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October 21, 2010

Investing Styles

The two basic investing styles are growth and value. While one style tends to perform better at any given time, the dominant style varies over time. The basic elements of each style include:

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August 25, 2010

Stock Selling Mistakes

An important part of any investment strategy is developing a methodology for ultimately selling your investments. Unfortunately, many investors sell based on emotional factors, making one of several mistakes:

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July 14, 2010

How to Evaluate P/E Ratios

Price/earnings (P/E) ratios are a common measure of stock value, both for individual stocks and the overall market. Calculating a P/E ratio is straightforward -- it is simply the price of a single share of stock divided by the company's per share earnings. For example, a stock selling at $50 per share with $2 per share of earnings would have a P/E ratio of 25. However, P/E ratios can be calculated using different earnings numbers. Trailing P/E ratios, which are typically reported in newspapers, use earnings per share for the most recent four quarters, while forward P/E ratios use forecasts of future earnings per share.

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June 3, 2010

Coming to Terms With Stock Market Volatility

With all of the volatility in the stock market over the past few years, it can be difficult to determine how to devise an investment strategy to help reach your financial goals. To help you determine a reasonable rate of return to expect on your stock investments, it might be instructive to review some "facts" about the stock market:

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April 5, 2010

Investment Portfolio Losses

Capital gains on investments held for one year or less are short-term capital gains taxed at ordinary income tax rates. For investments held over one year, the maximum long-term capital gains tax rate in 2010 is 15% (0% for taxpayers in the 10% or 15% tax bracket). While the 15% rate is significantly below the maximum ordinary income tax rate of 35%, it still takes a significant chunk out of your investment portfolio.

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August 10, 2009

Understand the Company Before You Invest

Before purchasing a stock, you should understand the basics about the company you are investing in. Make sure you can answer these questions first:

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July 13, 2009

Buying Stocks When Prices are Low

For some investors, a long or steep decline in the price of a stock is a signal to beware. For others, it's a temptation to pick up a bargain at a steep discount and make a handsome profit when the stock rebounds. In practice, it takes a lot of savvy to accomplish. Here are a few tips that will help you know when and when not to buy stocks.

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January 8, 2009

Times are so Hard Companies are Even Cutting Back on Mice

You know things are going from bad to worse when companies are even cutting back on mice, but that's just what's happening. The Swiss based Logitech (NASDAQ: LOGI), maker of computer mice and other peripherals, has announced that it will be reducing its workforce of 9000 employees by about 5% globally. The cuts, they said, would be concentrated in marketing, sales, legal, and information technology and would total about 500 lost jobs. Technically, then, they are not losing any mice makers, but some of the legal staff will be let go.

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December 4, 2008

The Recession, Commodities and the Automakers

In a major recession, production slows. That means that factories are making fewer cars, fewer computers, fewer factory machines, and fewer of just about everything else as well. With less production, the need for raw materials drops as well. This is the reason why we see things like falling oil prices, falling steel prices, and so on. Unfortunately, this means a second wave of recessionary pressures as the producers of those raw materials feel the pinch and begin scaling back their operations to keep pace with the shrinking demand.

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December 2, 2008

Yard Sale Finds: 97% Stake in Midway Games

Although it is no consolation for those of ordinary incomes, the recession is hitting even some of the country's richest men. Sumner Redstone is holding a yard sale of sorts. According to the Wall Street Journal, he has sold his 97% share of the videogame company, Midway Games (NYSE: MWY). While only 3% of the company trades on the market outside of his control, the current share price was $0.38 each as of Friday. That would put the value of Redstone's portion at well over $30 million dollars, but as with any yard sale, no one really expects to pay full price.

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November 27, 2008

Borders Book Stores Cancels Sale Plans

Borders Book Stores (NYSE: BGP) posted a third quarter loss of $0.64 per share against analysts' expectations of a much smaller loss of $0.50 per share. The results also showed a third quarter revenue decline of 9.4%. While the report did contain bad news, it had some brighter notes as well.

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November 20, 2008

Homebuilder Confidence Hits Record Low

The National Association of Homebuilders released their survey asking homebuilders for their level of confidence in a near term recovery of the housing market. As you might imagine, the results were not good. In fact, the survey which has been conducted regularly since 1985 reflected the lowest level of confidence that it has ever recorded. During the most recent quarter, the Associated Press reports, fully 40% of all homes sold were bank sales of foreclosed properties. This contributed to a 9% decline in the median price of all homes sold during the period.

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November 18, 2008

Happy Holidays, You're Fired

Roughly two thirds of the American economy is based on consumer spending on items like new cars, home improvement items, electronics, and other common goods and services. When consumers start slowing down in their buying, the companies that produce and sell these items make less money and slow down their production. Slowing production means that these companies don't need as many workers and that means that unemployment rises. With more people out of work, fewer people are making purchases of items that are considered luxuries or that can be postponed until better days. This is the self-reinforcing cycle in which the American economy now finds itself.

