Stock Market Guide

How Do I Know If a P-E Ratio is Good?
By Billy Akerman

There are many ways to evaluate a company, but one of the ways is by looking at the P/E ratio. A P/E ratio will help make your decision. If you're not careful, it can come back and bite you in your wallet.

The P/E ratio - the price of a stock divided by the company's annual profits per share - is a guideline used by most investors to value equities. It tells you how much you're paying for each dollar of earnings. Usually the lower the P/E, the cheaper the stock will be.

While P/Es are based on estimated earnings (also known as forward P/Es) are common, they're not always the numbers that are used, some analysts use past earnings. While others may rely on "current year" estimates, which are a mix of actual and projected profits for a given year.

Which is most useful? It depends on what type of company you are valuating Any company that is economically sensitive you would need to use forward P/E, since the company's outlook could change quite quickly. Just look at how the home builders were effected. Yes its risky and analysts are often wrong, but looking backward can be just as dangerous (past performance doesn't really mean anything for the future).

So when you're trying to figure out which P/E is best to use for the different stocks that you may invest in. Make sure you know which measure - future, trailing or current year - you're dealing with. Then, when valuing one stock vs. another, be careful to compare apples with apples. Many times if you're not careful, you could lose a lot of your capitol.

To learn more on understanding the stock market, go to http://understandingthestockmarketonline.com
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Understanding the Stock Market - Bonds
By Billy Akerman

With all the talks about saving the financial sector of Wall Street, people are wondering where to put there money for the time being while the markets stabilize. Typically when the market go through this kind of turmoil, the safest place would most likely be in bonds. Of course with the bailout plan this could cause the bonds to drop in price. You need to know the difference between one bond from another.

In laymen terms, a bond is a loan, not a loan for you, but one for you to be the lender. You lend money to either a government, a governmental agency or a corporation. In return the entities plan to pay you back the money with interest. The loan is paid back to you in installments, also known as the yield.

Bonds are usually bought in increments of $1000. Recently Treasury bonds were offering a yield of 3.85%, do if you were to buy a 10 year bond for $2000, the U.S. government would pay you back the $2000 in 10 years. During those 10 years you would receive annual payments of $77 in interest, which is 3.85% of the principal.

The idea of investing in bonds is for capitol preservation during the slow economics periods when stocks are correcting themselves. They are considered fixed-income. They are also good for investments later in your life when you are nearing retirement to help prevent drastic shifts in the markets. When you're older you're not as willing to take higher risks than you would in your younger years. There are other ways that bonds can make you even more money than it's own yield, but more on that at a later time.

To learn more about understanding the stock market, please go to http://understandingthestockmarketonline.com
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