What Impacts the Price of a Stock? How Useful is Historical Data?

By Marv Doniger

There are a myriad of factors that are commonly used by investors to evaluate potential stock investments. These investment opportunities are often identified through the use of the numerous stock screeners that are readily available to investors. Common searches seek to identify companies that have a low Price Earnings, Price to Book Value, or Price to Cash Flow Ratio; high Dividend Yields; high Returns on Assets, Invested Capital, or Earnings; low Debt to Equity; and high Cash balances. In fact there are pre-defined stock screeners such as the Contrarian Strategy, Dogs of the Dow, Momentum Stocks, New 52-Week Highs, etc. that can be used to identify stocks in which to invest. The implicit assumption in using stock screeners is that there is a relationship between this data and the future performance of a stock. Should this assumption be valid then all one would have to do is run his/her magic screener and buy those stocks with his/her favorite criteria such as low Price Earnings Ratio and high Dividend Yield. In order to validate the premise that the data obtained from stock screeners influences the price of a company's stock, the change in the price of the Dow 30 Industrial stocks from 1999 to 2009 was compared to changes in the Returns they generated, their Financial Condition and Performance over that same time period. Returns included Returns on Equity, Invested Capital and Assets as well as Dividends paid to investors. Financial Condition included Current Ratio, Debt to Equity Ratio, along with Interest Coverage and Dividend Coverage. Performance included Sales, Earnings, Book Value and Cash Flow trends. A correlation analysis was conducted to determine the relationship of the price of each of the companies comprising the Dow Industrials and these factors. The hypothesis being that there was a statistically valid relationship between these factors.

As the following chart shows, dividends had a statistically significant impact on the change in the price of the stock of Exxon Mobil, Hewlett-Packard, Merck, and Verizon. It had a moderate impact on the price of the stock of Alcoa, Bank of America, DuPont, General Electric and JP Morgan Chase. Earnings had a strong impact on the price of Citigroup's and Exxon Mobil's stock. The stock price of Caterpillar, Chevron, Johnson & Johnson, McDonalds, Proctor & Gamble, and United Technologies was moderately impacted by earnings. Price changes in the stock of Exxon Mobil were statistically significantly impacted by its Dividends, Cash, Earnings, Book Value and Cash Flow and moderately impacted by its Return on Invested Capital, Dividend Coverage and Sales. Another company whose price movement could be partially explained by change in these factors is Caterpillar. There were moderately statistically significant relationships between its price and its Returns on Equity, Investment and Assets; its Interest and Dividend Coverage; as well as its Earnings and Cash Flow. Perhaps one of the most astonishing results is that there were no statistically meaningful relationships between the changes in the price of the stocks of 3M, American Express, AT&T, Boeing, Intel, IBM, Kraft, Microsoft, Pfizer, Coca-Cola, Home Depot, and Wal-Mart and the measures of Returns, Financial Condition, and Performance used in the analysis. To put it another way, the price movement of 40 percent of the Dow Industrials bore no statistically meaningful relationship to changes in these factors.

FACTORS AFFECTING STOCK PRICE of DOW 30 INDUSTRIALS RETURNS FINANCIAL CONDITION PERFORMANCE Dow 30 Components Company Equity Invested Capital Assets Dividends Current Ratio Debt to Equity Interest Coverage Dividend Coverage Cash Sales Earnings Book Value Cash Flow 3m Co Alcoa Inc ● American Express Company, AT&T Inc. Bank of America Corporation ● Boeing Co., Caterpillar Inc. ● ● ● ● ● ● ● Chevron Corp ●● ● ● ●● ● Citigroup, Inc. ●● ● E.I. du Pont de Nemours and Co ● Exxon Mobil Corp ● ●● ● ●● ● ●● ●● ●● General Electric Company ● General Motors Corporation ● Hewlett-Packard Co. ●● ● Intel Corporation International Business Machines Johnson & Johnson ● ● ● JP Morgan & Chase & Co ● Kraft Foods Inc. McDonald's Corporation ● ● Merck & Co., Inc. ●● Microsoft Corporation, Pfizer Inc, The Coca-Cola Company, The Home Depot, Inc. The Procter & Gamble Company ● ● ● ●● United Technologies Corporation ● ● ● Verizon Communications ●● Wal-Mart Stores, Inc. Impact ● Moderate ●● Significant Data Standard & Poor's

