Archive for December, 2008


Market Cap Stock

Filed Under: Glossary by Bill — 1 Comment
December 13, 2008

The market cap of a stock is simply the multiplication of the number of outstanding shares by the price per share.  The market cap is essentially the cost of the whole corporation if you were to try and buy every share (without the price changing.)  It’s good to note the market cap of a company when looking at factors like earnings and debt or when comparing one stock in a sector to another.  Making a ratio out of the earnings and debt to the whole market cap puts those large numbers in perspective. 

Also, the market cap compared to a competitor may help judge if a buy out is a potential because of the market cap is lower than the cash flow of the larger foe.

An interesting aside – GM is asking for 4 billion dollars to survive the month of December from Congress.  However, the whole market cap for GM is only 2.5 billion compared to Ford’s 7 billion.  Would you loan a company nearly twice what their worth when you could just buy the stock?  Market caps are worth keeping an eye on.

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JNJ Stock

Filed Under: Stock Pick of the Day by Bill — 3 Comments
December 12, 2008

Johnson & Johnson (Stock: JNJ) is a research and manufacturing company in skin care, wound care, nutrient and pharmaceuticals.  What I love about JNJ stock is it owns the type of brand names that people use to describe all products in the same category like “BAND-AID” AND “Tylenol” and they make LEVAQUIN, an antibiotic that saved my hide when I had a staph infection the other month.  These are the type of products that people will keep buying despite the economic hardships.  Even after of the Tylenol scare of 1982 where the market share of pain killers went from 35% to 8%, but bounced back in less than one year.  That’s brand loyalty! 

Now my favorite long term CAGR chart:

 

 

Looking at the chart JNJ is below the 2 standard deviation line for the first time since 1984 or so.  Also there is resistance along the 15.4% CAGR line (the current CAGR) around ’87 – 88 during the Black Monday time frame.  The stock price has held up incredibly well compared to the general market only falling 14% in the last year compared to the S&P 500 which has fallen 41%.  The real earnings are holding this stock up and when the market turns I believe it will float to the top and you can enjoy a nice safe 3.2% dividend while you wait.

JNJ Stock Technical Analysis:

 The price is still below the 50 day moving average, however it appears the lows are getting higher and higher showing weakness in the selling pressure.  While you may choose to wait for the price to break the 50 day it depends if you’re planning on trading this stock or investing in it.  My vote is this stock is a better investment.

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I Stock

Filed Under: Personal Finance by Bill — Comments Off
December 11, 2008

Don’t go looking up I Stock because you won’t find it, well there is something on the PSE exchange, but that doesn’t count.  I’m talking about the you stock (not U stock) only if you were talking :)   Confused yet?  You need to look at the value of your portfolio as the value of a stock.  If you think it is undervalued then you need to dig deep into your savings to invest in yourself, if you think the value of your I share is overvalued then perhaps you should shift some of your residual income slated for investments and move them into other areas like paying down bills.  Once you’ve slated money towards your investments (remember stock day?) you now have the responsibility to use it as effectively as possible.

Now that your considering yourself President of the I Stock corporation your first order of business (after considering changing the name) should be determining a business plan for your company.  Is all your money going to where you expect? Do your consultants (mutual fund managers) provide an adequate return on your investment?  If not fire them it’s your money.  If you’re buying investment magazines do you gain insights that justify the expense from them?  These questions are important and the sooner you ask them the more professional your financial life will become.  With professionalism comes confidence and soon you’ll find yourself making more, spending less, and excited about your future.

Is there anything we can help teach you in the stock market?

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Trading Bollinger Bands

Filed Under: Glossary, Technical Analysis by Bill — 1 Comment
December 10, 2008

Bollinger Bands, invented by John Bollinger, are a simple moving average (often 20 period moving average) with a plus 2 standard deviation (the standard deviation is calculated using the same prices as the moving average) and a -2 standard deviation.

Standard Deviation Calculation

Some general notes and uses about trading bollinger bands:

  • Bollinger Bands use of 20 period moving average and +/- 2 standard deviation should be adjusted and/or optimized for the style of trading or investing you are doing.
  • Just because 2 standard deviation is generally assumed to mean 95% of the time a stock will fall between these two areas.  Remember this assumes a normal curve and a sufficient sample size, neither of which you have with this tool.  Don’t factor a 95% success rate with this tool.
  • The price tends to rise on the upper bollinger band and falls down the lower band.
  • If the price closes outside of the band this is generally a sign of a price continuation not a reversal.  Volume indicators is a good tool to verify with this.
  • Remember Bollinger Bands factor volatility and trend, so if you use confirmation signals it needs to not be correlated with either volatility (like a market volatility index (VIX)) nor trend.

Remember you have to learn to make the tools work in your strategy to make money, not make the tool your strategy.

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