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Full-Text Articles in Finance and Financial Management
All-Time Market Highs And Market Timing, Steven D. Dolvin
All-Time Market Highs And Market Timing, Steven D. Dolvin
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With the market at all-time highs, many investors are left wondering if stocks are still attractive investments. Based on PE ratios, the market's current level of 17.5 if slightly above the historical average, but not excessively so. Thus, if corporate profits remain strong, valuations could remain stable (so says some analysts). See article and video here, Fidelity. The video also discusses the difficulty of market timing, which is a good reminder for most investors.
Roe And Leverage, Steven D. Dolvin
Roe And Leverage, Steven D. Dolvin
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Return on equity (ROE) can be decomposed into three pieces, the so-called DuPont Identity: Net profit margin, total asset turnover, and the equity multiplier. The equity multiplier is a measure of leverage, so firms that add financial leverage (i.e., debt) to their balance sheet can increase ROE, as long as the product of the other two factors (i.e., return on assets) is positive. In the standard growth model for pricing stocks, this would generally have a positive impact on stock price, but note that it does add risk to the potential outcome, i.e., leverage. See article here, The Economist.
Changing Tick Sizes?, Steven D. Dolvin
Changing Tick Sizes?, Steven D. Dolvin
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In 2001, exchanges began listing stock prices in penny increments, as opposed to fractions such as 1/8th or 1/16th of a dollar. The change was intended to simplify pricing and reduce bid-ask spreads. Recently, however, there has been an increasing call to move to higher increments (such as nickel or dime pricing). The rationale is that such a move would promote trading and reduce volatility. It doesn't hurt that it would also allow trading firms to generate more profit. See article here, WSJ.
Valuing Twitter's Ipo, Steven D. Dolvin
Valuing Twitter's Ipo, Steven D. Dolvin
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Twitter recently announced (via a tweet) that they would be going public. While valuation is difficult in general, it is particularly problematic for an IPO. Read a good summary article here, Yahoo!.
P/E Ratios, Steven D. Dolvin
P/E Ratios, Steven D. Dolvin
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Most investors know that the PE multiple is the ratio of price to earnings. While the market price is easy to agree upon, the earnings number that should be used in the ratio is not. Some investors prefer historical earnings, while others focus on forecasted earnings. Each of these approaches can provide widely different PE estimates, making comparison difficult. .
Even The Best Investors Can't Time The Market, Steven D. Dolvin
Even The Best Investors Can't Time The Market, Steven D. Dolvin
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Warren Buffett is considered to be one of the greatest investors ever; however, even he is not perfect. In fact, his company (Berkshire Hathaway) is named after one of his failed investments. More recently, his timing on the purchase of GM stock has not worked so well. Fortunately, his holding period is generally very long, thus it could turn out to be a favorable investment over the long-term. See article here, Bloomberg.
Manipulating Earnings, Steven D. Dolvin
Manipulating Earnings, Steven D. Dolvin
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To cover recent losses associated with CDS trading (see earlier post), JP Morgan sold securities in which they had an unrecognized gain. While this move will make their earnings look less negative, the trades will actually hurt firm value as they will trigger taxable gains and reduce future earning power. Thus, for long-term investors, metrics such as cash flow may be better measures then earnings, which tend to be more short-term in nature, as well as more easy to manipulate. (See article here, Reuters.)
Hp Cuts Jobs, Stock Price Rises, Steven D. Dolvin
Hp Cuts Jobs, Stock Price Rises, Steven D. Dolvin
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HP announced on May 23 that it will cut 27,000 jobs (see article). In class I asked students what they thought happened to the stock price. Most thought the price would drop since this is a negative indicator. However, the stock price actually rose 2.2% from its prior day close, while the market was flat. The issue is efficiency (and margin). If HP can sell the same amount with fewer employees, earnings will be higher--which translates to higher growth (and therefore market value).