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.
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.
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.
Altman Z score Redux – Covering your back side better
Altman Z score has been around since the 1960′s and I have posted about it previously. Originally it was set up and measured the risk of bankruptcy among manufacturing firms. It turns out that in subsequent studies it was found that the original Altman Z score might be under reporting bankruptcies among non-manufacturing firms. Altman Z may be a great tool but it must be used correctly.
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.
Return on Equity (ROE) – Investing Terms
Return on Equity (ROE) is one of those fundamental concepts of investing. The principle is simple. What is the return on the stock holders equity invested in a company. As with almost everything else, there is an equation involved. ROE=Net Income/Shareholder’s Equity. Net income in this case is after Preferred shareholder’s dividends have been paid but before common stockholders dividends. Shareholder equity is common shares only, not preferred shares.
Beginning Investor Terms – 10k
In investment terms a 10k is a Securities and Exchange Commission’s (SEC) required filing for publicly traded domestic companies.The gems within this filing include audited financial information, historical and structural information, descriptions of subsidiaries as well as risks and strategies for the future.
Beginning Investor Terms – Dividend
In the context of the stock market, a Dividend represents a cash payout of earnings usually to the common shareholders of a company. Companies are not required to distribute any earnings. So, because a company has high Earnings per Share (EPS) doesn’t mean there is any Dividend at all.
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