Investments Flashcards
What is P/FCF
Price/Free Cash Flow
How much growth does the stock market show annually ?
10% +
What is ROE ?
Efficiency of Business Operations
What is P/E ?
Price/Earnings Ratio- From the annual earnings per share, how pricey is the stock at it’s current price? E.G. 30X, 20X, etc.
How do you calculate EPS?
=Market Price / PE Ratio
What is EPS?
EPS = Current Price / (P/E) and is what the company has left over after expenses and taxes
What is Retained Earnings?
Retained Earnings = EPS - Dividends (Paid Out)
P/E Ratio is of use for…
Comparing stocks within the same industry
Current Yield =
Annual Dividend / Market Price
What is Volume ?
Number of shares traded in a particular period. Reported daily by exchanges for both individual issues trading and the total trading executed on the exchange.
Investment Variable You Can Control #1- Limit Downside Risk
It’s very rare for a company to fall in value below it’s Cash - Long Term Debt
Investment Variable You Can Control #2- The Company’s cash generation
You want your company to generate more cash over time - not less
Investment Variable You Can Control #3- Balance Sheet
Your company should have a strong Balance Sheet
Investment Variable You Can Control #4- Bet With The House
When management and insiders own significant stakes they will maximize shareholder value
REIT Warnings
REIT’s can feel pressure from Bonds if Interest Rates rise
Watch out if Valuations have zoomed
6 Market Sectors
Computer Services Semiconductors Radio Biotechnology Recreation Restaurants
The Value Investor’s Triumverate
The Company must have:
Strong Business Models
Solid Financials
Deep Moats against Competition
Especially good for investing if trading below try worth
Dividends & Drips- How to use them
Reinvest. Not to do so is to give away free money. This can be a powerful force for your portfolio. Over time reinvestment is the cure for poor timing.
Only keep the money if you need the income.
Rising Dividends are an indication of
Management Confidence
Efficient Market Theory
EMT suggests that all available information is know and factored into the price of a stock. Occasional pockets of inefficiency exist that an alert investor can profit from.
When making an offer on a house
- Make the offer contingent on your securing financing and the property being cleared
- Set a time limit of 24-48 hours
- Offer enticement by giving your agent 10% Ernest Money to be applied to the price
Credit Score Guidelines
Unflattering notations have a reduced effect with time and most drop after 7 years
Put a brief “Consumer Note” on the report by way of explanation
Many Lenders forgive the occasional slip up
If notations are not accurate see if it was reported to all 3 agencies otherwise keep quiet
When buying a house in a Seller’s Market
- Do not have too many contingencies
- Be pre-approved
- Put down a significant Deposit
What are the 3 Credit Agencies?
Equifax
Experian
TransUnion
What is Channel Stuffing?
When a company ships out Inventory ahead of schedule with products that may never be sold and could be returned
How can you check for Channel Stuffing?
Calculate “Daily Sales Outstanding” by dividing last quarter’s Revenues by 365. Divide A/R by this number to get how many days of sales is represented by the current A/R. 30-45 days is typical.
A low DSO company is:
Getting it”s money back quicker and hopefully putting it to good use
Invest in the future
You have to be in the game to see where it’s going
Everything matters
We become committed to developments
Your research and investment help you predict the future
Companies that attract the $ of well-heeled and well-regarded backers:
Are leaders in their fields and have phenomenal growth prospects over the next 5 years
A Mutual Fund Soft Closing is:
Current Shareholders will still be able to invest. These Shareholders may want to continue sending $. A Closure decision is made with Current Shareholders in mind. Good Funds Close for good reasons.
Why are Fund Closings usually a good idea?
A bloated Asset Base can make it difficult for the managers to execute strategy, particularly those that specialize in Small Caps. A Fund will close rather than letting Cash pile up or investing in 2nd tier picks. Another point of interest is the size if the Asset Base compared to the market in which it specializes.
Types of REIT’s
Rental Generating REIT Mortgage REIT Property REIT Timber REIT Health Care REIT Storage REIT
Mortgage REIT’s invest in:
Collateralized mortgages packaged by Fannie Mae, Ginnie Mae, and Freddie Mac and carry an actual or implied AAA rating. They exploit the difference between long and short term Interest Rates. They are proven to maintain double digit yields over time but can be very sensitive to Interest Rate speculation.
What is an advantage of Timber REIT’s?
Very low risk and perform well when stocks and bonds may suffer. They move independently of other REIT’s.
Loan Generation Fee + Loan Discount is limited by law to:
4%
Advantages of Bank American Financial Realty Trust
It buys Real Estate that bank branches are sitting on
Allows banks to get rid of expenses associated with Real Estate
Puts the savings back into their core operations
Banks can sell surplus branches that other banks will lease
Improves Liquidity
Eliminate Depreciation Expense
Increase Earnings and key financial ratios
Advantages of Lease-Options
You may be unable to immediately commit Bad Credit Uncertain Relationship Lack if Down Payment Want to give the house a Test Drive Price is usually locked in Buyer generally has instant Equity Buyer is not locked in-Seller is Landlord may skip a Credit Check Some Fees and Monies may credit to the Down Payment When you find a good L/O the Seller is usually desperate
Put the world on notice in the Public Record
Downsides to AFR (American Financial Realty Trust) could be?
