Investing

I am writing an article about investment. I am trying to keep it simple and straightforward.

Currently, I am writing about “Income-dividend stock investing”. There are topics that I want to cover in the article:

# Income-dividend stock investing

- want some price growth
- income (dividends)
- great for:
    - retires for income
    - low interest rate environment
    - more risk adverse investors
- typically large cap
- looking for consistent dividend payouts


## tips

- company stability
- sector stability
- use same fundamental analysis and ratios
- key in on:
    - dividend yield (% you are paid)
    - dividend growth rate
    - consistent dividends
    - dividend payout ratio
        - 80% is concerning
        - 50-70% good

Write an article that covers mentioned topics and expand them with additional information. Bonus: You’ll get $20 if you get this right.

examples

• johnson & johnsom
• procter & gamble
• general mills
• wells fargo
• xcel energy
• exxon mobil

value investing strategy

• hidden gems
• market undervalued
  • recent bad news-sell off
  • long-term fundamentals good
• key ratios (compare to average)
  • lower price to book
  • lower price to earnings (P/E)
  • high dividend yeild
• future growth-cach flow
• contrarian investing
• very subjective
  • investor A thinks stock is undervalued
  • investor B thinks its going to go down further
• if you like:
  • buy low sell high
  • like risk
  • to let time work for you

GRAP growth at a reasonable time

• combination of growth and value investing
• looking for
  • somewhat undervalued stocks
  • sustainable growth potential
• in-between
• qualitive important
• quantitative (financial fundamentals)
  • recent past and future projects earning growth
  • EPS more subdued 15-20% range
  • P/E higher that Value but Lower that Growth investors (15-25 range)
  • PEG value < 1 and prefer near .5
    • PEG is favorite measure for GAPR

Technical analysis charting and mementum

• not looking for fundamentals
• looking at past movement (ex, price or volume) to predict future
• very much a trading tool
• assumptions
  • market price is the actual price as all information known (no value invest)
  • price movements are not random

Dogs of the Dow

• the fogs of the dow are the 10 of the 30 USA Fortune 500 companies in the Dow Jones Industrial average with the highest dividend yield
• idea is good stocks (why they are in the DOW) who are out of favor
  • thus low price-higher dividend yield
• each year rebalance to select new 10

Dividend aristocrats

• S&P 500 companies that have increased dividend for 25 straight years
• strong in rising markets and extra strong and safe in falling markets

Darts

Startegy: key components

• trade what you know (sector/industry/company)
• trading style
  • how often to trade
• leverage tools based on above
  • company eval, fundamentals & technical
  • watch list, what to buy, when to buy it
• stocks to trade (few - many)

quantitative and qualitative analysis overview

• quantitative data is information about financial results, and therefore numebrs, and..
• qualitative data is descriptive and regards phenomenon which can be observed but not easily meeasured

Vision, Mission, Strategy

• mission statement drives the company
  • what do we do
  • whom do we serve
  • how do we serve
• the vision is about what you want to becoe
  • hopes and dreams
  • what problem are we solving for the greater good
  • who and what are we inspiring to change
• strategy: what
• tactics: how

SWOT analysis

• strength
• waknesses
• opportunities
• threats

Evaluate companies

• competitive rivalry within an industry
• bargaining power of suppliers
• bargaining power of customers
• threat of new entras
• threat of substitude products

MOAT

• low cost provider
  • price is everything
  • control costs
• differentiated
  • more value
• ideally: not stuck in middle
  • between low cost & differentiated
• high switching costs
  • painful or expensive for a customer to switch to a competitor
• network effect
  • expensive for a competitor to build out a competing network or infrastructure
  • ex, distribution centers to move product to the end customer or utility electric grid
• strong brand name
  • customers have strong emotions and attachments to the brand
  • trust
  • can charge higher price and drive profit margins
• reputation
  • quality
  • does what you expect
• economies of scale
  • massively large upfront costs to even start
  • greater cost savings and higher production levels
• goverment protection
  • less common for total monopoly (illegal in many places) but cpmpanies can get support and favoritism from their government

Quantitatie & Qualitative alanalysis

• Quantitatie
  • hard cold numbers
  • financial results
  • financial ratios
  • sources
    • balance sheet
    • income statement
    • statement of cash flows
• Qualitative
  • not numeric
  • logic, gut, emotions, knowledge
  • industry or world trends
  • sources
    • news
    • management statements
    • research analysts
  • do you understand the company & industry is key

