Archive for November, 2008
The PEG Ratio in Stock Valuation
The PEG Ratio (Price/Earnings to Growth), popularized by Peter Lynch in his book, “One Up on Wall Street”, is a measure of valuation that analyzes the relationship between stock price, earnings per share, and the expected growth of the company. The theory is that a fairly-priced stock will have a PEG of 1, while [...]
Yield to Maturity of a Coupon Bond (includes calculator)
The yield to maturity (YTM) is the yield offered to a bondholder if the bond is held to maturity. As such, it is a measure of the return of the bond. YTM is expressed as an annual rate for which the calculation includes the current market price for the bond, its par value, coupon rate, [...]
Inflation, Taxes, and Stock Investment Break Even Return (includes calculator)
One of the most important calculations for an investor to perform is the breakeven return they need to compensate for the impact of inflation and taxes. If your investments return lower than this break even point, you will lose money on a post-tax, post-inflation basis.
Inflation is an increase in the price of a basket [...]
What is “Rule 1 Investing”?
Rule #1 investing was coined by Phil Town (www.ruleoneinvestor.com). It is based on a philosophy ascribed to Columbia University’s Benjamin Graham (author of The Intelligent Investor), and popularized by Graham’s student, Warren Buffet (perhaps the most well-known investor of all time). Town believes that “Most Americans are trapped in mutual funds that, at [...]
A Compound Annual Growth Rate (CAGR) Calculator
CAGR is the compound annual growth rate of an investment (or anything measurable) over a particular period of time. The calculation represents a steady level of growth from a beginning value to an ending value and is used to smooth out uneven investment returns. This enables investors to effectively evaluate performance by [...]
Moving Averages in Technical Analysis
Moving averages (MA) are techncial indicators that illustrate the average price of a stock (or other security) over a defined period of time. As the stock’s price changes over that time period, its average price adjusts accordingly. Moving averages are one of the most popular tools available to the technical analyst, offering a way to [...]
Determining Stock Intrinsic Value
A stock’s intrinsic value is the perceived “real value” of a stock as calculated through the value of a company’s expected future cash flows and other factors. If the value is determined to be higher than what the stock is currently priced at, the stock is considered to be undervalued. There is no [...]
What Are Mutual Funds?
Mutual funds are professionally managed investments that pool money from investors for investment in stocks, bonds, and other types of securities. A fund manager has the responsibility of trading the pooled money and managing the fund toward its stated objective.
Stock Market Investing with a Margin Account
Stock market investing with a margin account involves borrowing money for the purchase of stock. Essentially, it is a loan from your broker to give you the opportunity to purchase more stock than you might otherwise be able to afford. When buying on margin, you are only paying cash for some of the investment [...]
Leveraging Call Options (includes calculator)
An option is a contract that offers the buyer of the contract the right to buy or sell a particular asset (the underlying security) at a specified price. Stock options enable investors to manage risk while seeking profit opportunities, making stock options worth considering for a leveraged investment strategy.