Showing posts with label Reading the stock pages. Show all posts
Showing posts with label Reading the stock pages. Show all posts

Sunday 24 January 2010

Reading the Stock Pages

One way to tell who the investors are is by watching them read the paper.  Investors don't start with the comics, or sports, the way other readers do.  They head straight for the business section, and run their finger down the columns of stocks searching for yesterday's closing prices on the companies they own.

The price of the last trade, called the closing price, gets quoted in the papers the next morning.

A lot of information is packed into a single line. 

365-Day High-Low 
62 - 37

Stock
Disney

Div
0.36

Yld %
0.625

P/E
23

Sales
11090

High
57

Low
56

Last
57

Chg
+1

So, in the last 12 months, there's a wide range of prices that people will pay for the same stock
  • In fact, the average stock on the NYSE moves up and down approximately 57 % from its base price in any given year. 
  • More incredibe than that, one in every three stocks traded on the NYSE moves up and down 50 to 100 % from the base each year, and about 8% of the stocks rise and fall 100% or more.
A stock might start out the year selling for $12, rise to $16 during an optimistic stretch, and fall to $8 during a pessimistic stretch. 
  • That's a 100% move:  from $16 to $8. 
  • Clearly , some investors pay a lot less than others for the same company in the same year.

In the 4 columns:"High," "Low," "Last," and "Chg"(Change), you get a recap of what happened in yesterday's trading. 
  • In this case, nothing much. 
  • The highest price anybody paid for Disney during this particular session was $57, and the lowest was $56, and the last sale of the day was made at $57. 
  • That was the closing price that everybody was looking for in the newspaper. 
  • It was up $1 from the closing price of the day before, which is why +$1 appears in the "Chg" column.

"Div" stands for dividend.  Dividends are a company's way of rewarding the people who buy their stock.  Some companies
  • pay big dividends,
  • some pay small dividends, and
  • some pay no dividend at all. 

The number shown 0.36 means "thirty-six cents."  That's Disney's current annual dividend - you get 36 cents for each share you own.

"Yld% (Yield), gives you more information about the diividend, so you can compare it, say to the yield from a savings account or bond.  Yield = curren dividend divided by the closing stock price. 
  • The result is 0.625 % - the return you're getting on your money if you invest in Disney at the current price.
  • This 0.625% is a very low return, as compared to the 3% that savings accounts are paying these days. 
  • Disney is not a stock you'd buy just for the dividend.

P/E is the abbreviation for "price-earnings ratio."  You get the P/E ratio by dividing the price of a stock by the company's annual earnings.  The P/E can be found in the paper every day.

  • When people are considering whether to buy a particular company, the P/E helps them figure out if the stock is cheap or expensive. 
  • P/E ratios vary from industry to industry, and to some extent from company to company, so the simplest way to use this tool is to compare a company's current P/E ratio to the historical norm.

In today's market, the P/E of the average stock is about 16, and Disney's P/E of 23 makes it a bit expensive relative to the average stock. 
  • But since Disney's P/E ratio has moved from 12 to 40 over the past 15 years, a P/E of 23 for Disney is not out of line, historically. 
  • It is more expensive than the average stock because the company as been a terrific performer.

Finally,l there's "Sales":  (Volume) the number of shares that were bought and sold in yesterday's session at the stock exchange. 
  • You always multiply this number by 100, so the 11,000 tells us that 1.1 million shares of Disney changed hands. 
  • It's not crucial to know this, but it makes you realize that the stock market is a very busy place.

Thanks to home computers, electronic tickertape and other technologies, people no longer have to wait for tomorrow's newspaper to check their stocks.  All this technology has a drawback:  It can get you too worked up about the daily gyrations.
  • Letting your emotions go up and down in sympathy with stocks can be very exhausting form of exercise, and it doesn't do you any good. 
  • Whether Disney rises, falls, or goes sideways today, tomorrow, or next month isn't worth worrying about if you are a long-term investor.