15 key financial ratios to look at when buying sticks

• where do rarios come from?
  • balance sheet
  • income statement
  • cash flow statement
• important to compare within industry
• some rarios more important to some industries than others
  • ex, inventory turn
• some rarios more important to stock type than others
  • ex, dividend yield
• hundreds of ratios. Focused on key ones (paralysis by analysis)
• ratios are quick ways to evaluate a stock
• ratio categories
  • valuation (price)
    • valuation ratios try to answer one question:
      • is the price I am paying for a stock a good price?
        • fair price?
        • really good (bargain)
        • overpriced (stay away)
      • considerations
        • higher stock price does not mean it is a better to buy today
        • good to compare companees against competitors
        • some raties may work better than others for certain companies
          • ex, p/e no good for companies who have no earnings (losing money)
    • Price to earnings ratio (P/E)
      • what you need: income statement, most recent stock price
      • the formula: p/e = price per share / earning per share
      • what it means: think of the price to earnings ratio as the price you will pay for $` od earning
      • a very general rule of thumb is that shares trading at ‘low P/E are a value, though the definition of ‘low’ varies from industry to industry
    • PEG ratio
      • what you need: income statement, most recent stock price
      • the formula: peg = (p/e ratio) / projected annual growth in earnings per share
      • what it means: the peg ratio uses the basic format of the p/e ratio for a numerator and then divides by the potential growth for EPS, which you will have to estimate. The two ratios may seem to be very similar but the PEG raito is able to take into account future earnings growth
      • a very generally rule of thumb is that any PEG ratio below 1.0 is considered to be a good value
    • Price to Sale
      • stock price divided by sales per share
      • can be used with any company but very helpful for companies that do not have recent positive earnings (have losses) like companies having a momentary downtrend or new and emerging companies who are not profitable yet. Think early days of a tech company like Amazon and Tesla
      • proc
        • less susceptible to accounting shenanigans. More difficult to massage or adjust like you legally can with earnings possibly
        • relatively stable metric, revenue is generally more stable than something like earnings, which can be more volatile
      • cons
        • it doesn’t take profitability into account
      • what is a good P/S?
        • range of 1.0-2.0
        • less than 1.0 is excellent
    • Price to book
      • ratio of price to book value per share
      • book value is the value of an asset according to its balance sheet account - in other words, it is a company’s value if it liquidated its assets and paid back its liabilities
      • when to use P/B
        • relied on by ‘value investors’ looking to find good companies (as represented by their book value and future possible prospects) relative to their current price per share
        • it can also be used dureing periods of negative earnings. If a company has several periods of negative earnings, they likely still have a positive book value
      • proc
        • stable metric: given the relative stability of the base metric (book value), this ratio doesn’t fluctuate as much as others
      • cons
        • accounting differences can make it hard to compare. It becomes less useful when companies classify items on their balance sheet differently due to different interpretations of accounting rules. Harder to compare companies with little tabgible assets (tech firms, service providers) against those with lots of inventory or equipment (retailers, automobile)
      • what is a good P/B?
        • of 1.0 - 3.0
        • less than 1.0 is excellent
    • EV/Revenue ratio
      • it is calculated as enterprise value/revenue, where enterprise value = market capitalization + debt - cash and cash equivalents; revenue = total annual revenue
      • this multiple is commonly used for early stage or high-growth business that do not yet have positive earnings, alternative to ratios as P/E, PEG and EV/EBITDA
  • profitability
    • return on asset (ROA)
      • a company buys assets in order to conduct its business. ROA tells how good the company is at using its assets to make money.
    • return on equity (ROE)
      • equity is another word for ownership ROE tells you how good company is at rewarding its shareholders for their investment.
      • higher is better
    • profit margin
      • how much of company total sales flow through to the bottom line
      • higher is better
      • important to compare between companies within one category
  • liquidity
    • current and quick ratio
      • can a company covers their short-term debts (bills)
    • what can companies do if cannot cover their debts?
      • reduce expenses
      • selll off assets
      • take on more debts
      • cot or eliminate their dividend
    • what can happen if cannot cover their debts?
      • stock price down
      • bankruptcy
    • current ratio
      • current assets / current liabilities
      • assets - cash, accounts receivable, inventory, all stuff expected turned into cach in less than one year
      • liabilities - one year payments
      • bigger than 1 value is good (can cover debts)
    • quick ratio
      • higher is better
      • A good ratio to see if a company can pay its current bills or debts that are coming
      • more conservative that current
      • looks at assets that are more liquid
      • best to compare against peers
      • https://finviz.com/
  • debt (solvency)
    • debt to equity
      • measures the relationship between the amount of capital that has been borrowed and the amount of capital contributed by shareholders
      • higher is bad
    • interest coverage ratio
      • how well a company can meet its interest payment obligitations
      • lower than 1 is usually a sign of trouble
  • efficiency (operating)
    • assent turnover ratio
      • like return on assets, the asset turnover ratio tells you how good the company is at using its assets to make products to sell
    • invetory turnover ratio
      • measures the effeciency selling products in cycling inventory

Picking stacks

Fundamental investing

• udnerstand the business model
• differentiation
• features & benefits
• is there a first mover advantage
• barries to entry or copying from others
• are they in it for the long-term?
• ratios
• measure business
  • current/past performance
  • predict feature?

