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A Recap of Our Blog's Best Takeaways
1. Profit is an essential element in business and finance.
2. Gross profit is the money made when a product is sold after deducting the cost of purchasing the product.
3. Profit is the inverse of loss.
4. Net profit is the amount of profit left over after deducting all operating costs and other fees.
5. The company has made a net profit if total revenue exceeds total expenses and charges.
1. Companies can choose to hold onto cash reserves, reinvest them into the business, or return it to shareholders by issuing a dividend or buying back shares.
2. A dividend is a payment from profits directly to shareholders in proportion to their shares, while a buyback is where the company uses the cash to repurchase its own shares on the stock exchange.
3. If a company believes its shares are undervalued, it should repurchase them from the stock market.
1. Companies can transfer earnings to shareholders through stock buybacks, but they also have the potential to depress shareholder value and tamper with accounting data.
2. In a share buyback, a company purchases its own stock on the open market, lowering the total number of outstanding shares that are available for purchase or sale by investors.
3. Share buybacks can increase the percentage of the company owned by other shareholders, and they can also enhance a company's financial ratios and earnings per share.
4. Share buybacks are beneficial when the stock's price is undervalued, and they can be a sign of a diligent management team returning capital to their shareholders.
5. Share Buybacks may be carried out for malicious objectives like boosting CEO compensation or stock price growth.
6. Investors should consider a company's balance sheet strength and stock valuation when evaluating share buybacks.
1. Companies benefit from a rising stock price due to the interests of the CEO, management team, and employees.
2. Companies can use a higher stock price to raise capital and borrow money from banks.
3. A higher stock price can help with business operations, such as buying other companies and partnering with other companies.
4. Companies can artificially increase their stock price through share buyback programs.
The big takeaway here is that inflation and high interest rates erode purchasing power. The power of your individual dollars goes down when inflation and interest rates tend to go up. The central question is: What can my dollars buy? If you are receiving 5% a year, but those individual dollars are not worth as much, then that 5% really isn't as valuable, and that is what interest rate risk is all about.
1. GDP is a reliable indicator of the economy's condition, which is calculated by dividing a company's output into various components.
2. GDP is composed of Consumption, Investment, Government Expenditures, and Net Exports.
3. GDP does not account for unpaid work, natural resources, happiness, inequality, or other factors.
4. Alternative measures to GDP include Gross National Income, Human Development Index, and Index of Sustainable Economic Welfare.
1. Companies can transfer earnings to shareholders through stock buybacks, but they also have the potential to depress shareholder value and tamper with accounting data.
2. In a share buyback, a company purchases its own stock on the open market, lowering the total number of outstanding shares that are available for purchase or sale by investors.
3. Share buybacks can increase the percentage of the company owned by other shareholders, and they can also enhance a company's financial ratios and earnings per share.
4. Share buybacks are beneficial when the stock's price is undervalued, and they can be a sign of a diligent management team returning capital to their shareholders.
5. Share Buybacks may be carried out for malicious objectives like boosting CEO compensation or stock price growth.
6. Investors should consider a company's balance sheet strength and stock valuation when evaluating share buybacks.
1. Financial fraud is committed to either boost current profitability or reduce current earnings.
2. Common situations in which financial fraud is more likely include companies making lots of acquisitions, having dumb incentives for managers, being private, recently going public, recently changing the business model, and having operational problems.
3. The top seven tricks used by businesses to deceive investors are: inaccurately or prematurely recorded revenues, false revenue, one-time gains, postponing current costs, incorrectly reducing or failing to record liabilities, putting off the receipt of existing revenues, and charging future costs to the current period as a special charge.
4. Before looking at the financial statement, consider the auditor's report, the proxy statement, footnotes, the president's letter, the MD&A, and the Form 8K.
5. Common-size analysis is a useful technique for investigating a company's financial statements.
6. Consider calling the CFO, head of Investor Relations, corporate controller, or treasurer with concerns
1. Buying a stock right before the dividend in order to profit from it is not a good idea.
2. Investors should be cautious when choosing securities based on dividends.
3. Investing in high-yielding stocks can lead to overinvestment in certain industries.
4. It is best to keep taxes inside the company's envelope for as long as possible.
1. Financial data used to assess current or prospective investment opportunities are known as economic indicators.
2. Building permits, stock prices, and net business formations are examples of leading indicators.
3. The unemployment rate, the Consumer Price Index, and default rates are examples of indicators that track economic changes.
4. Examples of coinciding indicators are GDP, non-farm payrolls, and personal income.
5. Examining various indicators in unison can give a more comprehensive view of the economy.
1. Python is a high-level interpreted programming language famous for its zen-like code and accessibility.
2. It is strongly typed and uses indentation to terminate or determine the scope of a line of code.
3. It supports functional programming patterns with anonymous functions and object-oriented patterns with classes and inheritance.
4. It has a huge ecosystem of third-party libraries, such as deep learning frameworks and wrappers for low-level packages.
1. TensorFlow is an open-source machine learning framework developed by the Google Brain team and first released in 2015.
2. It is most commonly used with Python but can run in other languages like JavaScript, C++, and Java.
3. It integrates with the beginner-friendly Keras library, which has a sequential API that can easily build neural networks layer by layer.
