Novel Investor • Compounding investing wisdom...

What Affects Stock Price?

June 25, 2013

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Jon

Some investors focus on owning stocks outright others use a diversified approach through index funds, ETFs, or mutual funds. Both deal with the daily swings in stock prices.

Whatever your flavor, price changes have a big impact on your returns. Understanding what affects stock price changes in the short-term can lead to higher long-term returns.

Supply And Demand

The basic answer to what affects stock price is supply and demand. For every stock transaction a buyer and seller gets together and agrees on a price. When there are more sellers than buyers, the price is pushed lower. Alternatively, when there are more buyers than sellers, the price moves higher.

Still, there are limits to both sides. Supply is limited by the number of outstanding shares. Even then, that supply is limited further by the number shareholders willing to sell. And demand is bound by the price buyers are no longer willing to pay. Continue Reading…
Happy Hour: Sell Off And 4 Minute Workout

June 21, 2013

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Jon

Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.

Sell Off

Yesterday was the biggest sell off this year. If you were surprised by it, know that it was going to happen eventually. A market up 16% over the first five months this year is impressive, expecting more is just being greedy. By the way, after yesterday your S&P 500 index fund is still up 9% despite the fall from the May highs.

My basic belief is this – Bernanke just orchestrated a sell off to prevent an equity bubble. It worked. In effect, stock prices lost the QE premium that investors have paid. This should push stocks to trade on fundamentals going forward. Continue Reading…
The Feds Power Of Words

June 20, 2013

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Jon

Not much has changed in the past three years with the Fed and monetary policy. QE is still ongoing. Inflation is low. Unemployment is slowly falling. The Street is still trying to predict the end of QE. So nothing has changed except for one word.

Taper ta·per (tāpər): To become gradually smaller or less; slacken and finally stop. Bernanke’s beard tapered off.

Who knew one word had so much power. Since its introduction, dividend stocks have sold off and bonds have sold off. Asset bubbles aren’t talked about as much (those were the days). One word seemingly ended worries of three asset class bubbles while creating new risks for each at the same time. Continue Reading…
Building An Investment Checklist

June 18, 2013

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Jon

If you read any great investing books you’ll come across an extended investment checklist. Lynch had his simple philosophy. Fisher had fifteen points. And Graham had his portfolio policy and value formula. Even Buffett and Munger talk about keys to a great company.

The idea of a checklist isn’t new. It’s used by a number of professions, like engineers, pilots, and doctors, to prevent mistakes. There’s a reason every flight seems like a ritual. Both pilots and flight attendants go through a checklist before, during, and after each flight.

As a passenger it seems trivial, but they do it for a reason. It works. It makes sense too. Lives are on the line and anything that prevents errors and mistakes, inevitably saves lives. And all because of a simple checklist.

You can apply the same concept to your portfolio and investments. Continue Reading…
Happy Hour: Low And Slow & Learning From Buffett

June 14, 2013

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Jon

Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.

Low And Slow

The stock market is built for the overnight sensation. It’s wrought with short-term focus. Markets move by the nano second now. The average holding period for a stock is less than one year. Yet most people are investing for an event like retirement decades down the road.

There are many reasons for this. The internet certainly helped with easier access to your portfolio, the advent of the 401k, an increase in job hopping, the funds (mutual, index, and ETFs), and normal human behavior. That future income security is only a button click from being liquidated at the wrong time. How much of that has influenced and added to this new stock market environment. Continue Reading…
Digging Into The Stock Buybacks Vs Dividends Debate

June 13, 2013

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Jon

There are many investing debates where serious investors latch onto their choice and once locked in rarely waiver. There is growth versus value. You have index versus mutual funds. Active versus passive is probably the biggest. Yet, every investor has an opinion about stock buybacks versus dividends.

At the heart of this debate is earnings. Rather, what’s the best use of earnings for the shareholder. When a company earns money, it uses some of it to further grow and strengthen the company. What happens with the rest is up for debate. Continue Reading…