Stocks

[firouz]

Because some of you seem to have little clue about the stock market, I thought I may post a brief summary. Also, since you are all young, it would be wise to start investing now. $10,000 invested in the S&P 500 could be $1,000,000 in 49 years assuming a 10% yearly growth rate and a no-tax account. This is typically done with an IRA, Investment Retirement Account.

In the United States, traditional IRAs deduct your contribution for that year from your taxes, but the money withdrawn from the account will be taxed. A Roth IRA is the opposite. Contributions are not deducted from taxes, but the money withdrawn from the account will not be taxed. Since you are not allowed to withdraw money from an IRA, a Roth IRA allows you to grow your money tax free.

But even with taxable accounts, one can still grow your money. The advantage of such an account is that you can withdraw the money at any time.

Key Terms:

Commissions – amount of money you pay a broker every time you buy or sell. This is an extra service fee from the annual fee some brokers may charge.

Stocks - part ownership of a company. Public companies raise money for their business by borrowing from investors. In return, the investors get part ownership of the company.

Ticker – the stock’s symbol. You can look up a company’s ticker symbol from www.hoovers.com/free/ . From there, you can use finance.yahoo.com/ , www.google.com/finance , or moneycentral.msn.com/home.asp to find stock information from the ticker symbol, which you type into the search bar.

Dividend – amount company pays to an investor, given as cents per share.

Dividend yield – percentage of dividend per share price. Ex. If dividend = 0.40 and the share price = $60.00, the dividend yield = 0.66%. If a stock paid out $5 per share in cash dividends to its shareholders last year, and its price is currently $50, then it has a dividend yield of 10%.

S&P 500 – Index fund of the 500 largest companies in the United States based on market value or market capitalization.

Market value – stock price * total number of shares in the market

Enterprise value – value of companies assets. If market value is lower than enterprise value, it is one indication that a stock may be undervalued, meaning that it is a good buy.

P/E ratio = Price of the stock divided by the yearly earnings per share

"Trailing P/E" or "P/E ttm" - the net income of the company for the most recent 12 month period divided by number of shares outstanding.

"Forward P/E", "P/E f", or "estimated P/E" - estimated net earnings over next 12 months divided by number of shares outstanding. A low forward P/E is another indicator that a stock may be a good buy.

PEG – the usually the forward P/E ratio divided by the estimated growth rate. A PEG of 1 indicates that the forward P/E is equal to the growth rate. A PEG less than 1 could indicate that the stock is undervalued.

Price-to-book ratio – the market value divided by the accounting value of the company. A price-to-book ratio less than 1 is another indicator that a company is undervalued.

Operating Margin = Operating income divided by the revenue

Gross Margin = (Revenue-Cost of Sales)/Revenue. A high gross margin, given as a percentage, indicates that the company is making money and may be a good buy.

EPS – earnings per share. A negative value indicates that the company is loosing money.

[Mala]

Wow. That's a lot of stuff. Thanx, Firouz.

Because some of you seem to have little clue about the stock market

. Hehe, and here I thought I was the only one. ;D

[Sinbad]

*is another one with no clue* Heh, thanks. I know who I´ll turn to when there is stuff about all this finance business I do not understand.

I somehow don´t feel that positive about investing into the stock market, mostly because I feel like I would have to invest a lot of time getting a good overview and being able to win something from it instead of losing all my cash ;D Also, whoa, investing $10 000? I´m nowhere even near that.

[Doubar]

Jun 13, 2009 4:00:23 GMT -5 Sinbad said:

I somehow don´t feel that positive about investing into the stock market, mostly because I feel like I would have to invest a lot of time getting a good overview and being able to win something from it instead of losing all my cash ;D Also, whoa, investing $10 000? I´m nowhere even near that.

*nods eagerly* Same here, my friend. ;D

[firouz]

Jun 13, 2009 4:00:23 GMT -5 Sinbad said:

*is another one with no clue* Heh, thanks. I know who I´ll turn to when there is stuff about all this finance business I do not understand.

Glad to help.

I somehow don´t feel that positive about investing into the stock market, mostly because I feel like I would have to invest a lot of time getting a good overview and being able to win something from it instead of losing all my cash ;D

True, for me, I spend about one to two hours every day on stock research, but it paid off because I grew my money from $3,000 to $15,000 in 7 years. But you could just put your money in the S&P 500 or any other index fund and by just leaving it there, there is a good chance that it would grow in the long run. Or if you want, you could invest in one or two large, good companies and leave it there. This would get away with the fund's fee, but this is risky. And finally, there are mutual funds and hedge funds where you give your money to the fund manager and he invests it for you.

