Category: fundamentals
The Yield Curve
The stock market have been very generous towards investors during the recent years and the S&P 500 index is at its highest levels now. Unfortunately, good past returns do not guarantee good future returns and some market analysts, economists, and investors have started to worry about the yield curve movements.
Payback Period
The main purpose of any investment is to generate more money than the amount invested, the time it takes to do so is called the payback period (PBP) in capital budgeting. Payback period is wildly used by investors and entrepreneurs when they consider to open a new enterprise, invest in an existing business, or when they try to pick the best opportunity among two or more possible options.
What is Behavioral Economics?
For many years, the majority of economists based their financial theories on a few basic assumptions: all market participants are perfectly rational (investors aren’t emotional at all), and they are also free from any biases or information processing errors. The real-life and practical economy showed that these assumptions don’t work in many cases and people tend to behave irrationally from time to time.
What is a Reserve Currency?
All of the major countries’ central banks hold a significant portion of their reserves in foreign currencies. Why do they purchase them and why the U.S. dollar is the most popular reserve currency? In this article, we’ll explain what the reserve currencies are, what purpose do they serve and why the world’s central banks hold them.
What is Beta in Finance?
Alpha (α) and beta (β) are two crucial coefficients that are used for measurement of success of a particular portfolio. Beta represents the volatility of a particular asset (or the whole portfolio) versus the volatility of the benchmark. In this article, we’ll explain what beta is and give a few simple examples to demonstrate how it can be used.
Institutional vs Retail Investors
There are two main groups of market participants: institutional and retail investors. Contrary to popular belief, the majority of market participants aren’t small and independent individuals but large institutional investors who manage massive capital. In this article, we’ll explain the difference between institutional and retail investors with some examples.
Common vs Preferred Stock
There are two main types of stocks on the public market: common and preferred. Why do we need to have two distinct types of shares and what’s the difference between them? In this article, we’ll take a look at these two types of stocks (shares) to figure out which one would be a better choice for an investor.
Ticker Symbol
We all used to recognize companies by their names but there are many other ways to identify a particular company. Every company needs a so-called “ticker symbol” in order to be tradable on a stock exchange. Apple Inc, an American IT giant is also known as “NASDAQ: AAPL” and Nestle SA, a Swiss conglomerate, is known as “SWX: NESN”.
What is a Candlestick in Technical Analysis?
Candlestick price chart in trading and technical analysis is a very common way to visualize price movements. It’s relatively easy to understand, it’s informative and this type of chart can give some additional helpful hints to a trader that a simple chart can’t provide.
What is Alpha in Investing?
Alpha (α) coefficient in investing is used for measurement of the success of a particular portfolio. Along with beta, the alpha coefficient helps portfolio managers to determine how certain picked assets performed against the market average. In this article, we’ll explain how to use alpha and why is it important for investors.
How to Calculate Expected Portfolio Return?
It’s usually justified to be skeptical about financial forecasting, yet most portfolio managers have certain expectations regarding the future rate of return on the investments they make. How does one figure out an expected return of a financial portfolio? In this article, we’ll explain a method that is commonly used to calculate the expected return.
How to Read an Annual Report?
Most of the people can read nowadays (the literacy level is close to 99%), yet reading an annual report of a company is a different story. It can be very confusing for an investor to figure out what are the key things to look after and what information is worth reading.
Support and Resistance in Technical Analysis
Stock market technical analysis has many tools, techniques, and indicators that are used for price forecasting but one of them is particularly important: the concept of support and resistance levels. In this article we’ll explain how are those support and resistance levels supposed to work and how can you find them and why are they important.
1% Risk Rule in Day Trading
Traders use many strategies to minimize their risks and maximize their returns, but one of them is particularly common and useful: it’s the 1% risk rule. In this article, we’ll break down this simple yet effective risk management strategy and show how a portfolio manager can use it in his daily financial operations.
What is an IPO?
Before a company makes its way to the public market, it has to go through a complex and expensive procedure of Initial Public Offering (IPO). In this article, we’ll look at how an IPO usually goes, why is it important, and why many mid-size companies are trying hard to achieve this significant milestone.
