What is Dividend Frequency?
Dividends are paid at certain intervals by companies who pay them. This might be quarterly, annually, or semi-annually. The dividend rate that investors should keep up with is the annualized amount, but there is a lot to be said for quarterly or monthly payments, particularly for those actually using dividends as income, but even if you are just reinvesting. Higher dividend payment frequency means higher liquidity, more control, and probably higher returns in your portfolio. Continue reading...
What does it mean to Accept Risk?
The notion of who bears risk for various sorts of failures, circumstances, or losses is a prevalent one in the financial world, and many institutions make all of their money accepting risks. To accept a risk is to bear the burden of loss or replacement if an event occurs that causes an asset to lose value or disappear. There is a bright side to this, however. There is a real and theoretical “risk premium” due to those who accept a risk. Continue reading...
AAA/Aaa — credit rating
AAA — S&P / Fitch Aaa — Moody’s AAA/Aaa rated bond issues have an almost nonexistent chance of defaulting, according to the major ratings institutions that issue the ratings. AAA/Aaa is the highest rating a bond issue or company can get. In the aftermath of the 2008 financial crisis and recession, many companies, and the US Government itself, were downgraded from AAA to AA+. Only two companies in the US still retain the AAA rating: Johnson & Johnson and Microsoft. Continue reading...
What is Return on Assets?
Return on Assets, or ROA, is an efficiency ratio which quantifies how much profit a company can generate with the assets it has. Return on Assets is a ratio of the net income of a company divided by the amount of assets it has on the books. It can also be synonymous with Return on Investment (ROI), at least at a corporate level. Theoretically this gives analysts an idea of how much profit a company could generate by buying more equipment or other assets, or how efficiently they use the assets in which they have invested. Comparing companies in a specific industry to their peers with ratios such as this one can be illuminating. Continue reading...
What is a Federally Covered Advisor?
The Investment Advisers Supervision Coordination Act of 1996 sought to delegate the responsibility of monitoring investment advisors between the states and the federal government. It amended the Investment Advisors Act of 1940, which required all advisors to register with the SEC. The Dodd-Frank Act further amended the IAA, such that only advisors with assets under management exceeding $100 million had to register with the SEC. The IASC was part of the NSMIA legislation passed in 1996. Up until that point, all advisors were regulated and monitored by the SEC. Continue reading...
What is a market neutral fund?
Market neutral funds might be hedge funds or mutual funds or ETFs whose strategy is not based on bullish or bearish market predictions but instead seeks to be in a position to profit whether the market goes up or down. Most mutual funds and ETFs out there are inherently bullish — you invest in those funds because you believe or hope that the industry or geographic region or cap-size that they invest in will grow in the future. Some funds offer bears a place to hole-up when the bubble inevitably bursts (or so they think). Continue reading...
What is MSCI?
MSCI Inc. is a company that is best known for its global indices. MSCI also provides research and pricing capabilities to institutional investors. MSCI was formerly a branch of Morgan Stanley, but grew to be so big that they spun off and formed the independent company, MSCI Inc. Perhaps its best known and used index is the MSCI EAFE, which tracks broad performance of Europe, Asia, and the Far East. Continue reading...
What does 'short covering' mean?
When a security is sold “short,” it means that the investor did not own the security, to begin with, and the broker can require that the investor return the shares in what’s known as ‘short covering.’ Covering a short position means to acquire the securities which were sold short, and returning them to the custodian/broker that facilitated the short sale. Imagine a shopkeeper who allows a customer to lock-in a certain price for a widget, even though the shopkeeper does not have the widget in inventory. Continue reading...
What is the Nikkei 225?
The “Nikkei” is the most referenced index for measuring Japanese stocks. The Nikkei 225 - often just referred to as “the Nikkei” - is an index that tracks the performance of Japan’s top 225 publicly-traded companies on the Tokyo Stock Exchange. It is to Japan what the Dow Jones Industrial Average is to the United States. The Nikkei is a price-weighted index. What is a Bear Straddle? What is Foreign Exchange? Continue reading...
What is Operating Leverage?
Operating leverage is a measure of how critical each sale of a company is to overall cash flow. If a company has high operating leverage, it means that it relies on fewer sales with very high gross margins, versus a company with low operating leverage that experiences higher levels of sales with lower gross margins. As an example, a convenient store has less operating leverage than a business that sells yachts. Continue reading...