Finance is the practice (or science) of managing money, which includes allocating resources for spending, growing and giving. It can also refer to the system of money and investment as a whole, or to an activity that involves obtaining or providing money for some project or goal.
Archive for the ‘Equity’ Category
Finance is…
Friday, June 18th, 2010Investors Run For Cover In Low-Yield Investments
Monday, June 7th, 2010What should you do when the stock market gets unpredictable? You can hold on for dear life or you can hide your head in the government sand...
- There’s been a lot of ruckus in the stock market lately; between recession repercussions and the European debt crisis, investors are avoiding higher-risk, higher-return instruments in the stock market.
- Instead, people are funneling money into significantly lower-risk instruments that are also lower-yield, like money market funds and Treasury (government) bonds.
- The stock market is expected to improve in the future, but because of potential problems in Europe and a damaged financial infrastructure here in the U.S., investors are likely to stick to safe investments (like bonds) for now.
Facts & Figures
- The only mutual funds that outperformed the Treasury mutual funds in May were “bear market funds” – mutual funds that earn money only when the market goes down.
- Bear market funds returned an average of 8% on investment in May
- The going rate of return on a 30-year Treasury bond is 3.2%
Best Quote
“It’s still awfully close to zero. The amazing thing is that even at these rates, when you’re getting virtually no return on your money at all, people are still moving cash into money market funds. It’s sobering.” – Peter G. Crane, President of Crane Data
Coke Buys Coke’s North American Bottling Operations.
Tuesday, March 9th, 2010In an effort to improve its business model and boost efficacy, Coke takes over bottling its beverages.
- Coca-Cola Co. will now control the operations of its largest North American bottler, Coca Cola Enterprises Inc., helping the company cut costs and increase flexibility in distribution.
- Apparently, Coke made the purchase in reaction to PepsiCo’s recent purchase of its top bottlers, Pepsi Bottling Group Inc. and PepsiAmericas Inc.
- Coke’s present business model — selling beverage concentrate and using CCE to bottle and distribute the drinks — has caused tension over the years around issues such as concentrate pricing.
Facts & Figures
- As a result of the deal, Coke will give up the 34% stake it has in CCE, which is valued at $3.2 billion as of 2/24/2010. Coke will also take on $8.88 billion in CCE debt.
- PepsiCo spent $7.8 billion in purchasing its bottlers.
- As of noon on 2/25/2010, CCE shares went up 34% to $25.63, and Coke’s shares rose almost 5% to $52.62.
- CCE shareholders will receive a one-time payment of $10 a share and will also receive shares of the new Coke Enterprises.
Best Quote
“Our North American business structure has remained essentially the same since CCE was founded in 1986, while the market and industry have changed dramatically.” – Muhtar Kent, CEO of Coca-Cola Co.
Stop Crying, It’s Hurting Your Portfolio
Wednesday, November 25th, 2009If investors just trusted classic investing strategies instead of getting so emotional, their portfolios would be much better off…
- A new study found investors are making two big mistakes: 1) they get too emotional about their investments and make hasty decisions, and 2) they assume recent performance dictates future performance.
- The study also explained that the most classic investment strategies – asset allocation and portfolio rebalancing – would help investors avoid these mistakes.
Facts & Figures
- Over the past 2 years, a basic portfolio with conservative asset allocation and annual rebalancing dropped by only 3.5% compared to a 30% S&P drop during the same time.
- During a boom, a basic portfolio with conservative asset allocation and annual rebalancing returned 8.3%, not so much less than 9.7% for the S&P.
Best Quote
“People spend all their time looking at the trees and not the forest. It’s the forest that’s important, and that’s asset allocation.” – Gary P. Brinson, Chicago-based Asset Manager
Could You Be Tricked Into A Trade By A Cute Name? Probably.
Thursday, November 19th, 2009There are lots of risky and complicated investment vehicles available that can mislead investors with the power of cute-sounding acronyms…
- A psychological phenomenon called “fluency” makes acronyms that sound like familiar words (like “ELKS,” “LYONS,” and “NINJAS”) more appealing than the complicated, clunky investment vehicles they stand for.
- The same phenomenon extends to stock ticker symbols as well, with snappy and pronounceable symbols tending to outperform clunkier symbols in short-term gains.
- Investors should be especially cautious when considering stocks or other investment vehicles represented by acronyms rather than their full names. Is it possible that the name is designed to deflect attention from potential risks?
Facts & Figures
- In an experiment involving ordinary people judging the safety of various fake food additives, easily-pronounceable additives were perceived to be 29% safer than those with hard-to-pronounce names.
- When Harley-Davidson changed its stock ticker symbol from HDI to HOG, the stock price rose by 5%.
- Some choice acronyms and what they stand for: BIMBOs (Buy-In Management Buyouts); STRYPES (Structured Yield Product Exchangeable for Stock); SPARQS (Stock Participation Accreting Redemption Quarterly-Pay Securities); PRIDES (Preferred Redeemable Increased Dividend Equity Securities).
Buffet Invests In American Economy
Monday, November 9th, 2009Warren Buffet, America’s most well-known investor, has purchased the Burlington Northern Santa Fe Corporation in hopes that railroad traffic will increase in the future.
- Burlington Northern Santa Fe is a railroad company that ships products by train all over the country.
- Buffet believes that railroads will become increasingly popular for shipping and transportation as oil becomes more expensive.
- Buffet’s company, Berkshire Hathaway, followed his rules of investing in this particular deal: invest in companies that people can understand, and buy quality products at discount prices.
Facts & Figures
- Buffet will pay roughly $26 billion for the 77.4% of Burlington Northern Santa Fe that he does not already own (at $100/ share).
- Buffet is splitting Berkshire Hathaway’s B Class stock 50 to 1 (meaning that if you owned 1 share of stock before the split, you know own 50!) in order to pay for the acquisition.
- In an investor owned $1,000 worth of Berkshire stock in 1965, that same investor’s stock would be worth millions of dollars today!
Best Quote
“This all happened because my father didn’t buy me a train set as a kid.” – Warren Buffet, CEO and Chairman of Berkshire Hathaway
What do you do if someone gives you insider information?
Wednesday, October 7th, 2009When someone has privileged or sensitive non-public information about a company that could affect its share price once the information becomes public, they can use that information to either buy or sell stock at the expense of the people they sell to or buy from who don’t have this information. This is called insider trading and it’s illegal. Let’s say you work at a company and know that the company just lost a ton of money, even though the public thinks the company is doing great. If you sell your stock to the unwitting public, that’s insider trading.
But what if you are just given the information and aren’t actually an “insider” at the company? This is often called “tipping,” and it’s still illegal for you to trade based on that privileged information because the effect is the same – if people think that it’s not safe to invest because they are going to be taken advantage of by sneaky insiders and their friends, they won’t buy stock, and that’s bad for everyone.
Equity is…
Wednesday, June 10th, 2009Equity is Wall Street talk for “stock.” It can also refer to the value of things or properties you own outright. For example, you own equity in your new bike, your recently purchased car, or your developing intellect when you go to school.