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Recommended AAII Tools & Benefits
For the member wondering where to start, the AAII editorial staff recommends the following list of AAII tools and benefits.
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Frequently Asked Questions About Financial Statements
Reading a company's literature can still be a mystery if you don't understand the jargon.
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How often have you seen a stock’s price fall after the company announced increased earnings?
Or, why would a stock’s price soar after the company announces quarterly earnings that fell?
In these instances, actual earnings did not turn out as the market expected.
In fact, expectations play a key role in determining if a stock’s price “gains” or “loses” when actual earnings are reported.
The stock market is forward looking. That is, stock prices are established based on the expectations that prospective investors have for the future earnings power of the firm.
The future earnings power of any company involves the interaction of many company, industry, and economic forces. Earnings estimates embody investors’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost controls. Stock prices adjust as these expectations change or are proven wrong.
Just whose expectations are we talking about?
The actual expectations embodied in a stock’s price are those of millions of investors—collectively “the market.” Needless to say, it is impossible to measure the exact expectations of all of these investors at one point in time.
The more practical proxy for the market’s expectations is analysts’ consensus earnings estimates. Many services provide consensus earnings estimates by tracking the estimates of the thousands of investment analysts who are employed by brokerage firms providing stock research for their customers. These analysts have two primary functions: to provide earnings per share estimates and to provide buy/hold/sell recommendations for the companies they track. The brokerage firm uses the research developed by their analysts to attract and retain brokerage customers and create investment banking opportunities.
Stocks with earnings estimates may have from one to...
How you allocate your portfolio is the most important investment decision you will make. Both the asset classes you choose to invest in and the proportion of your portfolio allocated to each class will be the primary determinant as to whether you achieve your financial goals or not.
In this month’s column, I explain what portfolio allocation is and give you basic starting points based on your risk tolerance.
Portfolio allocation encompasses the classes of assets included in a portfolio and the proportion of investment dollars assigned to each asset class. An asset class is a broad category of related securities. Asset classes include equities (stocks), fixed income bonds, commodities (gold, oil, etc.), real estate and alternative investments (venture capital, etc.). Within each asset class are various types of investments. For...
