Margin of Safety – Beginning Investor Terms
Margin of Safety is a concept I write about a lot. It is the make or break for any investment. While I may fudge the amount from time to time, all investments have to have a margin of safety to be worth shelling out my cash. But what is a Margin of Safety?
Does a Risk Free Rate Really Exist?
I was perusing Musings on the Markets, Damodaran’s blog and came across a post entitled Thoughts on the Risk Free Rate. Perhaps, because I am not an academic, I usually reject ideas that seem contrary to logic or that seem designed for an academic and not practical use. The Risk Free rate is one of these notions.
Intrinsic Value – Beginning Investing Terms
Intrinsic value may be the most important concept in value investing. It is the foundation of everything else. Value Investors all agree that you start with the intrinsic value of a company. Now, how you arrive at that value is a different proposition, there you will have a lot of disagreement.
Price to Sales Ratio (P/S) – Beginning Investor Terms
Price to sales is another metric that has been used to Determine if a stock’s prices is cheap relative to revenue. It is assumed to be better used comparitively within a specific industry. The equation is simple P/S= market cap/revenue for specified period of time such as annually or trailing twelve months (TTM).
Montier Bitch Slaps Efficient Market Theory
As readers of my blog know I have never believed in Efficient Market Hypothesis. Here is a speech from the brilliant James Montier humiliating the idea, using cartoon characters in the process. Definitely check it out if you haven’t. I must thank Miguel at Simoleon Sense for leading me to this speech and James Montier in particular.
Beginning Investor Terms – Quick Ratio or Acid Test
The Quick Ratio, also known affectionately as the “Acid Test” is a metric used to measure short term solvency. In non jargon it is a formula used to figure out whether or not a company can meet its short term obligations.
What is Focus Investing?
The concept of Focus Investing is devilishly simple. Take the magnifying glass out and focus it on the very best investment ideas you have. Don’t pull the investment trigger unless you can say this is too good to pass up. It is the extreme opposite idea of diversifying your investments in the manner suggested by many financial advisors.
Dollar Cost Averaging (DCA) – Beginning Investor Terms
Dollar Cost averaging is one of those perennially stupid ideas like Efficient Market Theory, that is so dumb, that I wonder how anyone could buy into it. It is completely contrary to the logic of Value Investing. But my opinion aside, it is a popular idea among investmentadvisers, so good to know what it is.
Does Market Timing Work?
The first evidence I discovered that some form of Market Timing may work was when I read Jeremy Seigel’s weighty tome, Stocks for the Long Run. He used what is called the 200 day moving average of a stock to determine a buy and sell point for equities, with investment going back and forth from cash to equities.
Beginning Investor Terms – Return on Assets (ROA)
This week’s Beginning Investor Term is Return on Assets (ROA). ROA is another investing concept, like last weeks ROE, that helps determine if Management is running a company effeciently. Or in this case specifically the assets it has at it disposable. Assets include both shareholder equity and debt.
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