Also, whoa, investing $10 000? I´m nowhere even near that.

That was just a generic amount. You can start with as much as you want. However, most brokers have a $500 or $1000 minimum starting amount.

[Sinbad]

Sounds like a good way to invest things and make more money But I guess it´s not my thing really, because I like to have things solid there. Like, I will start a ... can you say retirement font?... soon where a little bit of my money each months is transferred to so I have a bit more on the side for old age, more than the state would grant me. Stuff of the like. Other than that, I guess I will be fine with the money I will make from two months ahead onwards because that´s more than I need right now being a single and it´ll be raised every few years.

[firouz]

Jun 13, 2009 4:42:59 GMT -5 Sinbad said:

Sounds like a good way to invest things and make more money But I guess it´s not my thing really, because I like to have things solid there. Like, I will start a ... can you say retirement font?... soon where a little bit of my money each months is transferred to so I have a bit more on the side for old age, more than the state would grant me. Stuff of the like. Other than that, I guess I will be fine with the money I will make from two months ahead onwards because that´s more than I need right now being a single and it´ll be raised every few years.

Okay. And yes, an IRA or Retirement Account (see what I wrote on IRAs, traditional IRAs, and Roth IRAs). An IRA is the same as a regular investment account. The only difference is that it is tax-deductible (see traditional and Roth IRAs). And you do not have to invest in all stocks. You could buy bonds and treasuries, which generally insure the amount you invested with a lower annual yield, interest on your investment. And there are always bank CDs, which are the safest investment. All of your money you put in is insured with a low annual yield. I just like stocks, because they yield the most. But the higher the yield, the riskier the investment. I am a risk taker. Generally, they say when you are in the 20s, invest all in stocks. When you reach 50, invest 60% in stocks and 40% in bonds. As you get older, you shift more money into bonds. This is because after inflation, bond yields are very low compared to stocks.

[Sinbad]

Jun 13, 2009 5:10:49 GMT -5 @firouz said:

Generally, they say when you are in the 20s, invest all in stocks. When you reach 50, invest 60% in stocks and 40% in bonds. As you get older, you shift more money into bonds. This is because after inflation, bond yields are very low compared to stocks.

That sounds kind of unlogical to me. When you´re in your 20s you usually still do not have as much money and you are not as financially stable as you might be when you are in your 40s. I would neve get the idea of investing all my money into stocks, because you never know what comes along the way with a possible financial crisis or stock market crash and then there I am with no financial laybacks at all. Sounds too risky for me.

[firouz]

You never invest all your money. The golden rule says that you should always have three months worth in savings.

[Sinbad]

You need to have that first of all

[firouz]

My stock recommendations are:

Wells Fargo (NYSE: WFC)
Deutsche Bank AG (NYSE: DB)
Barclays PLC (NYSE: BCS)
Coca-Cola Company (NYSE: KO)

Riskier plays:

Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE: YGE)
A-Power Energy Generation Systems, Ltd. (NASDAQ: APWR)
Bank of America (NYSE: BAC)
China Fire & Security Group, Inc. (NASDAQ: CFSG)
ICICI Bank Limited (ADR) (NYSE: IBN)

NYSE = New York Stock Exchange
NASDAQ = NASDAQ Stock Exchange

For funds, I would recommend:

iShares MSCI Brazil Index (NYSE: EWZ)
SPDR S&P 500 (ETF) (NYSE: SPY)
FTSE/Xinhua China 25 Index Fund (NYSE: FXI)
www.vanguard.com/us/FundsIndexOnly?WT.srch=1

[firouz]

Jun 13, 2009 5:37:19 GMT -5 Sinbad said:

You need to have that first of all

Yes, but I don't think it is wise not to invest. Think about it as insurance. You save $25 a mouth and invest that amount every month or so. I also like this method, because it lowers the risk of the stock declining. The only thing is that you need to come on with the minimum $500 or $1000 brokerages charge to open an account. From there, what you do is your decision.