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September 8, 2008

Paulson Says Treasury Adopting Fannie and Freddie

Well, despite statements by Fannie Mae (NYSE: FNM) execs as recently as the last quarterly statement that they did not foresee a federal takeover, it has happened. Treasury Secretary Henry Paulson announced on Sunday that the federal government will place Fannie Mae and Freddie Mac (NYSE: FRE) into a temporary conservatorship. Immediate actions under the conservatorship include the elimination of dividends for both owners of both common and preferred shares, immediate cessation of all lobbying and political activities, and a re-evaluation of charitable activities. These moves are designed to preserve as much of the companies' capital as possible while the Treasury and the FHFA recapitalize the nation's largest mortgage brokers through the periodic purchase of senior preferred shares. Current shareholders will also lose all rights to govern the management of the company.

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August 22, 2008

Monitoring Your Stocks

As you monitor your stocks' performance there are five factors you should consider. These factors are: earnings; price and dividends; P/E and PEG ratios; insider transactions and stock buybacks; and sudden and large price changes on high volume.

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August 8, 2008

Stock Market Lessons From the Past

The stock market volatility of the past few years has taught some valuable lessons about the stock market. In essence, the stock market tends to revert to the mean. Avoid strategies designed to "get rich quick" in the stock market, and diversify, diversify, diversify.

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April 11, 2008

The Basics of Stock Earnings Calculations

When evaluating a stock, you'll typically look at a variety of historical figures. One of the most important statistic is earnings, which is also used as a basis for several other important statistics.

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November 7, 2007

How to Handle Stock Price Declines

When a stock's price declines substantially, you might wonder what you should do. If you own the stock, should you sell before the stock declines more or purchase more shares at the lower price? If you are interested in the stock, should you purchase now or stay away from it? Before you decide, you need to assess the cause of the price decline. Typically, the stock's price is reacting to one of three things:

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October 4, 2007

How to Assess Stock Returns

When designing an investment program, your expected rate of return is a critical element in determining how much to periodically invest to help reach a future goal. Since no one can predict future returns, the expected rate of return is typically estimated based on an analysis of past returns for various investments. So what return can you expect in the future for stock investments? The average annual return for the Standard & Poor's 500 (S&P 500) for the period from 1926 to 2006 was 10.4%, but you don't want to simply use this return without determining whether it is reasonable for the future.*

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October 3, 2007

How to Evaluate a Stock Investment

You should thoroughly analyze a stock before purchase. However, if you pick up a company's annual report you can quickly become overwhelmed by all the numbers. What figures should you concentrate on when evaluating a stock? At a minimum, you should look for answers to these eight questions:

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June 4, 2007

Measuring Your Investment Risk

How has your portfolio performed compared to the major indexes? Has it experienced sharper or milder fluctuations? The answer to these questions will help you determine your portfolio’s risk. Different measures of risk exist for stocks versus bonds.

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December 13, 2006

What Are American Depository Receipts

American Depository Receipts (ADRs) are the form in which foreign stocks trade on U.S. stock exchanges. An ADR is a negotiable certificate issued by a U.S. bank (the depositary), representing shares of a foreign stock. The original foreign stock certificates are owned by the bank and held in the issuer’s country. Each ADR can represent a multiple or fraction of the original foreign stock. This ratio is set by the depositary so the ADR’s price falls within a range considered typical for U.S. stocks. ADR's offer several benefits for individuals wanting to purchase stocks on foreign stock exchanges.

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December 9, 2006

Determining When to Sell a Stock

It’s always difficult to determine the proper time to sell a stock. What if you sell and the stock price increases dramatically? Or what if you hold onto the stock and its price declines? To help you decide when to sell, consider these signals:

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October 29, 2006

The Loser's Game

Warren Buffett, perhaps the greatest investor alive today, has an amusing way to describe his rules for investing:
Rule #1 — never lose money
Rule #2 — don’t forget rule #1

Although this may seem like an overly simple and conservative way to succeed, I hope to show you that these simple rules hold the key to successful investing for the vast majority of people: understand when you are playing a loser’s game and then play accordingly.

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October 11, 2006

Stock Allocation

Your asset allocation mix represents your personal decisions about how much of your portfolio to allocate to various investment categories, such as stocks, bonds, and cash. How much you allocate to each category depends on your financial objectives and personal circumstances. However, it is a percentage that is likely to change over time. As your needs for safety of principal and a steady income stream become more important, the percentage of stocks you own is likely to decrease. Some factors to consider when deciding how much to allocate to stocks include:

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September 16, 2006

Quickbooks Teams Up With Google

Intuit, the maker of the popular Quickbooks accounting software, and Google, the Search giant, announced this week their intent to imbed Google's search and advertising products into the new 2007 Quickbooks software.