Based on the previous examination of the relationships between the price of the Dow Industrials stocks and certain measurements of their historical data, it should be apparent that stock screeners, in and of themselves, are not sufficient tools to use in selecting potential stock investments. Even if there were statistically significant relationships between the historical price movement and the data used in the stock screener, it does not mean that those relationships would continue in the future. Wall Street constantly warns that past performance is not indicative of future results, yet investors search the past to divine the future. It is like driving in traffic by looking through the rear view mirror and missing the collision ahead that is about to happen. As events of the past eighteen months have proven, highly improbable events can occur and inflict unforeseen casualties on investors. Since equity markets are supposedly discounting future events, investors should look through the windshield to see what is ahead of them and use the rear view mirror to see if the vehicle behind them has any relevance to their ultimate destination.

Marvin Doniger, Managing Partner of Doniger & Associates, is the author of A Common Sense Road Map to Uncommon Wealth, which is a treatise on managing careers and finances. His perspectives have been developed from his lifelong study of investing, his actual experiences as a registered representative, an individual investor, as well as from working for large companies in industry and as a management consultant to Fortune 500 companies. He is a leader in his industry. - 23212

About the Author:

Mr. Doniger received a Masters in Business Administration from Columbia University Graduate School of Business and a Bachelor of Science Degree in Mechanical Engineering from Tufts University. He has taught undergraduate and graduate level courses in production control, inventory management, information technology and finance at Fitchburg State College and Webster University. CONTACT INFORMATION: Tel: 949-661-5456 Email: Marv@DonigerAssociates.com www.donigerassociates.com

Financing Options for Rental Property

By David McCammon

Lots of people are now finding that rental property can be an excellent way to create wealth. If you are considering getting involved in rental property investing, it is a good idea to educate yourself as much as possible. First, you need to find out what it takes to become qualified to purchase investment property because it is actually somewhat different than becoming qualified to purchase a normal home.

A common idea for this is the fact that a significant number of investors either walked away from properties or declared bankruptcy during the early 1990s. While you should certainly not be punished for someone elses problems, neither do lenders want to be left holding investment properties. Therefore, it is important to understand that the requirements for being approved for a mortgage on rental properties are somewhat different from what you are used to.

While a home can often be purchased with a minimum down payment, especially if you are a first-time home buyer this is often not the case with rental property. Many lenders require a minimum down payment of 15%.

Fortunately there are many different sources you can tap into for possible financing. These options include: Mortgage broker Local savings and loan or bank Private lender FHA; which stands for Federal Housing Association.

No matter which option you choose, you will find that most lenders will want to be assured that you will have a sufficient amount of rental income in order to cover not only the mortgage payment but also other expenses such as insurance, taxes and maintenance. Depending on the amount of income that will be provided from the property, some lenders actually do require a larger down payment.

Of course there are many different types of loans which you can use to finance the purchase of a rental property. One option would be a residential loan. This type of loan can be used to purchase from one to four units. The exact options that are open to you often depend on whether or not the property will be occupied immediately.

Another popular option is a commercial loan. This is an option when the property is five units or more or it will be non-owner occupied. Due to the fact that it is a commercial loan, it is often far different from a residential loan in regards to terms and requirements. One of the main differences between a commercial loan and a residential loan is the fact that fees and rates are frequently higher this kind of a loan.

Sometimes a larger down payment is also often required. The down payment on a commercial loan typically runs between 25% and 35%. While there are some lenders who may be willing to agree to a higher loan to value ratio; the requirements for qualifying for such loans are often much more difficult.

Owners should also carefully examine the ability of the property to generate a cash flow that will allow you to repay your loan. As a result, the lender will typically examine the property to ensure it can provide an income that will not only allow you to cover the mortgage payments and other expenses but also provide enough of a cash flow that you will have additional income to do other things with.

PPL or private party lending is another option for many prospective investors. One option would be to approach the current owner about seller financing. With this option the owner carries back the loan for a down payment and fair interest rate. You may find that you can save lending fees with the options and may also be able to take advantage of making a much lower down payment.