Brokerage accounts:
www.tdameritrade.com/offer/why.html?a=arv&referrer=http%3A%2F%2Fsearch.yahoo.com%2Fsearch%3Fei%3DUTF-8fr%3Dyfp-t-501p%3DbrokersSpellState%3Dn-2120935925q-GpTE3.FLpcmOSAjucMx72FgAAAA4040fr2%3Dsp-top
www.optionsxpress.com/index.aspx?cmpid=ysus34001149
www.tradeking.com/?s_kwcid=TC-5541-{OVKWID}-{ovmtc:S:S:C}-{OVADID}
us.etrade.com/e/t/adviceeducation/investonyourown?SC=NPNYE5S&WT.mc_id=NPNYE5S&wt.srch=1
content.sharebuilder.com/mgdcon/jump/Web/welcome/proseasy/index.htm
www.schwab.com/public/schwab/home/account_types/brokerage/s1_brokerage_account?src=nsy
www.scottrade.com/investment_services/investing_in_stocks.asp?s_kwcid=TC-1591-103904608012-S-8368641512&OVRAW=brokers&OVKEY=stock%20broker&OVMTC=advanced&OVADID=8368641512&OVKWID=103904608012
personal.fidelity.com/planning/retirement/investment_overview.shtml.cvsr?refpr=blz0046

These are all discount brokers. Each have a different minimum and charge different amounts for commissions.

Your bank may also offer investment accounts, but these are costly.

I took some screen shots of Yahoo Finance, circling where to look.

Key Statistics - lists stats of the company

Competitors - compare with its top competitors


And here is a list of ETFs (Exchange-Traded Funds) from Fidelity. ETFs are similar to index funds, but are more specific.




And there is Dividend-Reinvestment Plans (DRIPs). "Most dividend-paying companies offer dividend reinvestment plans – or DRIPs. Dividend Reinvestment Plans give you the power to “set it and forget it”. Your money grows and grows over time. But here’s the best part… You can even tell the company to send you part of your dividends as safe, reliable checks while still participating in the DRIP. Just know which DRIPs are most lucrative, and after one simple move you can easily instruct the company to pay you to own it - FOREVER It’s like receiving a huge pension check – but never working a day for the company. And you can do it over and over – with dozens of household-name stocks!" www.freeinvestingreports.com/daily-reckoning/g020909alp?gclid=CLvPlJfAiZsCFRJdxwodY1GWow
www.fool.com/school/drips.htm

Some brokers may allow you to reinvest dividends. Like this article says, "If you'd invested $10,000 during that period, it would have grown to about a million bucks without dividends … and to more than $24 million with dividends reinvested. Start with $1,000 and reinvest those dividends. After 30 years, you'll have amassed a whopping $18,700!" www.fool.com/investing/dividends-income/2009/06/13/psst-heres-my-secret-formula.aspx

If you have any questions, or if you need my help at picking a stock, just ask.

[Sinbad]

Hm, I´m just not sure whether stocks are really my thing. I guess one would have to really invest a lot of time into making sure that all is up and running and that one is really making profit and invest a lot of time to keep the stock market overview. As you say about two hours a day. I guess that´s not for someone as mathematically and statistics reading illiterate as me.
Btw, this is kind of totally out of context, but what do teachers earn in the States?

[firouz]

Jun 14, 2009 5:21:32 GMT -5 Sinbad said:

Hm, I´m just not sure whether stocks are really my thing. I guess one would have to really invest a lot of time into making sure that all is up and running and that one is really making profit and invest a lot of time to keep the stock market overview. As you say about two hours a day. I guess that´s not for someone as mathematically and statistics reading illiterate as me.

*smiles* That is where money managers come into play. The easiest way is to just buy a fund, and the fund manager will do the rest. Or I am offering my assistance. You can be my first client.

Btw, this is kind of totally out of context, but what do teachers earn in the States?

Public school teachers have a starting salary of about $35,000. My math teacher had taught for 10 years, and she makes about $60,000 a year.

[Sinbad]

Jun 14, 2009 5:35:28 GMT -5 @firouz said:

Jun 14, 2009 5:21:32 GMT -5 Sinbad said:

Hm, I´m just not sure whether stocks are really my thing. I guess one would have to really invest a lot of time into making sure that all is up and running and that one is really making profit and invest a lot of time to keep the stock market overview. As you say about two hours a day. I guess that´s not for someone as mathematically and statistics reading illiterate as me.

*smiles* That is where money managers come into play. The easiest way is to just buy a fund, and the fund manager will do the rest. Or I am offering my assistance. You can be my first client.

Meeh, I think I´ll pass. I think I don´t trust finance markets. I´ll rather save my money and put it on a bank account as I´ve done so far where it can bear interest.

Jun 14, 2009 5:35:28 GMT -5 @firouz said:

Jun 14, 2009 5:21:32 GMT -5 Sinbad said:

Btw, this is kind of totally out of context, but what do teachers earn in the States?

Public school teachers have a starting salary of about $35,000. My math teacher had taught for 10 years, and she makes about $60,000 a year.

35 000 pre tax or after tax?