Any investor who holds stocks or bonds of a certain company is, in part, owner of that business.
In view of this, do you know what happens if you own stocks or bonds of a corporation that goes into Chapter 7 bankruptcy?
No?
Let us tell you what you’re facing if such a scenario ever happens:
- If you are a stockholder and the company files for bankruptcy, you will not only see a massive decline in the value of your shares but you will also move to the very end of the list when it comes to paying back debtors.
What this means is that if the business goes down, you undertake the largest part of the risk, and actually, you should forget about ever being remunerated.
- If you are a bondholder you face a much lower risk than the stockholder, but you are not free of loss.
When a company files for bankruptcy, the first things it has to pay are back wages, mortgages, credit lines, and the money it owes to other companies. Whatever cash is left afterward is used to remunerate bondholders, but in many cases you will not receive your full investment.
The best way to stay away from companies that could go bankrupt is to buy stocks and bonds of businesses that have had lots of cash, little debt, and a solid profit and income growth for the past three years.
And where do you find such companies?
Go to finance.yahoo.com and type in the ticker symbol of the company that has caught your eye. In there, take a look at the bar on the right-hand side and select “key statistics”, right there you will find all the important information about that company’s finances.
It is crucial that every investor understand what he is doing when he puts money into a company; it is your responsibility to thoroughly research and learn to ensure you are making the best choices.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
How to Invest Money Wisely | CherryShares Blog
December 31, 2010
December 28, 2010
Want to Make Money Investing? Befriend Margin Trends
When an investor researches companies to invest in he normally looks at different margins such as the gross margin, the operating margin, the pre-tax margin, and the net profit margin.
In any case, he is in the right path if he concentrates on the operating margin. The operating margin is the difference between how much a business makes and how much it spends to operate.
If a company makes at least 15% more than it spends, it’s probably gotten the attention of the investor.
Right then, there is another thing the investor has to know…
Last year, was the operating margin lower or higher?
How about the year before?
And the year before that?
The investor wants to confirm the margins follow an upward trend, which could happen due to various things:
- A strong and/or rising pricing force.
- A shortage of products; meaning the company makes fewer product than it can sell.
- Technological leadership.
- A move from lower-end to higher-end products.
- Growing productivity.
- The capacity to manage costs effectively.
The investor has to research thoroughly to find out what exactly is producing the higher margins; however, all of the reasons above are good.
In truth, with an operating margin that follows an upward trend, even if you don’t research further, you know that a business is running from a strong position.
Profit margins reach the heart of what make a business successful. Take retailers, for example.
During 2008, many retailers sold more than ever over the holiday season; nevertheless, they had to reduce prices to entice the customers and in consequence, their margins were crushed to the limit. In other words, sales went up but profits went down. This is what happens when margins take the wrong turn.
If you want to do the research for yourself, you can get the numbers from Reuters Finance online. Look for a specific company and access its “Ratios”. We wish you good luck!
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
In any case, he is in the right path if he concentrates on the operating margin. The operating margin is the difference between how much a business makes and how much it spends to operate.
If a company makes at least 15% more than it spends, it’s probably gotten the attention of the investor.
Right then, there is another thing the investor has to know…
Last year, was the operating margin lower or higher?
How about the year before?
And the year before that?
The investor wants to confirm the margins follow an upward trend, which could happen due to various things:
- A strong and/or rising pricing force.
- A shortage of products; meaning the company makes fewer product than it can sell.
- Technological leadership.
- A move from lower-end to higher-end products.
- Growing productivity.
- The capacity to manage costs effectively.
The investor has to research thoroughly to find out what exactly is producing the higher margins; however, all of the reasons above are good.
In truth, with an operating margin that follows an upward trend, even if you don’t research further, you know that a business is running from a strong position.
Profit margins reach the heart of what make a business successful. Take retailers, for example.
During 2008, many retailers sold more than ever over the holiday season; nevertheless, they had to reduce prices to entice the customers and in consequence, their margins were crushed to the limit. In other words, sales went up but profits went down. This is what happens when margins take the wrong turn.
If you want to do the research for yourself, you can get the numbers from Reuters Finance online. Look for a specific company and access its “Ratios”. We wish you good luck!