Another option would be what is known as a hard-money loan. This is a type of short-term financing where a third-party makes a loan to assist the investor with purchasing the property. Generally, this type of loan involves a higher interest rate due to the fact that the buyer has poor credit or because the property is in disrepair and requires extensive renovation.

FHA programs are often offered through traditional lenders. Keep in mind; however, that FHA does not actually lend money. They do provide insurance for lenders; offering numerous loan programs. Regardless of which financing tool you choose, remember that there is always the option to refinance at some later point in order to obtain a better terms. - 23212

About the Author:

If the thought of making money greatly in the wide world of real estate investing stimulates you, then you ought download Davids free report and Free Real Estate Course. To find out the safest and most profitable methods visit Davids website Real Estate Investing.

S&P Futures Explained (Part II)

By Ahmad Hassam

S&P futures contracts are valued in ticks worth 0.1 index points or $25. Regular trading hours for S&P futures contracts are from 8:30 A.M to 3:15 PM. S&P futures contracts are another example of how 24 hours a day trading enables traders to respond to economic news releases in pre-market and after-market sessions.

The evening session starts at 3:30 PM (15 minutes after the close) and continues on the Globex until 8:15 AM overnight. Individual contract holders are limited to no more than 20,000 net long or short contracts at any one time.

A price limit is how far an S&P futures contract can rise or fall in a single trading session. The limits are set on quarterly basis. If the index experiences major declines or increases beyond these limits, a procedure is set in place to halt trading. If these price limits are crossed, circuit breakers are triggered.

Collar Rule: What the collar rule does is limit the chance of huge gains or losses as a result of futures trading. The collar rule limits the traders from piling buy or sell orders in an attempt to exaggerate the gains or losses of the market. It addresses price swings related to program trades that move the Dow Jones Industrial Average (DJIA) more than 2% by requiring index arbitrage orders, or orders that bet on the spread between the futures and the cash of stock indexes to be stabilizing.

Its time to learn how an S&P futures contract ticks once you have mastered futures basics such as the performance bond margins, the mark to market requirements and the account specifics. Especially during slow seasons in the stock market such as summer, fall and around the winter holidays, overnight or pre-market trading can be thin and dangerous.

CMEs most actively traded contracts are Eurodollar futures and S&P futures including the E-minis. Hundreds of futures contracts trade on the federally regulated futures exchanges in the United States. Each of these exchanges trade contract that are somewhat unique to it.

E-mini S&P Futures contracts: Because of high intraday price volatility and major price swings on a daily basis, E-mini S&P futures contracts (ES) are the favorites of the day traders. Because they enable you to trade the markets trend with only one fifth of the requirement, E-mini S&P futures contracts (ES) are among the most popular stock index futures contract.

The E-mini S&P futures contract can be very volatile and can move even more aggressively during times of extreme market volatility. One tick on E-min S&P futures contract is equal to 0.25 of the index point or $12.50. The value of the E-mini S&P futures contract is $50 times the value of the S&P 500 stock index. - 23212

About the Author:

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading futures and currencies. Trade Dow Futures and S&P Futures!

Getting Started in Real Estate for the Penniless - Part One

By Dave Peniuk

You probably won't like what I have to say. But, the brutal reality is that you can't spend everything you make and expect to get rich. Period. If you are slipping further and further into debt each month and you think real estate investing is going to save you, I have bad news for you. It won't.

I know... those guys on late night television introduced you to people who got out of debt and quit their jobs just 60 days after taking their real estate investing course. Let me tell you first hand that if those testimonials on t.v. are real, those people are the exception, not the rule.

You can, and we believe you WILL, create massive amounts of wealth through real estate investing. Set your goals, find properties that meet those goals with plenty of good research and then hold onto them for at least five years...preferably longer. It works... look at the richest people in your city. Of those that are self-made, I bet at least 25% of them did it through real estate. We always go through the richest people in Canada and Power List for Vancouver, and this number holds up.

The secret to successful real estate investing is to learn what you're doing first, then you can make more investments as your knowledge and assets grow. If you do that, you CAN get rich off of real estate, with less money and fewer headaches than people who try to do it in other ways.

We started out with $16,000. Thankfully my wife Julie was a saver. When she graduated from University and started working as a sales rep, she continued to live like a student. And, she put every extra penny she had into paying down her student loan. When that was paid off, she proceeded to save any extra money that she had. Her plan was to go back to school for her MBA so she wanted to have as much cash in the bank as possible to pay for school.

