The "end" value at a specified date in the future of an investment or cash flow. Terminal value is a term used in value calculations looking forward toward the future value of an asset or cash flow, and also in calculations which start with the Terminal Value and depreciate the asset over the intervening years until one arrives at the Present Value. Can be used in calculations regarding a business, an index, a cash flow, or an asset. Horizon Value is a synonym, and is perhaps better suited to describe the way the calculation chooses a time horizon of a specific number of years, but otherwise uses the same numbers in an equation that will estimate the value if the business or index went on growing at the same rate into perpetuity. Continue reading...
The Dividend Discount Model (DDM) is a method for valuing a stock, that looks at expected future dividend payouts and adjusts to present value. If the calculated value is less than the current trading price, the security is thought to be undervalued. The DDM is helpful as a tool but should not solely be used in valuation calculations. Perhaps its biggest flaw is that future dividends have to be projected and assumed, which is a far-from-certain practice. Continue reading...
The Gordon Growth Model is also known as the dividend discount model (DDM). It is a model for pricing a stock that was developed by professor Myron J. Gordon in the 1960s. The model uses a stock’s present value relative to the present value of its future dividends to provide an intrinsic value for the stock. The model is a shaky one at best, especially given that companies these days often change the course of dividend payments, and many (particularly in the tech world) don’t pay any dividends at all. Continue reading...
With Investing/ Model Portfolios, you can view the performance of passive portfolios. You can receive timely alerts with each re-allocation. Re-allocations are infrequent. Here are the steps: Step 1. Review Model Portfolios' past performance for free. Step 2. Select any Model Portfolio you might be interested in based on their performance. Step 3. Subscribe and follow one or more Model Portfolio. Continue reading...
Market psychology is the overarching sentiment of investors toward the stock market, and also their tendency as a group to pile-on in certain situations whether or not it is rational behavior and to exhibit other idiosyncrasies. Market psychology usually comes into conflict with the efficient market hypothesis tenet that investors are rational. Behavioral finance and the study of market psychology has become a more relevant topic in the last 30 years or so since more main street investors are influencing prices in the market. If you have taken a psychology course, you will know that sometimes people behave in ways that are incongruent with what they believe or what is rational. Continue reading...
Financial stocks are those that make up the financial sector, which encompasses banks, lenders, wire houses, and other companies that facilitate the flow of capital and debt. Real estate companies can also fall under this category. Financials tend to do well when yield curves are steep and the regulatory environment favors banks. When credit markets aren’t under strain financials tend to perform well. Continue reading...
Financial liquidity refers to the ease with which an asset can be converted to cash. Assessing financial liquidity is important on a corporation’s balance sheet, as it serves as an indication of how readily a company can pay off debts or weather a crisis. Continue reading...
Momentum investors usually have their own models for determining whether they think a price trend (to the upside or downside) is set to continue - sometimes it’s looking at a 3 month trend, sometimes a few weeks, sometimes even longer. The idea is that once a trend is established, an investor can buy into its continuance (if its an upward trend), or sell into (or sell short) if it is an established downward trend. Momentum investing is by no means a proven method, but sophisticated investors will try to use models to increase their probabilities of success. Continue reading...
The abnormal earnings valuation method is one in which the future cash flows of a business are given significant weight in a valuation, especially when there are not many hard assets to use for valuation purposes. If a company is rich in human capital or has significant cash flows, whether or not it has many hard asset or book value, the Abnormal Earnings Valuation Model can be the most useful method for arriving at an accurate valuation of a business and its stock. Continue reading...
The answer to this question will depend on the preferences and circumstances of each individual. As your assets grow and your financial picture becomes more complex (with unclear tax implications, and interdependent asset classes), then the answer is more likely to be yes. For those investors with a more modest-size portfolio, it may not be necessary. Financial modeling tools and market research publications are widely available, and while they are not one-size-fits-all answers, they can serve investors quite well when used wisely. Investors who choose not to consult an advisor must be willing to educate themselves. Continue reading...
There are many apps and online programs that investors can use, often for free, to help keep an eye on their holdings and to track their investment portfolio. In addition to the software accessible through your custodian, you might want to look at the programs available through Morningstar, Microsoft Money, and others. Apps on your phone (CNBC, TheStreet, Barron’s, MarketWatch, etc.) can keep you updated on market news related to your stocks, mutual funds, and ETFs. You can also subscribe to market commentaries delivered via email. Continue reading...
The term "Financial Advisor" applies to professionals who are compensated for helping to implement investment strategies, but it is a broad and non-specific term. There are thousands of people who are called “Financial Advisors” – but within this category are various professions with different specialties and compensation structures. There are Financial Advisors, Financial Planners, Investment Managers, Registered Investment Advisors (RIAs), and at times even CPAs, insurance agents, and lawyers are included in this umbrella term. Continue reading...
Dividend growth rate is the annual increase in the scale of dividend payments to stockholders. Good dividend growth is a sign of a company with solid earnings. Dividend growth rate is also referred to as dividend appreciation, and it can be computed fairly easily using historical data. Simply put, the dividend rate is the amount of dividend paid in a year divided by the share price when the dividend is paid. Continue reading...
A financial advisor can be found through an online search, at events, or through the recommendation of friends. Believe it or not, while there are thousands of resources and databases, the best way to find a Financial Advisor is to ask your friends. You will need to determine a few basic criteria when looking for a Financial Advisor, such as geographical location, his or her age bracket, years of experience, frequency and medium of communication, and the amount of fees you are willing to pay. While there are thousands of resources and databases, sometimes the easiest way to find a Financial Advisor is to ask your friends. Continue reading...
The internet is overflowing with the advice, analysis, and chest-pounding of millions of self-purported gurus and market commentary services. There are plenty of well-informed and trustworthy sources out there, too. There are literally millions of websites providing you with various kinds of financial information, advice, recommendations, opinions, rumors, get-rich-quick schemes, and “facts.” There is a short list of companies that are well-established with a reputation worthy of trust: Morningstar, Moody’s, Fidelity, Schwab, Goldman Sachs, etc. Continue reading...
A good financial advisor should care as much about your investments as you do, and be personable and knowledgeable enough to make the relationship worth your time, money, and trust. Choosing a Financial Advisor is a bit like choosing a caretaker for your child: you would want someone who gives you a sense of security, who has professional references or the recommendation of a trusted friend, years of experience, is reliable and honest, can foster growth, and ideally, will care about your child almost as much as you do. Continue reading...
A Certified Financial Planner (CFP) is a financial advisor capable of investment and insurance/estate planning. For an advisor that wants the “CFP” designation, they must complete the CFP Board’s initial and ongoing certification requirements, which include extensive exams in the areas of financial planning, taxes, insurance, estate planning and retirement. They must also complete continuing education courses. Continue reading...
It’s easy to become drawn in by the financial media, but it’s important not to let them do your thinking for you. Commentators on the most reputable financial channels will always be sharp-looking, smooth-talking, and quoting a barrage of statistics that makes it seem like you didn’t know anything before you tuned in. Is this an indication of being camera-friendly? Without a doubt. Is it an indication of sound financial advice? Absolutely not. Continue reading...
It’s good to have the opinion of advisors who are knowledgeable in various areas of your planning and portfolio, but for most portfolios this can be reasonably accomplished with one advisor. It’s a good idea to have one Financial Advisor who oversees all of your assets, and if the individual parts of your portfolio are of significant size, you might consider having a specialist in those fields to oversee them. Continue reading...
Cash flow financing is an alternative method of securing a loan, in which cash flows are the collateral, not assets. In cash flow financing, also known as cash flow loans, a lending institution will base their decisions regarding the size of the loan and the loan repayment schedule on future expected cash flows of the company. The cash flows serve as collateral instead of assets, as in an asset-backed loan. Continue reading...