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
December 25, 2010
Are You Acquainted With the Witches of the Investing World?
If you’ve been around for a while you probably have -although you may not have all the information about them-, but if you have just started your journey into the investing world you should learn what ‘triple witching’ and ‘quadruple witching’ are, because these “witches” highly concern you as an investor.
Simply put,
A ‘triple witching’ day is a day when stock options, stock index options, and stock index futures all expire on the same day.
A ‘quadruple witching’ day is a day when stock options, stock index options, stock index futures, and single stock futures all expire on the same day.
These days occur on a quarterly basis and the media normally gives them a lot of attention, basically because the expiration of these investment products can, and most certainly will, produce higher unpredictability in the market.
This is why, if you are a short-term trader, you have to be on the ball about witching days, which happen on the third Friday of March, June, September, and December. We are sure you can clearly see how sudden changes in the market can affect your short-term investments.
On the contrary, if you are a long-term investor, both these days will not impact you in a significant way. However, you should be aware of them, because when they come- as we already pointed out- the market can get kind of wild, and if you are ready for some unpredictability, it is easy to remain calm.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
Simply put,
A ‘triple witching’ day is a day when stock options, stock index options, and stock index futures all expire on the same day.
A ‘quadruple witching’ day is a day when stock options, stock index options, stock index futures, and single stock futures all expire on the same day.
These days occur on a quarterly basis and the media normally gives them a lot of attention, basically because the expiration of these investment products can, and most certainly will, produce higher unpredictability in the market.
This is why, if you are a short-term trader, you have to be on the ball about witching days, which happen on the third Friday of March, June, September, and December. We are sure you can clearly see how sudden changes in the market can affect your short-term investments.
On the contrary, if you are a long-term investor, both these days will not impact you in a significant way. However, you should be aware of them, because when they come- as we already pointed out- the market can get kind of wild, and if you are ready for some unpredictability, it is easy to remain calm.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
December 21, 2010
The Market is Not at Your Service
Atypical markets need atypical thinking.
What do we mean by that?
Well, in the last few years the market has been highly unpredictable, probably unstable as never before. Emotional trading has hit the highest point, and in consequence, the moves in the indices have been hard to believe.
This unpredictability has made the trading tools investors normally employ not as reliable anymore; the time frames they habitually consider are not as reliable, and the correspondences between investments are completely misaligned.
Let’s dig a little deeper.
In normal circumstances, a good investor looks at daily charts to find trade opportunities; however, because of the present radical unpredictability, he should apply the same indicators he normally uses, but… on hourly charts.
For instance, for the longest time we have seen how the futures markets led the ETFs -Exchange-Traded Funds-.
Normally, when the S&P futures and Nasdaq futures were overbought or oversold, the Spyders and the QQQQ moved in the other direction.
Nevertheless, out of the blue, the futures have become so unpredictable that it is hard to know when to pull the trigger on a trade, to the point that now it appears as if the situation has flipped and the ETFs are the ones leading the futures.
Isn’t this exasperating? Of course it is!
But you have to understand and accept that the market is not at your service; thus, it is you who has to change to deal with the market you are in.
We don’t mean you have to change your principles, but you can’t be inflexible in your approach to making trades and money.
In this crazy market, it is crucial that you keep your investing strategies simple... and an open mind.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
What do we mean by that?
Well, in the last few years the market has been highly unpredictable, probably unstable as never before. Emotional trading has hit the highest point, and in consequence, the moves in the indices have been hard to believe.
This unpredictability has made the trading tools investors normally employ not as reliable anymore; the time frames they habitually consider are not as reliable, and the correspondences between investments are completely misaligned.
Let’s dig a little deeper.
In normal circumstances, a good investor looks at daily charts to find trade opportunities; however, because of the present radical unpredictability, he should apply the same indicators he normally uses, but… on hourly charts.
For instance, for the longest time we have seen how the futures markets led the ETFs -Exchange-Traded Funds-.
Normally, when the S&P futures and Nasdaq futures were overbought or oversold, the Spyders and the QQQQ moved in the other direction.
