes to the Blog 2007-12-19 11:49:00 I've already begun making some changes here to try to make things better for existing readers, and to hopefully bring in some new ones.I've now added links along the right hand margin to all of the old lessons so you can jump to whatever topic you're interested in. I've also added a subscription feature which will send you an email whenever I make a new post here, so you don't have to keep coming back.I'm planning to add a little variety, too. I'll be analyzing indivdual stocks, showing you live examples of all the analysis that I've been talking about. I'll also be posting links to some of my favorite financial blogs; there are a lot of good ones out there. Lastly, I'm hoping to start putting up some reviews of investing books because I'm starting to feel like I've read nearly every book
Free Cash Flow 2007-12-13 18:13:00 You may recall in one of the early lessons I posted here I talked about the importance of looking at a company's earnings statement. It's easy to assume that a company's earnings are the money that that company brought in during the time period in question. But that's not quite the case.Earnings are more of an accouting item. They account for a lot of money that wasn't actually made (eg. money made from investment appreciation) or wasn't actually spent (eg. depreciation). So aside from the number being misleading, you can't actually find those earnings anywhere in the company and the company can't actually go out and spend them. If we want to see the real money (ie. cash) that that company brought in, we have to look at the cash flow statement.To use a familiar example, consider that you m
The Moat - What Separates the Best from the Rest 2007-11-29 13:04:00 Think of your favorite company right now. Now go and look up all the companies that compete with that company. What is it that separates your company from all those other companies?If you have a good answer to this question then your company most likely has what's often referred to as a moat. If you can come up with several good answers to this question then your company has the highly coveted wide moat. If you can't come up with any answer to that question, then you either need to do some more research or else reconsider whether or not your company is actually better than its competitors.Your company's moat is its competitive advantage. It's what gives your company a sustained advantage over its competitors. It's what allows that company to make money today, and to continue making that m
Value Investor or Growth Investor 2007-11-20 07:48:00 Based on many of the questions that I've gotten from people, there seems to be a lot of confusion between the different types of investing. When I say confusion, I mean that people are combining different methods of investing that are akin to oil and water. Furthermore, many people claim they are doing one type of investing, when all they're doing is rationalizing what was already a very poor and irrational decision.For this reason I think it's important to go over the two basic types of investing--value investing and growth investing. Once you understand what each one entails, you can decide which is more suited to your personality and you can see how you may be tripping yourself up by trying to mix two different strategies.Value
InvestingValue is merely what something is worth at the pre Read more:Growth
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Researching Management 2007-11-12 07:39:00 By now we've covered the basics. You know how to scan a company's earnings and their balance sheet to see how healthy the company is, how profitable it is, and what type of return it offers you on your equity (ROE). Once you get the hang of it, it shouldn't take you more than a few minutes to research all of these things and, as I've said repeatedly, that alone will make you more knowledgeable than the majority of investors.But over the next few weeks I'm going to explain how you can dig a little bit deeper to get a clearer picture of the company. That's the reason why I told you all about ValueLine and Morningstar in my last post. Hopefully, by now you've checked out your local library to see if they offer these services. I guarantee you, it's well worth it.So our next stop is management. Read more:Management
Researching Stocks Like a Pro 2007-11-01 19:25:00 This post is a continuation of the one I made earlier today.I want to introduce everyone to a few resources that will put you on par with the big league professional investors and analysts. Not only am I going to tell you what they are and how to use them, but I'm going to tell you how you can access all of them absolutely FREE!First of all let me say that the Internet is a fantastic resource for investors. You could spend the rest of your life scouring the Internet for information on any one company, and never actually read all the information that is out there. Not only that, but nearly of all that information is completely free and accessible with just a few clicks.This is why the Internet is THE place to start your research. Basic financial sites like CNBC, Yahoo, and Morningstar put a Read more:Stocks
Get Paid to Research Stocks!!!!!!! 2007-11-01 10:59:00 I read Jim Cramer's book "Real Money" and was surprised by how much good advice there is in it (not that I didn't find plenty of bad and hackish advice, as well). In particular, he coins the phrase "buy and homework" to replace the tired and misunderstood "buy and hold."The fact that a major TV stock promoter was telling people they had to actually do a little legwork in order to make money in the market was shocking, but it gives me some hope. Maybe a couple people paid as much attention to that as they do to all his picks.What I hope for is that at least a few people will realize that, yes, you do have to WORK in order to make money in stocks, just like you have to work anywhere else. There is no free lunch here.It amazes me that people will do research on everything from cars, to suits, Read more:Stocks
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The Secret of Return on Equity - Two Examples 2007-10-23 11:29:00 We established yesterday why investing in companies with high ROEs is so important. You're basically investing in businesses where your money is put to the best and most efficient use possible, creating strong earnings, which are then put back into the company, to the best and most efficient use possible, creating even stronger earnings, and so on. It is a cycle that continues on and on, COMPOUNDING year after year and creating huge amounts of VALUE for you, the shareholder.But how do we identify these companies? Pretty much the same way we've done all our other research so far. We bring up our company on Morningstar or Yahoo!, and we look under "Key Ratios." Again, one year's figure does not tell us much, so we want to look back at least a few years, but preferably ten years.Let's start w Read more:Return
