Novel Investor • Page 2 of 13 • Compounding investing wisdom...

What to Watch For In An Earnings Conference Call

September 27, 2012

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Jon

Earnings season is a conflicting time for long-term investors. The idea of quarterly reports just fuels a short-term view of the market. Something long-term investors can get drawn into without discipline and patience. If you know what you’re looking for, the information gained from a quarterly earnings conference call can help you make money.

The error most investors make is getting caught up in just the income and revenue numbers. Sure it drives the stock price, but we want to know why? All the good information, the stuff that matters, is packed inside each conference call and transcript.

Where To Start

The best place to start is the conference call. Every stock has a company behind it. Which should have a website by now. The investors relations section should have a link to the conference call and the transcript. Continue Reading…
Happy Hour: Would You Rather With Apple Stock?

September 21, 2012

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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.

Would You Rather?

I saw a couple of tweets this week that were fixated on Apple’s stock price and a belief that it’s better than spending $700 on something other than stock. Yet in order for the stock to do well, it requires a lot of people to spend that much for its iStuff.
- Would you rather have $700 to spend in an Apple store or one share of Apple stock?
- Would you rather have two pair of LeBron’s new shoes or one share of Apple stock?
Both focused entirely on the share price and not what really matters. The share price is irrelevant. It doesn’t tell us, as investors, anything important. It certainly doesn’t tell us if we can make money if we bought the stock today. Continue Reading…
Risk Basics: Default Risk Premium

September 20, 2012

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Jon

Behind every investment is a company (or government in the case of bonds) that has bills to pay. A well run company keeps those expenses in check and paid on time. It even carries an acceptable amount of debt too. But what happens to your investment when that company takes on too much debt? Or it can’t pay its bills anymore? A default risk premium is built into the price of every investment to cover this risk.

Default risk or credit risk is just one more obstacle investors must consider. Banks do it when you take out a loan. Credit card companies do it when you apply for a new card. As an investor, you need to consider it too. If a company can’t pay its bills, it won’t be in business long enough for you to make money.

What Is Default Risk?

Default risk is the chance that a company or person won’t be able to make payments on their debt obligations. Both the company and the lender are exposed to this risk.

Lenders will charge a higher interest rate to companies with a higher risk of default. Which raises the cost of borrowing for the company. This premium must be built in to make the investment worth the added risk to the lender. Continue Reading…
The Unending QE And Your Money

September 18, 2012

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Jon

The Fed announcement of QE3 was the big news last week. Despite my misgivings and distaste for more easing, it’s here, it’s going to happen, so let’s make some money from it. Or more importantly, not lose any.

The good news is we have history on our side. A little research will show us what happened with the last two QE events. Though I don’t see it having nearly the same effect this time around. There is too much uncertainty going into the end of the year.

The Announcement

The Fed, for the first time, announced an open-ended easing program entirely based on improving the unemployment rate.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. – Federal Reserve FOMC Statement Continue Reading…
Happy Hour: The QE Monster

September 14, 2012

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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.

The QE Monster

The Fed announced QE3 yesterday with a $40 billion a month plan to buy mortgage-backed securities and reinvest the interest. The announcement came with the caveat that economic conditions call for low rates through 2015.

The big difference this time around, the Fed did not include an end date. In the past, the Fed has always provided a timeline for its QE purchases.

This is good news for potential home buyers. It will keep mortgage rates low and drop long-term mortgage rates lower over the next several months. Of course, this mostly pertains to new home buyers. Current homeowners won’t move if their current home is still underwater. So either home prices need to quickly rise to some break even point or a few million renters need to start buying soon. Continue Reading…
Value Investing Strategy: The Basics

September 11, 2012

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Jon

If you had the choice between paying full price, over paying or getting a discount, which you would choose? A sane person would take the discount. The shopping habit of actively searching for deals, bargain hunting is the basic idea behind a value investing strategy. Seriously, who doesn’t like a discount?

Most people like the idea of buying things for less. So why don’t more people use the same strategy when it comes to investing?

Understand, shopping for food and cloths is not the same as shopping for stocks. A store buys products from the manufacturer with the hope of selling it at the regular price. Sometimes the store buys too much and is forced to have a sale to get rid of the extra inventory.

With stocks, before you can buy, someone must be willing to sell their shares first. And sell them at a price you’re willing to pay. Of course with this type of market place, someone is always the greater fool. Either selling to low or buying too high. Value investing looks to take advantage of this. Continue Reading…