Nevertheless, out of the blue, the futures have become so unpredictable that it is hard to know when to pull the trigger on a trade, to the point that now it appears as if the situation has flipped and the ETFs are the ones leading the futures.
Isn’t this exasperating? Of course it is!
But you have to understand and accept that the market is not at your service; thus, it is you who has to change to deal with the market you are in.
We don’t mean you have to change your principles, but you can’t be inflexible in your approach to making trades and money.
In this crazy market, it is crucial that you keep your investing strategies simple... and an open mind.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
December 18, 2010
Want to Learn to Estimate a Trade’s Risk/Reward Equation?
One of the basics of the investing arena is to understand the risk/reward equation of a trade. It is crucial that every investor know this equation before making investment decisions; nevertheless, you, as an investor, may not know how to estimate one.
Here you will learn how to do it.
Before entering a trade -no matter if it is a stock trade, an options trade or a futures trade- an investor must look at its risk/reward equation.
First, he should look at the risk factor and always have a stop-loss point in mind to protect his investment.
Lets see an example of a short-term stock trade:
You are interested in a stock that is being traded at $86.
A good stop-loss point would be a move below the 50-day moving average; this is, at $84. In this case, your loss would be close to 2.5%. The chart shows patent resistance at the $96 level; so, your target gain is $10 or 11.6%.
Now, if you take the target gain of 11.6% and divide it by the target loss of 2.5% you get a risk-reward proportion of 4.6, which is a very good risk-reward equation.
We know a very good investor who only makes trades when the risk/reward equation is over 3.0, and the higher the better. When he blends this basic tool with the power provided by options, which is his preferred type of trade, he gets really nice profits.
Even though you hear different every day, investing does not have to be a pain in the b... Use basic tools such as the risk/reward equation and you will make the most of your gains and decrease your losses, and you will discover that making money is easier than you ever imagined!
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
Here you will learn how to do it.
Before entering a trade -no matter if it is a stock trade, an options trade or a futures trade- an investor must look at its risk/reward equation.
First, he should look at the risk factor and always have a stop-loss point in mind to protect his investment.
Lets see an example of a short-term stock trade:
You are interested in a stock that is being traded at $86.
A good stop-loss point would be a move below the 50-day moving average; this is, at $84. In this case, your loss would be close to 2.5%. The chart shows patent resistance at the $96 level; so, your target gain is $10 or 11.6%.
Now, if you take the target gain of 11.6% and divide it by the target loss of 2.5% you get a risk-reward proportion of 4.6, which is a very good risk-reward equation.
We know a very good investor who only makes trades when the risk/reward equation is over 3.0, and the higher the better. When he blends this basic tool with the power provided by options, which is his preferred type of trade, he gets really nice profits.
Even though you hear different every day, investing does not have to be a pain in the b... Use basic tools such as the risk/reward equation and you will make the most of your gains and decrease your losses, and you will discover that making money is easier than you ever imagined!
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
December 14, 2010
Want to Learn Why Most Expensive Stocks are a Con?
The “efficient market theory” means that, through the magic of millions of investors buying and selling stocks daily, you get what you pay for. That there is a reason why a company is cheap and another is expensive, and many investors swear by this theory.
However, it may not be all that solid. The truth is that the market runs as much on emotion as it does on logic, and the extremes rule! Investors are either too pessimistic or too optimistic.
In reality, an investor rarely gets what he pays for when he invests. He normally gets too little or too much, and lately, when it comes to expensive stocks, the rule is to get too little.
There are many companies out there with price-to-earnings (P/E) ratios over 100. In a P/E ratio, a share price greater than 100 times annual earnings or returns per share is very high. To justify such a price, the business must grow in a huge way and prove without a doubt that it will continue on this path.
But, if you do your homework, you may discover that very few of the companies that appear with such a P/E ratio earned it due to strong growth. Normally, they got it because their earnings fell faster than their price.
Let’s see an example: At one point, eBay’s earnings dropped 65% over 12 months, but its price dropped only 8%. At a P/E ratio of 98, eBay’s price at that point was a lot higher compared to its earnings than what it had been a year before. In other words, eBay became more expensive after having a bad year instead of after having a good one.