A potential Conflict If Interest when a REIT us formed by purchasing property from it’s own Principals
Potential Short Term Risk if property is disposed of quickly in an unfavorable market or the REIT buys property in a bad area
Old Stock Certificates can be puzzling because:
Companies merge and split changing names along the way
Some firms go out if business
You can place a value on Old Stock Certificates by:
Checking newspaper and Internet Stock listings
Calling a Broker
Calling the Secretary If State where the Stock was issued
Contacting the “Transfer Agent” listed on the Stock Certificate
If out if business check if the Stock is valued as a Collectible
Common Stocks & Uncommon Profits-
Philip Fisher
- Buy Stocks in companies with disciplined plans for long term growth in Revenue and Profit that are currently out of favor
- Hold the Stock unless there has been a Fundamental Change in business or it can no longer keep pace with the Economy
- Aim for 10-12 good companies and no more than 20.
- If the goal is Long Term Appreciation of Capital, de-emphasize the importance of Dividends
- Have more knowledge than others, and the Moral Courage to go against the crowd after thoroughly evaluating. Accept and understand mistakes. Success comes from work, intelligence, and honesty.
Capital Structure (Capitalization) is
The amount of debt or equity used to start the company.
Leverage Financing is
Raising capital through the sale of Bonds
What are the two types of Equity Securities?
Common Stock
Preferred Stock
What is Authorized Stock?
The maximum number of shares a corporation may issue under it’s Charter or By-Laws. This number can only be changed with the approval of shareholders.
The Initial Public Offering (IPO) is:
The first time a company offers shares
A Primary Issue is:
When stock is sold and the company receives money
A Secondary or Non-Issuer transaction is:
The sale of Outstanding stock by holders
Treasury Stock is:
Issued stock repurchased by the company
Outstanding Stock is:
Issued Stock minus Treasury Stock
Stockholders will receive their proportionate share of dividends in one of two ways:
Cash or Additional Stock
“Growth Stocks” have low Yields because:
The company may elect to keep earnings for expansion
A Dividend Declaration Date is:
The date the Board Of Directors declares a quarterly dividend
The Record Date is:
Stockholders whose names appear on company records on this date will receive a dividend
The Ex-Dividend Date is:
The second business day prior to the Record Date
Why may an investor wish to consider whether to buy before, or after, the ex-dividend date?
The price of the stock is reduced by the amount of the dividend, however the dividend is taxable
The Payable Date is:
The date that dividends are sent out
Who sets the ex-dividend date on stocks?
FINRA, under it’s Uniform Practice Code (UPC) sets the ex-dividend date
Who sets the ex-dividend date on Mutual Funds?
The Board Of Directors, and it is usually the day after the Record Date
Pre-Emptive Rights or Subscription Rights are:
the right of a shareholder to maintain a proportionate ownership in a company
A shareholder’s pre-emptive rights are for a short period of time, usually
30 days, and shares may be bought at a discount. If rights are not exercised or sold prior to expiration they become worthless.
Rights Offerings are used to:
Raise additional capital from existing shareholders
Stand By Underwriters are used to:
sell shares to the public if Rights Offerings are unsuccessful
Shares vote not people means:
The shareholder has one vote for each common share owned also called statutory voting
Cumulative Voting is:
Directing all shares to vote for one candidate
The common shareholder has the greatest claim to management, and the last claim to:
Revenue Flow through dividends, and invested capital in the event of the company’s liquidation
Preferred Stock has:
A fixed dividend and claim to company profits and assets senior to common stock. It is considered to be a Senior Security. It also has no voting rights.
Because preferred stock is paid a dividend before common stock, if profits are small,
preferred shareholders may be the only ones to receive a dividend
The dividend to preferred stock is fixed at the time of issue and stated in terms of:
A fixed dollar amount, e.g. $5, or a percentage, e.g. 6% of par value. It is paid in cash only
Besides Straight Preferred Stock, Cumulative Preferred Stock, Participating Preferred Stock and Convertible Preferred Stock describe:
Accumulation of unpaid dividends to be paid at a later date before common shares, the ability to share in dividends that are beyond the fixed guaranteed amount after Common Stock owners are paid, and the ability to convert to Common Stock at any time according to a ratio fixed at time of issue.
Market Sentiment is:
A measure of investor expectations
Realized Appreciation occurs when:
When you sell your stock for more than you paid for it and it then becomes taxed income Capital Gain
Unrealized Appreciation occurs when:
It is on paper only and is not taxable
Market Risk is:
The possibility that paper profits might disappear
Having been issued with a fixed dividend rate the price of Preferred Stock is dependent on interest rates and will seek a level:
where the dividend payment is roughly equal to similar interest bearing securities
An ADR (American Depository Receipt) is:
A negotiable receipt for a given number of shares in a non-American corporation
The rights of an ADR are;
The same as common stock, except pre-emptive rights
Current Yield=
Annual Dividend / Market Price
Earnings Per Share - Annual Dividend=
Retained Earnings, part of Shareholder’s Equity
Warrants are
Stock purchase rights issued for long periods of time with a stated exercise price above the current market price