4. It uses a rectified linear activation function that will output the input if a certain threshold is met.
5. The end result is a model that makes a prediction with the likelihood that an image is a certain type of clothing.
1. Swaps involve exchanging risk for predictability.
2. In the commercial world, swaps are utilized to convert a volatile floating rate to a fixed rate.
3. Swaps are used in a variety of applications, including insurance and credit default swaps.
4. Swaps can be profitable if the interest rate is lower than the fixed rate, but they can also be expensive if the interest rate is higher.
1. OTC trading is a type of off-exchange trade that involves direct communication between two parties as opposed to a formal exchange.
2. Market makers, commonly referred to as broker-dealers, execute OTC trades.
3. OTC trading has less liquidity, less transparency, and more pronounced counterparty risk than exchange trading.
4. OTC trading can be beneficial for companies that don't qualify for exchange listings, as well as for buyers and sellers who prefer to keep prices private. 5. OTC trading can facilitate high-risk, high-return penny stock trading.
1. Most of the world's economies, including the United States, once employed the gold standard.
2. The government sets the value of the paper currency to a specific weight of gold under a gold standard.
3. The United States abandoned the gold standard in 1971 in favor of a 100% fiat money system.
4. Under a fiat money system, a dollar is just an accounting unit, and paper money is stipulated as legal tender.
1. Institutional investment managers with qualifying assets of more than $100 million must submit a 13F to the SEC every quarter.
2. Whenever an investment firm acquires 5% or more of a voting class of a company's stock with no intention of altering or impacting control over the issuer or company, a 13G filing is necessary.
3. Whenever an investment firm acquires beneficial ownership of 5% or more of a company's voting class with the aim of altering or impacting the control of the issuer, a 13D filing is necessary.
4. 13D must be finished within a period of 10 days after the purchase.
5. An easy way to remember the difference between a 13G and a 13D is that 13G stands for good, and 13D stands for danger.
1. The process of combining two businesses into a single entity is known as Mergers and Acquisitions (M&A).
2. The joining of two or more companies is intended to create synergy, a state in which the new entity is greater than the sum of the two original businesses.
3. Companies usually buy from other companies to reduce costs or increase income.
4. Companies must estimate future benefits, but putting a price on future benefits is difficult.
5. After the purchase, the companies may need to be reorganized, and new responsibilities may be assigned.
1. Credit ratings inform retail and institutional investors about the ability of debt instruments to meet their obligations.
2. Credit rating agencies provide objective information about a wide range of debt instruments.
3. Individuals and large institutional investors rely on credit rating agency information.
4. The “Big Three” credit rating agencies have a large market share.
5. There have been examples of disastrous failure on behalf of credit rating agencies.
6. There are disincentives associated with upsetting powerful nations by lowering credit ratings.
7. Credit rating agencies should be considered as a tool, not blindly trusted.
1. ETFs do not charge a load fee, but may incur brokerage commissions which vary by firm.
2. The expense ratio is the annual fee charged by the exchange-traded fund manager to cover operating expenses.
3. We want the expense ratio to be as low as possible and to look at the portfolio turnover to avoid implicit fees.
4. We also want to look at the bid-ask spread to avoid paying more than necessary.
5. In some cases, paying a higher fee for a specialized ETF may be worth it if it leads to portfolio outperformance.
1. Companies obtain funds from investors by issuing bonds and entering into contracts with the lender.
2. Bonds are usually held for an extended period of time, and the rate of interest is based on the borrower's capacity to pay back the loan.
3. Not all bonds are created equal and they are given a seniority ranking in the event of a company going bankrupt.
4. Government bonds are considered the least risky and pay low-interest rates.
5. Corporate bonds are considered safe but have a higher risk of defaulting on their debt and paying a higher interest rate than government bonds.
6. High-yield bonds are those issued by young or insecure businesses that face a high chance of going bankrupt.
7. The interest rates that other corporations in the market are paying can affect how much a bond is worth over time.
1. The Trade-Off Leverage Theory states that the value of a firm is derived solely from the value of its assets and is independent of the composition of liabilities used to finance those assets.
2. The WACC is unaffected by the capital structure of a company because any change in debt to equity ratio is exactly offset by the cost of equity.
3. The effect of taxes on proposition 2 means that the WACC is reduced when a company is highly leveraged.
4. There is an optimal capital structure that creates maximum value, a mix of debt and equity finance.
5. The closer the company gets to bankruptcy the higher the bankruptcy costs become and therefore the cost of debt finance starts to increase the WACC.
1. The news of the markets is more interesting than the news itself.
2.The S&P 500 has dropped 25% from the beginning of the year.
3. The PER forward has dropped from 21 to 15, indicating that we are approaching a buying zone.
4. The estimated PER on earnings has decreased from 21 to 15, but is still not at an all-time low.
5. The drop in the stock market index is a combination of -30% due to the drop in multiples due to the drop in PER and +5% due to the result.
6. Companies with pricing power are preferable in a period of inflation.
7. Historical bear markets do not provide any useful information.
8. Consumer and investor confidence are more reliable indicators in terms of timing.
9. The United States has a higher PER than Europe or Asia.
1. Interest rate risk is the risk that an investment will lose value based on a change in interest rates.
2. When interest rates go up, the cost of goods and services also goes up, which can affect the value and price of different investments.
3. Fixed Coupon Bonds, Fixed Mortgages, and Cash have high-interest rate risk.
4. Commodities, TIPS, and Stocks are partially hedged against interest rate risk.
5. Inflation and high interest rates erode purchasing power, meaning the power of individual dollars goes down.
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