What is Enterprise Value?
A public corporation accesses the capital and debt markets to get funding to run its business but in the process their equity (stock) and liabilities (debt) now have several public owners. Let's assume that a group of investors wanted to take a company from public to private, how much money would they have to theoretically come up with to do so?
Thursday, February 25, 2010
Wednesday, February 24, 2010
Levered and Inverse ETFs
How do you use levered and inverse ETFs on a day to day basis?
We have talked about the importance of using ETFs as diversification tools and also to gain quick exposure to an index, a market, a commodity and plenty other financial items. We also talked about the existence of levered ETFs (ETFs that use leverage to get a magnified exposure to the instrument they replicate) and also inverse ETFs (ETFs that move in a directly inverse way to the underlying instrument, which is basically the equivalent of getting short exposure).
We have talked about the importance of using ETFs as diversification tools and also to gain quick exposure to an index, a market, a commodity and plenty other financial items. We also talked about the existence of levered ETFs (ETFs that use leverage to get a magnified exposure to the instrument they replicate) and also inverse ETFs (ETFs that move in a directly inverse way to the underlying instrument, which is basically the equivalent of getting short exposure).
Tuesday, February 23, 2010
Using ETFs
How can I use ETFs in my trading?
We already talked about what an ETF is and what it represents, now we'll talk about how to use them in your trading
ETFs are an excellent way to gain exposure to the price of something (an index, a sector, the price of a commodity, the list is endless) without going through the difficulties of acquiring the actual underlying securities. We talked about how just by buying SPDRs (ticker: SPY) you are actually buying the 500 components of the S&P 500 index. Now we will talk about more complex ETFs and how I use them in my actual real trading. Nowadays I buy ETFs on a regular basis mainly because:
We already talked about what an ETF is and what it represents, now we'll talk about how to use them in your trading
ETFs are an excellent way to gain exposure to the price of something (an index, a sector, the price of a commodity, the list is endless) without going through the difficulties of acquiring the actual underlying securities. We talked about how just by buying SPDRs (ticker: SPY) you are actually buying the 500 components of the S&P 500 index. Now we will talk about more complex ETFs and how I use them in my actual real trading. Nowadays I buy ETFs on a regular basis mainly because:
Exchange Traded Funds (ETFs)
What are ETFs and how can I invest in or trade them?
You know what the S&P 500 index is. It is an index that tracks the performance of a basket of 500 of the largest US companies. It is a number that can be used to know whether the US stock market was mostly up, down or unchanged. The weight given to each company in the index is not even but rather determined based on the free float market capitalization so that large companies have a correspondingly large influence on the index.
You know what the S&P 500 index is. It is an index that tracks the performance of a basket of 500 of the largest US companies. It is a number that can be used to know whether the US stock market was mostly up, down or unchanged. The weight given to each company in the index is not even but rather determined based on the free float market capitalization so that large companies have a correspondingly large influence on the index.
Sunday, February 21, 2010
Dividends
You have probably heard the phrase about something "paying dividends" meaning that something was succesful at what it set to achieve and is now generating tangible results but how is it applied when we are talking about stocks and the stock market?
Dividends are payments from corporations to shareholders. When a company has a profit and generates cash there are basically two things it can do with that cash. It can pay it out to shareholders in the form of dividends or it can also invest it back into the business in the form of retained earnings, where it can use it to finance further growth or productivity. Most companies that pay out a dividend also have a portion of profits reinvested back into the business.
Dividends are payments from corporations to shareholders. When a company has a profit and generates cash there are basically two things it can do with that cash. It can pay it out to shareholders in the form of dividends or it can also invest it back into the business in the form of retained earnings, where it can use it to finance further growth or productivity. Most companies that pay out a dividend also have a portion of profits reinvested back into the business.
Saturday, February 20, 2010
Shares Outstanding and Float
When doing some research on a company whose stock I intend to buy I came across the number of Shares Outstanding and also another concept referred to as the “float”. What do these numbers represent?
Ownership of a public company comes in the form of shares of stock which determine the owners of the equity in a company and the size of their stake. The number of shares outstanding represents the total number of shares of stock that have been issued by a company and therefore this number includes 100% of the ownership of the company. If a company has 1000 shares outstanding and you own 40 shares, then you are the owner of 4% of the company.
Ownership of a public company comes in the form of shares of stock which determine the owners of the equity in a company and the size of their stake. The number of shares outstanding represents the total number of shares of stock that have been issued by a company and therefore this number includes 100% of the ownership of the company. If a company has 1000 shares outstanding and you own 40 shares, then you are the owner of 4% of the company.
Friday, February 19, 2010
Market Capitalization
I noticed that a company like Google (ticker: GOOG) is very expensive at $540 per share and a very well-known and large company such as Microsoft (ticker: MSFT) is trading at only $29. Does this mean that Google’s shares are expensive? Should I consider Microsoft’s shares to be a bargain?
When starting to trade the first thing that you will notice is that even if you have somewhat of a rough idea of what a company does and how successful it is their stock prices don’t necessarily reflect this at first glance. Even if you have two companies that you know are somewhat in the same ballpark in terms of size and success their stock prices can be completely different and this can be disconcerting, however there is a very simple explanation for this.
