One of the great bamboozles created for the investment public is the creation of valuation. The broker, financial planner or stock analyst says this stock is undervalued or the market in general is overvalued.
What is even more confusing is the analyst at stock company “A” says a certain stock is overvalued while the analyst at another brokerage firm says the same stock is undervalued. How can that be when each one is working with the same information? Each analyst is right – for him, but there is only one correct answer. The computation, no matter how it was arrived at, will be proven if the price of the stock rises or falls per the prediction. Beautiful multiple page color slick reports are prepared for investors who believe what has been written and gamble (I did not say invest) their money on the outcome. Corporations pay tens of thousands of dollars for deep analytical reports on which their executives rely to make multimillion dollar decisions.
It is less than a 50/50 chance because many times a stock will go sideways, neither up nor down. Reputations of analysts are made on the outcome. A few are very good, but a very wise investor will always trade with an exit strategy to protect capital. Analysts examine P/E ratios (Price/Earnings), cash flow, industry performance of the company sector, general market direction, world conditions and technical analysis for guidance. Economists are particularly fond of Greek formulas, many of which have become famous such as the Black Scholes formula for option analysis. Nobel prizes have been awarded for formulas and theories only later to have been proven wrong. There are formulas such as Tobin’s Q that have proven accurate over the years that predict actual market value based on corporate wealth.
It measures the ratio of market value of a company to the replacement cost of its assets. It is better adapted to the general market then individual companies, but is slow moving. It is subject to judgment by each analyst. It still comes down to the fact that investing (call it trading if you wish and many call it gambling) is not a science, but an art. There are few great (rich) artists. Most of the very rich did their valuation analysis and then were bold enough to act on it. The old saying, “Beauty is in the eye of the beholder” holds true for stock selection, but is phrased somewhat differently.
“Valuation is in the mind of the investor.” When an investor receives a report from any analyst his concern should be with the analyst. Many of the reports sent to customers are merely a compilation of information put together by a college student intern. They are factual, but should be cautiously used for investment decisions. Brokers are not qualified to give valuation reports. Any stock or market valuation report must always be accepted with caution.
Creating a Budget - Step-by-Step Guide to Managing Money
It is not as complicated as it sounds nor is it as dreadful. I know the thoughts are running through your head right now of not being able to have fun or having the enjoyment of purchasing clothes, eating out, or participating in exciting activities. However, this couldn’t be farther from the truth. Establishing a budget not only allows you to see what you are spending your hard earned money on, but it also allows you to set aside money each month so that you can enjoy your leisure activities.
What Are You Spending Money On?
It is necessary to write down your spending habits for at least one month. Consistently recording your purchases and bill payments will allow you to see exactly how much money you spend on various expenditures. Daily, jot down how much you spent on food, gas, books, etc… Carry a binder or notebook with you so you can conveniently jot down the amount spent before you forget. Keeping a log will dramatically open your eyes to the amount of money you are spending on a daily basis and will allow you to adjust your budget accordingly.
Create Categories
Create a list of categories that you can organize your expenditures in. For example, you decided to eat lunch at Panera Bread and you spent $10.00. Create a Restaurant category and place this amount under that particular category. Not only will you be able to track your expenses, but you will be able to quickly see where you are spending the most of your money. You may also use a computer finance software program to keep track of your expenditures, whichever works best for you. Write down as many categories as you can think of. You may have 10 categories or you may have over 20, it all depends on your lifestyle.
See Your Results
At the end of the month, tally the results of your log. Pay attention to where you have spent the most money and where you spend the least. Having kept this log should dramatically open your eyes to see exactly where your money has been going during a month’s time. You may be shocked to see that you spent $15 in late charges for overdue books at the library or you noticed that you spend a large amount on fast food. Take some time and sit down and look at ways you can cut back in certain categories or eliminate all together.
What Are You Spending Money On?
It is necessary to write down your spending habits for at least one month. Consistently recording your purchases and bill payments will allow you to see exactly how much money you spend on various expenditures. Daily, jot down how much you spent on food, gas, books, etc… Carry a binder or notebook with you so you can conveniently jot down the amount spent before you forget. Keeping a log will dramatically open your eyes to the amount of money you are spending on a daily basis and will allow you to adjust your budget accordingly.
Create Categories
Create a list of categories that you can organize your expenditures in. For example, you decided to eat lunch at Panera Bread and you spent $10.00. Create a Restaurant category and place this amount under that particular category. Not only will you be able to track your expenses, but you will be able to quickly see where you are spending the most of your money. You may also use a computer finance software program to keep track of your expenditures, whichever works best for you. Write down as many categories as you can think of. You may have 10 categories or you may have over 20, it all depends on your lifestyle.
See Your Results
At the end of the month, tally the results of your log. Pay attention to where you have spent the most money and where you spend the least. Having kept this log should dramatically open your eyes to see exactly where your money has been going during a month’s time. You may be shocked to see that you spent $15 in late charges for overdue books at the library or you noticed that you spend a large amount on fast food. Take some time and sit down and look at ways you can cut back in certain categories or eliminate all together.
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