Very few super-expensive companies can claim that its high P/E ratio was due to an ultra-fast growth in revenue and earnings; so, run away from them as you would run from a deadly virus… unless of course, you know, by studying their past earnings, that you are in front of a prodigy.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
However, it may not be all that solid. The truth is that the market runs as much on emotion as it does on logic, and the extremes rule! Investors are either too pessimistic or too optimistic.
In reality, an investor rarely gets what he pays for when he invests. He normally gets too little or too much, and lately, when it comes to expensive stocks, the rule is to get too little.
There are many companies out there with price-to-earnings (P/E) ratios over 100. In a P/E ratio, a share price greater than 100 times annual earnings or returns per share is very high. To justify such a price, the business must grow in a huge way and prove without a doubt that it will continue on this path.
But, if you do your homework, you may discover that very few of the companies that appear with such a P/E ratio earned it due to strong growth. Normally, they got it because their earnings fell faster than their price.
Let’s see an example: At one point, eBay’s earnings dropped 65% over 12 months, but its price dropped only 8%. At a P/E ratio of 98, eBay’s price at that point was a lot higher compared to its earnings than what it had been a year before. In other words, eBay became more expensive after having a bad year instead of after having a good one.
Very few super-expensive companies can claim that its high P/E ratio was due to an ultra-fast growth in revenue and earnings; so, run away from them as you would run from a deadly virus… unless of course, you know, by studying their past earnings, that you are in front of a prodigy.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
December 11, 2010
Beware of Fantasy Value!
Are you an investor who likes to buy companies on the cheap?
If this is so, then you probably look at their P/Esprice-to-earnings ratios… and that’s OK, but make sure you know what you’re looking at.
In a few words, if you see a forward P/E, disregard it.
Why do we say this?
Well, because basically investors use P/Es to measure how cheap a stock is, and “value” investors adore P/Es below 10, this is, when the share’s price is less than 10 times earnings per share.
But P/Es vary among sectors and some value investors just look for P/Es that are below average in their sector.
The easiest way to look this up is through the “ratios” report that is available on the Reuters website for every listed company. This source uses only the P/E Ratio (TTMTrailing Twelve Months).
Other financial websites also give the ‘forward P/E’, which shows what a company is expected to earn over the next year in comparison to its current price.
The ‘trailing P/E’ and the ‘forward P/E’ may seem very similar; however, there is an important difference between them:
- The ‘trailing P/E’ is a real number. It records what has already happened; thus, it can’t be doubted.
- The ‘forward P/E’ is basically a guess. It is the best estimate on what a business will earn in the future. If analysts boost future earnings they can make a company look much cheaper than it really is.
A ‘forward P/E’ is less reliable when it is based on an economy that is long gone, and in current times, when the economy is uncertain, you should not trust analysts who live in the past.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
If this is so, then you probably look at their P/Esprice-to-earnings ratios… and that’s OK, but make sure you know what you’re looking at.
In a few words, if you see a forward P/E, disregard it.
Why do we say this?
Well, because basically investors use P/Es to measure how cheap a stock is, and “value” investors adore P/Es below 10, this is, when the share’s price is less than 10 times earnings per share.
But P/Es vary among sectors and some value investors just look for P/Es that are below average in their sector.
The easiest way to look this up is through the “ratios” report that is available on the Reuters website for every listed company. This source uses only the P/E Ratio (TTMTrailing Twelve Months).
Other financial websites also give the ‘forward P/E’, which shows what a company is expected to earn over the next year in comparison to its current price.
The ‘trailing P/E’ and the ‘forward P/E’ may seem very similar; however, there is an important difference between them:
- The ‘trailing P/E’ is a real number. It records what has already happened; thus, it can’t be doubted.
- The ‘forward P/E’ is basically a guess. It is the best estimate on what a business will earn in the future. If analysts boost future earnings they can make a company look much cheaper than it really is.
A ‘forward P/E’ is less reliable when it is based on an economy that is long gone, and in current times, when the economy is uncertain, you should not trust analysts who live in the past.
If you liked this article, tell all your friends about it. They’ll thank you for it. If you have a blog or website, you can link to it or even post it to your own site. You can get more tips on how to invest your money wisely at CherryShares.com
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