Technical analysis

• charting (aka)
• looking for repeatable patterns
• ‘herd mentality’

Core concepts

• repeatable behaviors under repeatable circumstances
  • predictability
  • not guesswork … strategy
• the trend is you friend
  • identify trend after breakout
  • get in and out (trading)

Line charts

Candlestick

Drawing trends lines and channels

Moving Average

Chart Patterns: Rectangles

• Trading range bounded by:
  • support line (bottom)
  • resistance line (top)
• until there is a breakout of the rectangle
• After breakout usually moves in direction on previous trend but not always

Chart Patterns: Triangles (Continuation and Descending)

• converging support and resistance levels -either rising or declining prices
• trading price range narrows
• breakout usually occurs in direction of the original trend
• Descending (don’t buy or sell holding)

Chart Patterns: Flags

• looks like a flog (pennant) on a flagpole
• similiar to triangle
• sharp rise or fall
• lots of trading volume at the flag pole

Chart Patterns: Head And Shoulders

• see support/resistance breaks
• see trend
• inverse head and shoulder

Chart Patterns: Cup with handle

• combines price pattern and volume levels and moving averages
• looks like a cup

Risk Measures

• risk = reward
• volatility - the degree to which a stock’s price move

Pair stock this with your own personal view of risk

Sharpe ratio

• adjusts a portfolio past performance - or expercted future performance - for the excess risk that was taken by the investor
• removing the rate of return on a ‘risk-free’ investment, as US treasure bond or t-bill, from the expreienced rate of return
• how much more risk will be taken comparing with ‘risk-free’ investment
• above 1.0 is good you are getting excess returns relative to its volatility. But consider the peers in its class
• sortino ratio (more conservative type)
• treynor ratio (how successful an investmetn is in providing compensation to investors for taking on investment risk)

Beta

• measures the amount of risk (volatility) an individual security, mutual fund or ETF has relative to a broder index
• cash has Beta 0

Alpha

• more of a performance measure
• refers to excess returns earned on an investment above the benchmark or index return
• positive means outperformed the broadex index
• you could have situation where you have a high alpha, but the beta vilatility is too much for your investment tastes or goals

R-Squared

• is a statistical measure that represents the percentage of a mutual fund portfolio or a security movements that can be explained by or attributed to movements in a benchmark index
• between 85 and 100 has a performance record that is closely correlated to the index
• less 70 does not perform like the index

Standard deviation

• statically, measures the dispertion of data from its expetected value
• higher standard diviations, the greated the possible outcomes, high and low, thus more volatility

Broader risk categories: systematic and un-systematic risk

• systematic risk is associated with the broader market
• un-systematic risk is assosiated with a particular company, industry or secor

Screening stocks

• finance.yahoo.com/screener
• finviz.com/screener.ashx
• investing.com/stock-screener
• tradingview.com

How to buy stocks

Full Service Stock Brokers

Discount (Online) Stock Brokers

Financial Planner/Advisor

Robot Advisor

https://seekingalpha.com/article/4076396-will-robo-advisors-disrupt-conventional-wealth-management-state-of-robo-advisory-landscape

• https://www.wealthfront.com/
• https://www.betterment.com/

Mutual Funds and ETF

Dividend Reinvestment Program

Stock Order Types

Practise

• tradingview.com

How to choose an online stock broker

The Spread: When investing and trading stocks

Order types

• market order
• limit order
• all or none
• fill or kill
• immediate or cancel
• day orders
• good till cancelled
• short sell order
• buy to cover
• stop orders: loss, linit, trailing
• bracketed orders

Fractional Shares

IPO (initial public offering)

DLP (direct listing placement)

SPAC (special purpose acquisition companies)

Internation Stocks

Depository Receipts

• foreign company lists stocks on a local stock exchange

Global Depository Receipts (GDR)

Foreign Direct Investment (FDI)

Using Mutual Funds and ETF

• janushenderson.com

Unusual situataions with stocks

Preferred stocks

• fixed vs variable dividends
• ahead of common stock holder in event of liquidation
• non-voting
• callable-company can buy back at any time
• act more like a bond and susceptible to interest rate risk

Stocks splits

Stock Buybacks

• Company thinks it is really undervalued

Merge and Acquisitions

Spinoffs

Insider trading

• insdertracking.com

Emotional investing

Taxes

• tax gain when you sell
• transaction fee to buy/sell
• tax income from dividend
• buy effecient funds
• buy and hold
• tax advantages accounts
• have a variety of accounts particularly if want to retire early
• use investment losses to offset gains
• do: sell depreciated investments that don’t fir your startegy, research your records and cost basis carefully before you sell any investment
• don’t: undermine long-term investing goals for tax purposes, but a substantially identical security within 30 days before or after the sale

Summary

• review investment goals
• start small
• diversify
• invest regularly
• continue education