Week of 2/2
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This 3 page Class Notes was uploaded by Shayna Davis on Friday February 6, 2015. The Class Notes belongs to CSR 342 at a university taught by Plouviez in Fall. Since its upload, it has received 244 views.
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Date Created: 02/06/15
Regulation FD The Fair Disclosure Rule 0 SEC s effort to level the playing field for all investors 0 Took effect 23 October 2000 0 Public companies are required to disclose material information to all investors at the same time The Stock Exchanges Tickers New York Stock Exchange NYSE 0 Up to 3 letters long 0 LMT CAT GE National Association of Securities Dealers Automated Quotations NASDAQ 0 National Market System NMS stocks have 4 letters 0 CSCO ORCL SIRI 0 Small Cap stocks have 5 letters 0 USWCO MNTEF 0 There are a few exceptions FB Stock Splits 0 Ownership of the company doesn t change 0 But the number of shares held increases 0 Signal of future profitability 0 Gain liquidity 0 Psychological Effect Research Suggests 0 Stocks tend to split when they re doing well and they usually do well after the split too 0 Many companies report higher earnings or dividends at the same time as they announce a split giving the stock an extra boost 0 Companies generally don t prefer low share prices so a split may signal managerial confidence that recent shareprice gains are sustainable 0 The lower stock prices postsplit may attract more individual investors Reverse Stock Splits 0 Be careful of reverse stock splits 0 Reverse splits typically happen when a company s share price falls so much it s in danger of violating the minimumprice rules for listing on a major stock exchange Pricing Rational Expectations 0 Under the Rational Expectations assumption The current stock price is the present value of all future cash ows associated with the underlying company discounted by the appropriate rate Problems with the Dividend Growth Model 0 Future cash ows for stocks are difficult to predict 0 It provides a bottom line value of stock price under very strong assumptions Higher Order Belief 0 This is a phenomenon where a stock s price is decided not by what you think it s worth but by your estimate of what others think it s worth 0 Much like a beauty contest PriceEarnings 0 PE is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share 0 PE HCurrent Stock PriceL e HEarnings per ShareL 0 A higher PE ratio means that stock is more expensive Application of PE 0 Earnings disappointments lead to a drop in stock price 0 PE of a company is compared to the competitors and the industry average 0 Low PE might imply undervalued stock 0 High PE may imply overvalued stock Dividend Yield 0 This shows the percentage of company income that s returned on your investment 0 Dividend Yield HDividend per ShareL e HCurrent Stock PriceL 0 The dividend yield of a company is compared to its competitors and to the industry average 0 Below industry average overvalued 0 Above industry average undervalued PriceB ook Value 0 This metric compares a company s book value to its current market price 0 PB HStock priceL e HAssets LiabilitiesL 0 PB value is compared to competitors and the industry A lower PB ratio might imply 0 Undervalued stock 0 Something fundamentally wrong with the firm PriceEarnings Growth PEG 0 PEG is a commonly used indicator of a stock s potential value which accounts for growth 0 PEG P e E e HEarnings per Share GrowthL 0 Intuition behind PEG 0 A company that s valued fairly Will have its earnings growth equal its PE ratio Rule of thumb 0 PEG gt 1 implies an overvalued company 0 PEG lt 1 implies an undervalued company Trading Rules 1 52week Rule Don t touch anything that s trading near or above its 52week high 2 Million Share Rule Avoid stocks With fewer than 1 Million shares in average trading volume 3 Avoid small and midtradingcap stocks These are relatively risky higher volatility 4 Analyst Consensus Rule Look for consistency across multiple sources Investing Rules 1 Forward PE less than trailing PE rule Check to see Where the ttm PE ratio ranks relative to competitors and the industry Lower forward PEs imply higher earnings per share EPS 2 Trailing Income Pattern Rule Is the company making profits Are the profits exhibiting an increasing pattern 3 Insider Activity Rule The SEC requires disclosure
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