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Investing 101 Archive

  • If identifying cheap stocks were easy, then we would likely all be doing it, and therefore would all be rich. Since we're not, and many investors know all too well the pain of overpaying for a stock, our next installment of Investing 101 is about putting the proper price tag on investments.

    To do so, we brought in Jim O'Shaughnessy, founder of O'Shaughnessy Asset Management and author of "What Works on Wall Street" to talk about the two most common metrics for finding cheap stocks.

    Price to Earnings, or P/E Ratio

    If you had to pick just one method for determining whether or not a stock is cheap, the Price to Earnings, or P/E ratio, would have to be right at the top of the last. "Basic P/E is as simple as it gets," O'Shaughnessy says in the attached video. "It's probably the number that investors look at the most in trying to determine if a stock is cheap or expensive."

    As the name implies, a P/E is just that: The ratio of a stock's price to its earnings, and it is typically expressed as a multiple of earnings. For example, if Nestron Inc was trading at $10 a share and had earned $1.00 per share in profits in the past year, Nestron would have a P/E of 10, or could be said to be trading at 10x earnings.

    Read More »from Basic Metrics for Finding Cheap Stocks
  • It's earnings season and that means, over the next several weeks, we will be deluged with the latest quarterly financial results from thousands of publicly traded companies. While the biggest, best known and most widely held stocks will get the most attention (and closest scrutiny), virtually every listed and traded stock in the developed world has to disclose how they did over the previous 90 days.

    For this installment of Investing 101, we brought in Jim O'Shaughnessy, founder of O'Shaughnessy Asset Management and author of "What Works On Wall Street" to discuss three of the most important means of measuring these results. They say Wall Street is the ultimate "bottom line business" so that is where we begin.

    The Bottom Line: "Net income is so important," O'Shaughnessy says "because it's really what the company has after everything is taken into consideration.'' Unfortunately, there are many, many stops along the way which is both a blessing and curse when you are evaluating the growth and profitability of a stock, as O'Shaughnessy says, "there's all sorts of ways to manipulate these numbers." And that's the rub.

    Say for example that Nestron Incorporated sold off its international division during the quarter and booked a huge profit, which in turn, made the bottom line results look really strong, when in fact, the asset sale really had nothing to do with the day-to-day operation of the business. The same distortion would apply if the company had posted a large one-time loss too, which is why many investors and analysts feel a so-called "ex-items" number is a better measure of how things are going.

    Read More »from Decoding Corporate Earnings Reports
  • They may not have access to the armed forces but it is often argued that the chairman of the Federal Reserve has a level of global power and influence that rivals that of the U.S. president. While most investors know the name of the current Fed chief, Ben Bernanke, how his decision-making impacts your money is much more elusive. In this installment of Investing 101, we address how the Federal Reserve's policy-making decisions impact your investments in stocks, bonds, and commodities.

    1. Fed Liquidity & Stocks

    The role of the Fed is simple on paper. The entity exists to carry out a dual mandate to use monetary policy to promote maximum employment and stable prices (keep inflation in check). That's it. While many critics believe the 2008 financial crisis caused the Bernanke Fed to stray beyond their traditional mandate, the debate is best left to the scholars.

    What you need to know is whether the Fed is lowering interest rates or adding money or taking other actions that support or nurture economic growth --generally referred to as an "easing cycle."

    "When the Fed is adding liquidity into the system, it's good for stocks," says Doug Roberts, author of Follow the Fed to Investment Success. "If they're not injecting liquidity (which is called ''tightening") and there's a crisis where the economic system is contracting, it's bad for stocks."

    But it's not as simple as higher rates versus lower rates.

    Read More »from 3 Ways the Federal Reserve Is Impacting Your Money


(53 Stories)


Breakout’s Investing 101 helps you gain insight on money management and trading. Whether you’re managing your own retirement account, just beginning, or an advanced investor in need of a good refresher, Investing 101 will help you learn, grow, and keep you informed of the basic steps to effectively manage your money. Expect investing tips that focus on trading strategies, asset allocation, and portfolio management.

Investing 101

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