INVESTING BIBLE

I just went on Amazon and found the Investing Bible used for .73 cents. Boo for me since I thought I was getting a great deal with my 40% off coupon at Borders. Oh well, it's still an informative reference source!

WHEN PICKING A STOCK...

Ask yourself these questions:

1. Does the company produce high-quality products or services? Would you want to be a customer?

2. Is the stock reasonably priced?

3. Is the stock priced competitively compared with the other companies in the same industry?

4. What are the company's future earning prospects?

5. Has the company's earnings continued to improve?

6. What do the important financial ratios say about the corporations prospects?

7. Does the company have a clean balance sheet?

8. Does the corporation's cash flow statement set off any warning bells?

9. Are there any time bombs ready to go off such as extensive lawsuits, expiring patents, or aggressive competitors?

10. Does a company have patents, government regulations or other barriers to keep rivals or potential competitors at bay?

11. What percentage of the company is owned by insiders? What kind of insider trading activity has occurred in recent months?

12. What percentage of stock is owned by institutional investors?

P/E RATIO does not stand for Pretty/Entertaining...

But alas, the P/E Ratio is a basic tool used in the world of fundamental stock analysis, so knowing what it is, is pretty/essential.

From ABOUT.COM: STOCKS

If there is one number that people look at than more any other it is the Price to Earnings Ratio (P/E). The P/E is one of those numbers that investors throw around with great authority as if it told the whole story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.)

The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider.

You calculate the P/E by taking the share price and dividing it by the company’s EPS.

P/E = Stock Price / EPS

For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5 ($40 / 8 = 5).

What does P/E tell you? The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price.

Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean this is a sleeper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these “diamonds in the rough” before the rest of the market discovered their true worth.

What is the “right” P/E? There is no correct answer to this question, because part of the answer depends on your willingness to pay for earnings. The more you are willing to pay, which means you believe the company has good long term prospects over and above its current position, the higher the “right” P/E is for that particular stock in your decision-making process. Another investor may not see the same value and think your “right” P/E is all wrong.

For the more visual learners such as myself, below is a hot european guy giving a good explanation of P/E and it's relevance in considering a stock.



Hot european guy (H/E/G) uses the future earnings method to determine the P/E, where the most common (or so I have read) method is to use the "trailing" or last 12 months earnings instead.

In this video the guy with the great hair is discussing P/E and it's relation to actual earnings.

Increasing P/E Ratios - How Much is Too Much? - The most amazing bloopers are here

And in this video, the guy who says uummm a lot presents some interesting facts and perspective about the current S&P P/E. He says CAUTION AHEAD!




posted by Eve

STOCK VS. CASH - THE RULES

Our Partnership Agreements reads as follows:

XXIV. ASSET WITHDRAWAL: Upon...voluntary withdrawal..., the Club can chose to exercise the following payment methods, decided upon by a majority vote. These methods of payment are: cash, cash/stock, stock transfer, stock sale or a special assessment. The Club retains the right to vote on special circumstances.

Although in the recent past our members have stated their desired form of payout and we have accommodated them, it is our choice based on what we think is best for the club as a whole.

Something to think about.

Eve