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September 7, 2006

Should You Favor Growth or Value Investing

The two basic investing styles are growth and value. While one style tends to perform better at any given time, the dominant style varies over time. The basic elements of each style include:

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January 25, 2006

Evaluating Potential Stock Investments

With thousands of stocks to choose from, developing a systematic approach to evaluating stocks can make it easier to make your selections. The first step is to narrow the options from the thousands of possible choices to ones most likely to meet your objectives. That typically involves screening companies based on criteria important to you. For instance, if you are interested in growth stocks, you might look for earnings growth over a certain percentage. Or for value stocks, you might look for companies with low price/earnings ratios or low price-to-book values.

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November 14, 2005

A Return to Stock Dividends

During the bull market of the 1990s, dividends fell out of favor. With stock prices rising so dramatically, dividends didn’t seem to matter. Historically, however, dividends have been a significant component of stocks’ total return. For instance, from 1926 to 1985, dividends equaled approximately 49% of the total return of the Standard & Poor’s 500 (S&P 500), with an average dividend yield of 4.8%. In contrast, from 1998 to 2004, the average dividend yield was 1.5%.*

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October 11, 2005

A Look at Price/Earnings (P/E) Ratios

Price/earnings (P/E) ratios are a common measure of stock value, both for individual stocks and the overall market. Calculating a P/E ratio is straightforward — it is simply the price of a single share of stock divided by the company’s per share earnings. For example, a stock selling at $50 per share with $2 per share of earnings would have a P/E ratio of 25. However, P/E ratios can be calculated using different earnings numbers. Trailing P/E ratios, which are typically reported in newspapers, use earnings per share for the most recent four quarters, while forward P/E ratios use forecasts of future earnings per share.

Continue reading "A Look at Price/Earnings (P/E) Ratios" »

Coming to Terms with Stocks

With all of the volatility in the stock market over the past several years, it can be difficult to determine how to devise an investment strategy to help achieve your financial goals. To help you determine a reasonable rate of return to expect on your stock investments, it might be helpful to review some “facts” about the stock market:

Continue reading "Coming to Terms with Stocks" »

September 12, 2005

Investing in Foreign Stocks at Home

Looking for a way to invest in specific foreign companies without learning all the intricacies of other countries’ stock markets? You may want to consider American Depositary Receipts (ADRs).

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June 15, 2005

Using Financial Reports to Predict a Slowing Economy

Reports of slowing growth or earnings declines can severely punish a stock’s price. So that you aren’t surprised by this type of news for your stocks, look out for these three warning signs when you review financial reports:

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January 15, 2005

Signs It's Time To Sell A Stock

It’s always difficult to determine the proper time to sell a stock. What if you sell and the stock price increases dramatically? Or what if you hold on to the stock and its price goes nowhere or declines? To help you decide when to sell, consider these signs:

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November 13, 2004

Are Stock Market Correlations Increasing?

A primary reason to invest in international stocks is to diversify your portfolio to reduce its risk. If world markets do not move in perfect harmony, owning stocks from different countries should reduce the impact of a downturn in one stock market. But as investing becomes more global in nature, there is concern that stock markets are becoming more correlated.

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July 14, 2004

The Basics of Stock Market Indexes

Historically, stock market indexes have been closely watched as an indicator of the market's overall performance. While that role is still important, the number of stock market indexes has grown explosively as mutual funds and investment managers search for relevant indexes to use as benchmarks to compare performance.

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Measuring a Stock's Risk - Market Risk & Nonmarket Risk

Basically, stocks are subject to two types of risk - market risk and nonmarket risk. Nonmarket risk, also called specific risk, is the risk that events specific to a company or its industry will adversely affect the stock's price.

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December 1, 2003

Convertible Bonds - Part Bond, Part Stock

Convertible bonds are a hybrid investment, combining features of both stocks and bonds. Like all bonds, convertibles pay a fixed interest rate for the bond's life, with the principal returned at the end of the bond's term. However, convertible bonds can also be exchanged for a specific number of shares of the issuing company's common stock.

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May 1, 2003

Should You Invest Globally?

For much of the 1990s, the U.S. stock market significantly outperformed international stock markets. Never a particularly large percentage of U.S. investment portfolios, international investments drew even less attention during this time. But the U.S. stock market has experienced its third consecutive year of negative returns, with many expecting U.S. stocks to encounter below-average returns in the future. Is now the time to take another look at international investments? Before deciding, consider the following:

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