In contrast, I was not a saver. I didn't live above my means, but I was right at them with some credit card debt, a nice new Volkswagen (financed) and nights out on the town. I had a small piece of property that I owned with my mother and no savings to speak of. I got very excited when Julie explained to me how we could retire at 35.

It didn't happen overnight, but it only took a few months to change my situation. I quickly paid off my credit card debt and started putting a few hundred dollars away each month in savings. And then we started shopping for our first investment property.

Our first investment was a lot easier to do thanks to Julie's savings. But, you don't need money to buy your first property.

You may have heard of 'no money down' programs, and though they certainly exist and they can work, they're also very risky. Usually this is too much risk for an average person to handle, and why would you want to handle it anyway? Especially when there are three much less riskier ways to get into real estate investing:

1. Cashing out your savings, including stocks, retirement and GICs

2. Home equity

3. A partner with cash.

Here's the hard reality that you won't like to hear though. Finding a partner will be next to impossible if your own finances are ugly. If you have no experience investing in real estate, you are deep in debt and you are trying to get rich on my money, what exactly is in it for me, as your potential partner? It just sounds risky to me.

In contrast, if you had $30,000 in student loans with only $5,000 remaining to pay and you've found a really great deal and seem to know what you're doing, then a partner will want to hear what you have to say.

Did you notice the difference? In the first instance, the person is in debt with no plan, no experience, and no way to get out. In the second instance, the person is in debt, but has a plan - so you know their debt will be over soon and they will be not be depending on your money forever.

Before you can buy a single piece of property, you have to be able to control your own finances. This gives you control of your destiny. Living beneath your means is the only way to do that. If you're unsure about what you make versus what you spend, try this: for the next six months, keep track of every penny you spend. Once it's there in black and white you'll be able to see how you're living and where you can make changes.

It's possible that a few of you may be thinking "well, I couldn't possibly cut back on buying expensive birthday presents", or "I'm not willing to give up my yearly beach vacation". That's fine, as long as you have a plan to save for those things rather than going into debt for them. If you go into debt often when things like this come up, you are a SPENDER, not a SAVER, and are not serious enough at this point about growing your wealth by becoming a real estate investor. - 23212

About the Author:

Learn How to Retire with Real Estate with Dave's free Real Estate Investing Starter Tips Guide. Learn how to find money for real estate deals, create financial freedom, extra revenue and massive wealth with tips like: How to find quality rental properties, finding and keeping great tenants, and easy ways to make more money with real estate.

Forex Option Trading Great Profit Potential

By Mark Green

With the forex option trading market growing larger and larger every day, it is no wonder so many people are getting into it. The smaller margins are used in leverage so that the small traders can still make large profits. With the potential of making massive profits, it is a great trade to start in.

With forex option trading it is critical to know how to use it to an advantage. You may be thinking how could you actually use it to your advantage. Truth is that it is setup for your advantage, with option trading you use smaller margins and leverage them in the market to make high profit potentials. If you are new to forex, it is the best place to start. You can turn small trades into larger trades and eventually use your higher margin in higher leverage trades and make higher profits.

The well favored forex option trading is the way of trading today. The benefit about option trading is that it gives the investor more flexibility with their trade. To sum it up, option trading is a currency contract that allows the option buyer the rights to purchase or sell the forex spot contract on an established exact price before/up to the specified date.

If you are looking for a way to make your forex option trading more serious, there may be something in store for you. Are you are looking for a way to step up your trading and to achieve the margins that you want? What if you could trade better than the average trader, right away. If you are a new trader, or a skilled trader, there is something you could add to your tactics to increase your profits.

If you think there's room for more profits in your forex option trading, then you are right. Having an idea on what to work on or improve can sometimes be difficult. What if there were a way to trade better than the average trader, a way to make your profits real, and larger? What if I showed you something that would change your forex outlook forever. Take action on your profits, and do the next step to increasing them. Make the bank with the kind of profits you truly want. Get the key to option trading, with the latest thing to the market. - 23212

About the Author:

If you are interested in Forex Option Trading , you simply can not miss the opportunities you will learn about in this guide. Others preach to be the best, but the proof is in the guide. Get your guide while they last.