Skimming the online version of The Wall Street Journal each day will have a massive impact on your ability to understand investing.
“Well, that’s a pretty bold statement.”
If you’re saying that to yourself, let me explain. I started reading the WSJ when I was in college over 30 years ago. In fact, my friends used to give me a hard time about it. But I knew that I wanted to work in finance- and I’m also a reader my nature.
The WSJ is a great way to learn about how businesses make money, and how people successfully (and unsuccessfully) invest in companies. Let’s use an easy example that everyone understands: Apple Computer.
The story of a business
So, consider the story of a particular business- then the financial results that follow. I really liked Terrance Yang’s approach to answering this Quora question, because he gives the reader a bunch of great web links to investment sites, based on the reader’s area of interest. I’ll eventually get to those specific links, eventually.
If you haven’t read it, I highly recommend Walter Isaacson’s bio of Steve Jobs. What do you learn? Steve Jobs is a visionary, because he sees what’s possible in the future, by envisioning personal computers, ITunes, and the IPhone.
Now, there’s a financial payoff for Apple, since a certain percentage of the population is willing to pay just about any price to “be first”- to get the next tech product before anyone else (my brother-in-law is one of these people).
Since Apple can determine the prices they charge, the firm can always maintain a healthy profit margin. Even when its competitors try to roll out a similar product, Apple continues to innovate and stay ahead.
I’ll always buy IPhones and a Mac- I don’t care if a competitor shows up at my door and offers a competitor’s devices for free….I’m all in.
The story of Apple has a massive financial payoff to investors. The most recent financial data reveals that Apple’s earnings per share (Earnings over the last four quarters/ common stock shares outstanding), totals $8.55. Based on the current stock price, Apples price earnings (P/E) ratio is about 17 times earnings.
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So, what do those statistics mean exactly? It means that the price per share that you pay now is 17 times each dollar earned. P/E ratio is a measure of how relatively expensive (or inexpensive) a stock is, compared to the broad markets. If you look at the P/E ratio for the Standard and Poor’s 500 index as of this writing, the ratio is 25.59. Apple’s current P/E is less than the broad market- meaning that the stock price is “cheaper”, relatively speaking.
Bottom line: Apple is an innovative company that can control its prices, which allows the firm to generate a high level of earnings and cash. These types of companies are attractive to investors.
Read the story of business- and understand the financial impact behind each story.
Sites that I follow
All that being said, here are some great blogs and websites that I follow:
Forbes and Fortune Magazine: Two great online (and print) magazines that help you do a deeper drive into business topics. I recommend scanning these sites each week, then read the articles that interest you.
The Simple Dollar: The best- I think- personal finance blog out there. TSD writes on a variety of topics to help consumers be frugal and make smart investment decisions.
Entrepreneur: The best site, if you starting (or thinking about starting) a business. Even if you’re not an entrepreneur, you’ll learn a ton about how businesses should work.
Your investment statements: The number one task that investors don’t do: they don’t read and understand their own monthly investment statements. Please read them- particularly when the markets decline and you have losses on your statements. Take the time to understand what you own.
Those are my tips- best of luck! As always, this is for educational purposes only. Consult a CPA or a financial advisor for guidance.
This article was originally posted on my Quora page.
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
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Wall Street Sign, Sue Waters CC by SA-2.0