When starting to trade the first thing that you will notice is that even if you have somewhat of a rough idea of what a company does and how successful it is their stock prices don’t necessarily reflect this at first glance. Even if you have two companies that you know are somewhat in the same ballpark in terms of size and success their stock prices can be completely different and this can be disconcerting, however there is a very simple explanation for this.
Thursday, February 18, 2010
Fundamental and Technical Analysis
What are the differences between Fundamental and Technical analysis?
So you’re all ready to start trading. You have decided that you have some money that you would like to put to use in the stock market. You have opened your brokerage account and your funds have already been transferred so you’re all ready to start buying and selling stocks and rake in all the profits that the stock market offers.
Now you ask yourself the big question. How am I going to know what to buy and what to sell? What strategy am I going to use to ensure that all (or realistically, most) of my trades or investments end up as winners and give me the profits that I am after?
So you’re all ready to start trading. You have decided that you have some money that you would like to put to use in the stock market. You have opened your brokerage account and your funds have already been transferred so you’re all ready to start buying and selling stocks and rake in all the profits that the stock market offers.
Now you ask yourself the big question. How am I going to know what to buy and what to sell? What strategy am I going to use to ensure that all (or realistically, most) of my trades or investments end up as winners and give me the profits that I am after?
Wednesday, February 17, 2010
What is investing?
What is investing?
Investing is the commitment of funds to assets with the objective of making profits either during the life of the investment (dividends in the case of stocks, coupon payments in the case of bonds, etc.) or at the end of it through its appreciation (capital gains).
From a financial standpoint, investments can be made in stocks, bonds, derivatives (such as futures or options), foreign currency and in the money market.
Investing is the commitment of funds to assets with the objective of making profits either during the life of the investment (dividends in the case of stocks, coupon payments in the case of bonds, etc.) or at the end of it through its appreciation (capital gains).
From a financial standpoint, investments can be made in stocks, bonds, derivatives (such as futures or options), foreign currency and in the money market.
Tuesday, February 16, 2010
Dow vs S&P 500
What are the differences between the Dow Jones Industrial Average (DJIA) index and the S&P 500?
If you open the business section of your favorite newspaper (or go to any financial news website) you will find quotes for the Dow Jones Industrial Average index as well as the S&P 500. They both measure the performance of large cap american stocks. So, how do they differ?
The first and most obvious way in which they differ is the number of components. The DJIA contains 30 stocks while the S&P 500 is calculated based on, not surprisingly, 500 stocks. That mere fact should indicate that the S&P 500 would be a more accurate index (as it includes a greater number of large-cap stocks) but there is one other difference and it is in fact the most important one.
If you open the business section of your favorite newspaper (or go to any financial news website) you will find quotes for the Dow Jones Industrial Average index as well as the S&P 500. They both measure the performance of large cap american stocks. So, how do they differ?
The first and most obvious way in which they differ is the number of components. The DJIA contains 30 stocks while the S&P 500 is calculated based on, not surprisingly, 500 stocks. That mere fact should indicate that the S&P 500 would be a more accurate index (as it includes a greater number of large-cap stocks) but there is one other difference and it is in fact the most important one.
Monday, February 15, 2010
International Stock Indices
What are the main international stock indices and why are they important to my trading?
Just like the S&P 500 can be seen as a proxy for what is happening to the equity of US companies there are indices that act as a barometer for the health of stock markets worldwide.
There are several reasons that traders keep an eye on stock markets worldwide:
Just like the S&P 500 can be seen as a proxy for what is happening to the equity of US companies there are indices that act as a barometer for the health of stock markets worldwide.
There are several reasons that traders keep an eye on stock markets worldwide:
Market Up, Market Down
When I read in the news or hear people say that the market was up today or that it has been down lately, what exactly are they referring to?
When you hear "the market is up" or "the market is down" in all likelihood, what people are referring to is how the main stock indices have performed in the referenced period.
A stock index is a numeric value that consists of the weighted average of the prices of its components. It is a simple and practical way to see how stocks (also called equities) have performed. If you read that the market was "up" that does not necessarily mean that all stocks were up but merely that in general it is likely that a stock has performed somewhat closely paralleling what the index that contains it has done.
When you hear "the market is up" or "the market is down" in all likelihood, what people are referring to is how the main stock indices have performed in the referenced period.
A stock index is a numeric value that consists of the weighted average of the prices of its components. It is a simple and practical way to see how stocks (also called equities) have performed. If you read that the market was "up" that does not necessarily mean that all stocks were up but merely that in general it is likely that a stock has performed somewhat closely paralleling what the index that contains it has done.
What is trading?
What is trading?
Trading is the buying and selling of financial instruments with the expectation of a profit.
The main financial instruments that are traded are: stocks, options, bonds, futures and forex (foreign exchange) and those are the ones we'll be talking about throughout the site.
Trading is the buying and selling of financial instruments with the expectation of a profit.
The main financial instruments that are traded are: stocks, options, bonds, futures and forex (foreign exchange) and those are the ones we'll be talking about throughout the site.
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