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The Secret of Return on Equity 2007-10-22 10:42:00 Return on equity (ROE) is probably the most important of all the factors you can look into before investing in a company. But yet, you won't find it mentioned in very many investing books, you'll never hear Jim Cramer bring it up, and you can ask your fellow investors about it 'til you're blue in the face and all you'll get is a blank expression.One way of looking at ROE is as a measure of a company's efficiency. Equity
is the portion of the company that belongs to the shareholders (the net worth after all liabilities are subtracted from the company's assets), so ROE tells us how much money the company can squeeze out of your share of the company.But there's an even better way of looking at ROE. It's a measure of how good a job the management of the company is doing with your money. Yes, i Read more:Return
Earnings - A Few Examples 2007-10-17 20:43:00 Here are a few examples of what you'll see on an income statement.Let's start with Colgate-Palmolive (CL), a perfect example of a company with consistent earnings growth. We bring up the company's 10-year income statement on Morningstar and here's what we see:(per share)1997 - $1.141998 - 1.311999 - 1.472000 - 1.72001 - 1.892002 - 2.192003 - 2.462004 - 2.332005 - 2.432006 - 2.46It doesn't get much better than that. Earnings
grew each year at a good pace, but not so steeply that we have to worry that the company might get burnt out. Also notice that the interval we've used covers the mini-recession of 1998, the tech crash and subsequent recession that lasted into 2003, and also the recovery that followed it up until the present. This gives us a chance to see how the company's earnings did u Read more:Examples
Earnings 2007-10-16 21:12:00 We already talked about the importance of looking at a company's long term debt and how we can weed out lousy companies just by taking a quick glance at a company's balance sheet. Today I'm going to explain a very similar, though even more important test you can run that's just as easy, but will go even further in separating the good companies from the bad.Earnings
, or net income, is the final dollar value that a company gets to keep after it has paid all of its bills, made all of its investments, and paid all of its taxes. The whole purpose of a company is to make money, so if we're considering investing in a company, we want to know for sure that that company is indeed making money, preferably in amounts that grow from one year to the next.You would be amazed by how many "hot stocks" fai
A Company I WANT to Like - Mattel 2007-10-08 13:22:00 Sometimes there are companies that I really want to like, but alas, the facts and figures just won't let me. Mattel is one of those companiesI figured all the bad news would create a good buying opportunity, and it has, but on closer inspection I don't know if I like the company so much.On the bright side there's the brand name and the huge portfolio of products (Barbie, Hot Wheels, Fisher Price). There's also the low long term debt, the fairly consistent dividend growth, and the high ROE (20% +) as well as the good free cash flow.But on the other hand sales have been pretty much flat for over a decade. The same is true for earnings. The EPS is just now reaching the level it was at in 1996! I also think this is a tough industry, in general, for any company what with the kids today.Any comm
Scanning the Balance Sheet - An Example - Wal Mart 2007-10-07 18:18:00 Take a look at Wal Mart's Long Term Debt and Other Long Liabilities for 2007. Here's what we get:(millions)Long Term Debt - $27,222Other Long Term Liabilities - $10,644Total - $37,866Next look for the total capital or Total Liabilities and Equity. It's $151,193. Now divide the first number into this number. We get 0.25, or 25%.As I said in the last post, we want to see a ratio less than 50%. But one year doesn't tell us much. For all we know the company may have paid down a bunch of debt that particular year, but may be reckless every other year. That's why we want to look back at least a couple more years. Here's what we get:2006 - 26%2005 - 23%2004 - 23%2003 - 24%Now we can safely assume that this is a company that is responsible with its long term debt, and worthy of closer inspection. Read more:Scanning
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Scanning the Balance Sheet 2007-10-07 14:15:00 My starting point when analyzing a company is its long term debt/capital ratio. In two seconds, you can find out if your company is worth looking at any closer.A lot of long term debt can be a problem. The company has less breathing room, less income, and less money to use for operations and to build shareholder value. Debt also cuts into shareholder equity because lenders get dibs on all assets.We identify these companies by looking at the balance sheet. The balance sheet has a line entitled "Long Term Debt" and another called "Other Long Term Liabilities." Add both of these numbers to get the total long term liabilitiesNext take that number, and divide it by the capital which, is the last line on the balance sheet, labeled "Total Liabilities & Equity." This gives the long term debt t Read more:Scanning
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Welcome to Investing for Everyone 2007-10-07 13:36:00 My first ever post on my first ever blog. Or should I say our blog. I don't want this blog to just be about me speaking my mind and other people reading it because they're bored. I want it to be about me sharing what I've learned with others who, in turn, also want to share what they've learned. I want it to be a place where someone just getting into the markets can come and learn from those who've spent years working with them. I want it to be a place where questions and answers can flow freely.If you have a question, ask it. If you have an idea, share it. If you see something you disagree with, say so. This blog belongs to anyone with a passion for learning the markets.I've been working with markets since I was 19 years old. I've spent years as a speculator, a trader, a gambler, and fina Read more:Investing
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