Lessons from the FACEBOOK IPO. Be Wary of IPOs. It's Probably Overpriced.

Do you think you can make lots of money by getting in on the ground floor of the initial public offering (IPO) of a company just coming to market? My advice is: that you should not buy IPOs at their initial offering price and  that you should never buy an IPO just after it begins trading at prices that are generally higher than the IPO price.   Historically IPOs have been a bad deal.  In measuring all IPOs five years after their...

Five key questions in considering investment opportunities:

1.  Is this a good business run by smart people?This may include items such as quality of earnings, product lines, market sizes, management teams, and the sustainability of competitive positioning within the industry.2.  What is this company worth?Value investors perform fair value assessments that allow them to establish a range of prices that would determine the fair value of the...

Nervous UK investors make a dash for cash

Thousands of nervous investors are shunning shares as the financial crisis drags on. Investors opting for the safety of cash amid the economic debt crisis Photo: Howard McWilliamBy Emma Wall8:03AM BST 24 Jun 2012British investors are making a dash for cash as the eurozone turmoil shows no sign of abating. Stockbrokers, fund providers and investment managers all say that investors with Sipps...

The pros and high frequency traders rule the world. Is the Buy & Hold Stock Strategy Officially Dead?

If you hold onto an investment for longer than five days, consider yourself the new millennium’s version of Benjamin Graham.Source: Reed Business Information, Inc.Benjamin Graham, the economist often considered the father of value investing.The average holding period for the S&P 500 SPDR (SPY), the ETF which tracks the benchmark for U.S. stocks, is less than five days, according to shocking...

How exactly do we know the value of the asset? Trust Your Instincts (Common Sense).

"Price is what you pay. Value is what you get."Leave it to Warren Buffett to sum up the dilemma in a single pithy dichotomy. The world's greatest investor reminds us that the value of an asset -- whether a car, a house, or a stock -- does not necessarily have any relation to the price we pay to own it.   Buffett's observation still leaves us with one crucial question: How exactly do we know the value of the asset?Benjamin...

There is no price low enough to make a poor quality company a good investment.

If you're in doubt about the quality of a company as an investment, abandon the study and look for another candidate.When in doubt, throw it out.Abandon your study and go on to another.  There is no price low enough to make a poor quality company a good investment.The worse a company performs, the better value its stock will appear to be.Because declining fundamentals will prompt a company's shareholders to sell, the price will decline.  This...

Telltale signs of good cash generation are dividends, share buybacks, and an accumulation of cash on the balance sheet.

Economies of scale:  refers to a company's ability to leverage its fixed cost infrastructure across more and more clients. Operating leverage:  The result of economies of scale should be operating leverage, whereby profits are able to grow faster than sales.Low ongoing capital investment to maintain their systems: The combination of operating leverage and low ongoing capital requirements suggests that the firms should have plenty of free...

Concept of Risk vs. Reward

Evaluation of Customers - Concept of Risk vs. RewardMeasuring Portfolio RisksOne of the concepts used in risk and return calculations is standard deviation which measures the dispersion of actual returns around the expected return of an investment. Since standard deviation is the square root of the variance, this is another crucial concept to know. The variance is calculated by weighting each possible dispersion by its relative probability...

Investment Objectives

Evaluation of Customers - Investment ObjectivesThis section refers to general investment objectives, not the client's specific needs such as retirement at a certain age or college plans for his/her children (see the next section on capital needs). However, there is certainly a correlation between the two, and it is useful to know the characteristics of each of these investment goals:Preservation of capital - the investor is more concerned with...

Investment Risks

By understanding the various types of investment risks you will be better able to recommend securities according to a client's suitability. Remember that representatives have a fiduciary obligation to match customers with appropriate investments. Investment RisksRisk is simply the measurable possibility of either losing value or not gaining value. In investment terms, risk is the uncertainty that an investment will deliver its expected...

Economic Factors - International Economic Factors

A significant issue when dealing with international companies is that transactions occur in more than one currency. A company that collects revenues in a foreign currency will be either long or short in that currency, depending on whether they receive more revenue than they pay out in expenses (long) or less revenue than they pay out (short). Currency Exchange RatesChanges in currency exchange rates can have a huge impact on both business profits...

Economic Factors - Economic Indicators

There are several economic factors that change prior to, during, or simultaneously with the business cycle. These factors are examined by analysts to determine the current state of the economy. We will examine the three common types of indicators below.Leading Indicators: A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy,...

Economic Factors - Price Changes in the Economy

InflationInflation is the economic condition characterized by continuously rising prices for goods and services. As a result, the purchasing power of a country's currency deteriorates as its value decreases and interest rates rise. What exactly causes inflation and how does it affect your investments and standard of living? See the tutorial: All About Inflation for the answersThere are two generally recognized types of inflation: demand-pull...

Corporate Finance - Dividend Payment Procedures

Dividend payouts follow a set procedure as follows:Declaration dateEx-dividend dateHolder-of-record datePayment date1.Declaration DateDeclaration dateis the announcement that the company's board of directors approved the payment of the dividend.2.Ex-Dividend DateThe ex-dividend date is the date on which investors are cut off from receiving a dividend. If for example, an investor purchases a stock on the ex-dividend date, that investor will not...

Financing a capital project with equity may be a signal to investors that a company's prospects are not good.

Corporate Finance - Signaling Prospects Through Financing DecisionsOne of the key assumptions Modigliani and Miller make in their work is that market information is symmetric, meaning companies and investors have the same information with respect to the company's future projects/investments. This assumption, however, is not realistic. When making capital decisions, a company's management should have more information than an investor, which implies...

Corporate Finance - Types of Risk

Like anything, projects do have risks. There are three types of project risks associated with capital budgeting:1. Stand-alone risk2. Corporate risk3. Market risk1.Stand-Alone Risk This risk assumes the project a company intends to pursue is a single asset that is separate from the company's other assets. It is measured by the variability of the single project alone. Stand-alone risk does not take into account how the risk of a single asset...