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Personal Finance


Types of companies
Growing vs well established

Market Cap: total # Shares X base share price
micro <750M --> higher risk
small <1B
mediaum 1B to 5B
large > 5B  --> lowest risk

Blue chip or not global industry leaders
not much up and down. --> You need some of this in your portfolio as safety pipe

You want to have a blend of all categories. But which portion goes to which is a personal choice. more of this vs more of that

Buying stocks: 
First determine whether you want to hold the stock for a 
(A) relatively longer period (more than a few days)
You are interested in the fundamental characteristics of the company:
balance sheet
income statement
cash flow statement
expansion plans 
etc
hopefully it has had profits and profit has been increasing over time.
doesn't have too much debt (in balance sheet statement)
Even as individuals when we have too much debt our credit score goes down
Then we are more and more risky
There is increasing likelihood of bankrupcy
we may not be able to meet our monthly payments 
(B) you want to turn around and sell the stock within the day or two. 
You are interested in the trading characteristics of the company
its volume
average daily trading volume
its price movement (volatility) uncertainty/up and down
where is its price vs its 52 week high/low prices 
when a stock is at or near its 52-week high, there is some kind of a psychological barrier to breaking through that.
Likewise, if a stock is much lower than that and it's trading near its 52-week low, there's a higher likelihood that it will increase in value.
and related. 

Examples of Market Timing 
Oil company or oil service industry 
when the price of crude oil goes down because it is fairly well recognized that the when the price of crude oil is low, various oil company and related industry stocks also go down in tandem. 
ExonMobil
Slumber J
National Oilwell Varco
Halliburton.
• Looking to shore up on such stocks during oil price declines might be prudent. 

Be proactive instead of reactive: lookout, Read alot, be alert to your surroundings and be opportunistic 

Selling stocks:
much tougher decision than buying stocks
falls in the domain of behavioral finance 
•  individual selling decision may be tinged with emotion.. • Disposition Effect ….individuals sell winners too soon and hold on to losers too long (Shefrin and Statman, 1985) • Research has validated the existence of the disposition effect. 

When you say to yoursef if the stock price falls below $2 purchase price I'll sell stick to it. dont have second thought maybe i should wait more, then you lost. companies avoid these emotional impacts by writing computer code to make those selling decisions.


Mutual Fund

Stock mutual funds (there is also bonds mutual funds), are a collection of stocks that have been put together into a portfolio. So mutual funds are a collection of stocks that somebody has put together based on certain well-defined philosophy or investment criteria. And this is ideal for those of us who want to invest, but have other priorities in life.
- risk is diversified
- not all eggs in one basket
- expets that its job to maximize returns build these portfolios

Val  <---> Growth (value less risky, growth high risky)                  Small <---> Large (the larger the stock the lower the risk, the smaller the stock the higher the risk)
this particular one is a large stock but closer to the growth (its risk is limited)

Index mutual funds have 3-star rating, that's the average
NAV: net asset value === share price
Make sure the manager has been there for a couple of years
 e.g. Vanguad Index 500 Fund
Index Fund
is nothing but a market pulse.It's a collection of stocks that represent a stock market.So the S&P 500, the Standard and Poor's 500 index for example,is a collection of 500 stocks thatis meant to capture the pulse of the US market.
let's invest in an index fund is another way of saying let's invest in the market overall. And so these kind of index funds represent the overall market, and not any one sector in particular.
There is no active management involved
the expense ratio is much lower
ALWAYS HAVE SOME INDEX FUND IN YOUR PORTFOLIO

Mutual funds price are once a day after the market is closed for the day.
Blue chip company: A company in an emerging field that has high potential for profit




Financial ratios
Price Earnings Ratio (P/E): Current stock price divided by earnings per share.
Dividend Yield: The dollar dividend already paid by the firm and divided by the current stock price.
Price to Book Ratio: (P/B):  The stock price divided by the company's assets minus liabilities, which gives you the book value.
PEG Ration: Price Earnings Ratio / Earnings per share growth

When peg ratio is significantly greater than 1, in other words, the price earnings ratio is significantly greater than the earnings per share growth, then the value, the ratio, will obviously be greater than one. And that means the company might be overvalued. Similarly, when the peg ratio is significantly less than one, that might be an undervalued company and might present a buying opportunity. Similarly, with dividend yields, you can compare to see how the yield looks relative to the comparison firms that you're using. And similarly with price earnings ratios. Price earnings ratios, when they're very high, can signify market optimism. That the company, the market is very excited about that particular firm. A good example of this is Amazon. As a company where even though the current company doesn't earn much, or hasn't shown very good earnings, the market is perennially optimistic about this company. And it really trades at fairly high P/E ratios.


Exchange Traded Funds (ETF)
since mutual funds are executed once a day
just like stocks.You can buy and sell them.They have the bid-ask spreads.And they have all this aspects of themthat are associated with stock trading.Exchange traded funds are, therefore,a hybrid of stocks and traditional mutual fundsand present features of both.
buy/sell at any time of day, dont have towait until end of day and lose all your money

So exchange traded funds are, by construction, index funds. But they're indexing very micro areas of the market. So you can have an ETF based on, say the oil services industry only. Or you can have an ETF based on very select group of retail companies.

A bid price is the price at whichyou would sell shares of this exchange traded fund.And ask price is the price at whichyou would buy shares of this exchange traded fund,

Roth 401k puts 401k after tax has been removed so in retirement you get the money tax free.









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