What is EBITDA?
When it comes to fundamental analysis of a company, there is one crucial metric that just can’t be ignored and it’s called EBITDA. It’s wildly used by investors, portfolio managers, and market analysts. Today we’ll try to explain what does this metric mean and we’ll also provide a few examples.
What is Liquidity?
Liquidity is a core concept in finance, capital management, and business and that’s why this term is often used in media by portfolio managers, market analysts, and various economists. Although this term is very popular, it’s not that easy for an outsider to understand what it means.
Return on Assets (ROA)
Return on Assets (ROA) is one of the key fundamental indicators used by financial analysts. ROA can give you a lot of hints on what’s going on with a particular company and how effective it’s managed. In this article, we’ll explain what ROA is with some simple examples, and show how this financial ratio can be used in the analysis of a business’ profitability.
What is an ETF?
ETFs are relatively new financial instruments that were introduced in 1993 in the US and in 1999 in Europe. These financial tools create new opportunities for investors and they have become very popular nowadays. Today we’ll explore the essence of ETFs as well as why they are beneficial for investors.
What is Dividend Yield?
When it comes to measuring dividend return of a particular stock, it’s important to understand what dividend yield is. It’s a rather simple concept but it may confuse some people because they’re expecting to see an absolute number, instead, they usually see some weird “yield” thing in the form of a fraction.
What Is Market Capitalization?
Market capitalization refers to the valuation of a certain company derived from the market value of its shares. It’s a simple, yet important metric in financial analysis that many investors look at regularly. Market capitalization in finance is often shortened to market cap.
What is Price to Earnings (P/E) Ratio?
There are plenty of useful market indicators which attract the attention of many investors and one of the most popular indicators is price to earnings (P/E) ratio. It shows the relation between the current market price of a security and its earnings per share (EPS).
What is a Dividend?
A dividend is a payment given to the company’s shareholders on a regular basis. Generally speaking, this term means: ‘an additional outcome’ and it can also be used outside of finance and investing. If a farmer buys a cow, the milk it produces can be called a dividend and a growth in the cow’s weight can be called a capital gain, which at some point can be “cashed out”.
What is Time Horizon?
Time horizon measures an expected holding length of your investments and this term is often mentioned in relation to an investment strategy, meaning that a particular strategy (approach) can prefer a certain holding length. Some strategies, such as “buy and hold”, have a long time horizon, contrary to the day trading strategies which have an extremely short time horizon and, of course, there are many strategies in between.
What is Volatility?
Volatility of a security or an index means the magnitude of changes in its value (price) over time. In more scientific terms, it can be called ‘dispersion’. High volatility usually indicates higher potential returns because investors can make more money with each deal but, at the same time, it implies higher risks because the direction of future price changes is unknown.
How Much Money do You Need to Create a Portfolio?
A lot of people have a misconception about the amount of capital required to start investing and they think that only the rich people can be investors and traders. Actually you can create a new real investment portfolio with a relatively small sum of money.
What are Bull and Bear Markets?
There are a lot of ‘animal’ slang words in finance and there are many reasons for that. One of those reasons is that investors are animals too and sometimes they behave in the irrational, herd-ish ways. Today we’ll take a look at two of the most famous ‘animal’ terms in finance: a bull and a bear market.
What is a Conservative Investment Portfolio?
Investing seems like an inherently risky affair for many people but it’s not true at all, you can actually choose what level of risk you’re comfortable with. Why would you choose a higher risk? There can be only one good reason: it should give you a higher return on investment.
What is a Financial Portfolio?
In general, a portfolio is just an organized collection of data created to serve a certain purpose. This beautiful word appeared in the English language in the 18th century and it was an adaptation of a much older Italian word ‘portafoglio’ (porto folio, port folio) which means ‘to carry’ something.
What is the Role of a Portfolio Manager?
There is nothing wrong with managing your financial portfolio on your own (non-discretionary portfolio), although, in some cases, it may be preferable to find a qualified professional and let him manage your money. Those professionals are called portfolio managers. A portfolio manager is someone who fully controls a portfolio and makes all of the necessary investment decisions on behalf of the portfolio’s owner.
