Margin of Safety

Posted on 12.25.06 by StockPK Team @ 8:29 am    

One of the tenets of Benjamin Graham, the father of value investing and Warren Buffett’s mentor, was “margin of safety”. Conditions may arise in the market place where the price of a security may be purchased at a price less than even a cautious estimate of it’s intrinsic value. The greater this disparity becomes then the greater the “margin of safety”.

The price to book ratio measures the latest price of the company’s shares relative to the current shareholder’s equity. If the price to book ratio is less than 1, this implies that one is getting more than $1 of assets for every $1 invested. All things being equal it is implied that a stock with a lower book ratio should have a greater “margin of safety”

Cooking the Books 101

Posted on 12.23.06 by StockPK Team @ 10:43 pm    

Every company games the numbers to a certain extent to achieve budget and get bonuses. This is nothing new. But two things make the here and now different for us. First, our money is the issue (history is always about other people’s money). Second, these are BIG numbers.

Enron, Aldelphia and WorldCom are extreme examples. They are the few bad apples that get all the headlines. I believe that people with better ethics run the majority of companies. They may bend the rules, but few take the process to the extremes of Enron or WorldCom. If this weren’t true, we’d all be investing in government bonds

The Short And Distort - Stock Manipulation In A Bear Market

Posted on 12.23.06 by StockPK Team @ 7:29 am    

There is nothing inherently wrong with short selling, which is permissible under the regulations of the Securities & Exchange Commission (SEC). But the short-and-distort type of short seller uses misinformation and a bear market to manipulate stocks. Short and distort is as illegal as the pump and dump, but is mainly used in a bear market. It is important for investors to be aware of the dangers and to know how to protect themselves.

Capitulation Defined

Posted on 12.22.06 by StockPK Team @ 10:43 pm    

There tends to be a lot of talk about “investor capitulation” when stocks continue to tank. But what is meant by capitulation in Wall Street terms and what does it mean for future stock trends? This article will discuss both.

Capitulation is defined in the American Heritage Dictionary as the following:

capitulation (n)

1. The act of surrendering or giving up. Surrender.
2. A document containing the terms of surrender.

Stock Basics: The Bulls, The Bears and The Farm

Posted on 12.21.06 by StockPK Team @ 4:29 pm    

In the Stock Market, the bulls and bears are in a constant struggle. If you haven’t heard of these terms already, you undoubtedly will as you begin to invest.

The Bulls
A bull market is when everything in the economy is great, people are finding jobs, GDP is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic, believing that stocks will go up, he or she is called a “bull” and said to have a “bullish outlook.”

The Lowdown On Stock Buybacks

Posted on 12.19.06 by StockPK Team @ 11:29 am    

When times are tough in the market, companies will often announce stock buyback programs. Why would a company want to buy back its own shares? What does this mean for shareholders?

Buyback Basics
A stock buyback, also known as a “share repurchase”, is a company’s plan to buy back its own shares from the marketplace. You can think of a buyback as a company investing in itself, using its cash to buy shares. The idea is simple: since a company can’t own itself, the buyback reduces the number of outstanding shares on the market.

Buybacks can be carried out in two ways:

The Ups And Downs Of Investing In Cyclical Stocks

Posted on 12.19.06 by StockPK Team @ 10:19 am    

Think of being on a Ferris wheel: one minute you’re on top of the world, the next you’re at the bottom - and eager to head back up again. Investing in cyclical companies is much the same, except the the time it takes to go up and down, known as a business cycle, can last years.

How The PEG Ratio Can Help Investors

Posted on 12.18.06 by StockPK Team @ 10:19 am    

The PEG (price/earnings to growth) ratio is a tool that can help investors find undervalued stocks. It’s not as well known as its cousins, the P/E and P/B ratios, but it is just as valuable. When used in conjunction with other ratios, it gives investors a perspective of how the market views a stock’s growth potential in relation to EPS growth.

Types Of EPS

Types Of EPS

Gertrude Stein said, “A rose is a rose is a rose,” but the same cannot be said about earnings per share (EPS).

While the math may be simple, there are many varieties of EPS being used these days, and investors must understand what each one represents if they’re to make informed investment decisions. For example, the EPS announced by the company may differ significantly from what is reported in the financial statements and in the headlines. As a result, a stock may appear over- or undervalued depending on the EPS being used. This article will define some of the varieties of EPS and discuss their pros and cons.

Trading Psychology And Discipline

Posted on 12.15.06 by StockPK Team @ 9:00 am    

Your psychological mind set may play a larger role in your trading career than your chosen technique or any other details associated with your day-to-day practice. Indeed, discipline is just one attribute of trading psychology, but it just so happens to be the most important psychological factor that affects a trader’s success.

There are four components of discipline that I believe are absolutely essential to a successful career in trading: