What is the Price to Earnings Ratio (P/E Ratio)?
The Price to Earnings ratio is a company’s stock price relative to its net income per share. A low P/E indicates that a stock is trading at a low premium to earnings, which may indicate that the market thinks low relative growth rates are ahead for the company. A company with a high P/E means investors are willing to pay a premium for growth, perhaps anticipating high future growth rates for the company. The P/E ratio is calculated by dividing the market value per share of a company by its earnings per share. Continue reading...
What is a Leveraged Buyout?
A leveraged buyout occurs when members of management use outside borrowed capital to buy a controlling share in the company. Often times, the assets of the company being acquired are used as collateral for the borrowed capital. The purpose of leveraged buyouts is to acquire another company without having to commit a lot of working capital up front. In a typical leveraged buyout, you may see a ratio of 90% debt financing to 10% equity used to acquire the company. Continue reading...
Do I Need a Trust?
Whether or not you need a trust depends on several factors, some of which include: your level of assets, the complexity of your estate planning goals, the control you wish to exercise over your assets after your death, your need for creditor protection, amongst others. Trusts have many features that make them an attractive option for wealthy people – it allows them to avoid taxes in some cases, avoid probate court for heirs, and the ability transfer control of your assets to someone you trust (your selected trustee). It also affords the ability to have the assets span multiple generations, if managed properly. Continue reading...
What is currency in circulation?
Currency in circulation tends to be defined as the currency held by commercial banks, and currency with the public, without including long-term deposits or investments. As much as 2/3rd of Currency in Circulation is held outside of the borders of the US, and is estimated to be around $1.5 trillion as of 2016. Currency in Circulation is one part of what’s known as the money supply. Money supply is divided into four levels: M0, M1, M2, and M3. Some might define currency in circulation as the larger part of M0, which is the money base, constituted by the currency held in commercial banking institutions and excluding central bank reserves / Federal funds. This definition disregards the Currency with Public, which is included in other definitions and is part of M1. Continue reading...
What is a Dividend Rollover Plan?
Dividend rollover plan is another, rarely used way to refer to a Dividend Reinvestment Plan (DRIP). Unfortunately just reinvesting dividends in a systematic way will not get you out of any tax implication associated with the dividends attributed to your account. An automatic dividend reinvestment plan (DRIP) is an option in some investment accounts and financial products. Any dividends paid out will be reinvested in the same mutual fund, ETF, or stock at the earliest possible opportunity. Continue reading...
What is the Rectangle Top (Bullish) Pattern?
The Rectangle Top pattern forms when the price of a pair is stuck in a range bound motion. Two horizontal lines (top: 1, 3, 5) and (bottom: 2, 4) form the pattern as the pair bounces up and down between support and resistance levels. Depending on who gives up first buyers or sellers the price can breakout in either direction. This pattern is commonly associated with directionless markets. Usually the pattern performs better when there is a strong uptrend leading into the formation. Continue reading...
What is an Unrealized Gain?
Gains and losses are only "real" when shares are sold or withdrawals are made, but up until that point the gains were more of a notional amount, and are said to be "unrealized." A more salient way to understand unrealized gains is to look at the opposite: unrealized losses. If a person makes an investment of $1,000 and the value of the shares drops sharply the next week, has the person lost any money? The answer of course is no, not unless he sells the shares and takes the lower market price for them. Continue reading...
How do Market “Bubbles” Burst?
Bubbles, while both intriguing and puzzling occurrences, have always been a part of market and economic cycles. In short, a bubble forms when investors start bidding up the price of an asset well beyond its intrinsic value, based on speculation and euphoria surrounding potential gains. Eventually demand will dry up when valuations are too high, as investors start shunning the risk premium associated with investing. Investors will then race to be the first out of the position, and it ultimately brings all the sellers to the table at once. The bubble then pops. Continue reading...
What are Specialty Funds?
Specialty funds may be completely unique and offer investors a strategy that they cannot find elsewhere, or they may just represent a strategy with an extremely narrow focus. There are many Specialty Funds, and their investment strategy is bounded only by the imaginations of the companies who create them. They tend to focus on markets that an investor may not have any exposure to otherwise, such as the Ultrashort Japan Fund. Continue reading...
What is After-Hours Trading?
After-Hours Trading on the Nasdaq can take place after market close from 4-8pm EST or in the pre-market hours from 4-9:30am EST. Pre- and Post-market trading used to be reserved for large institutional investors or high net worth individuals, but is now made possible through the improvements to electronic trading networks and the demand from individuals trading from their computers at home. Interestingly, institutional investors can trade anonymously on the after-hours Nasdaq market, such that virtually no one knows what positions they take during that time. This is called trading in “dark pools of liquidity.” Traders on the after-hours Nasdaq cannot make certain kinds of trades or use certain instruments. Continue reading...