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. - 23200

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

An Introduction To A Forex Training On Fundamental Analysis

By Bart Icles

Managing risks is one of the most important things that forex traders should learn. Most forex training programs include risk management in their discussions, and managing risks can involve either fundamental or technical analysis. A fundamental analysis refers to the dynamic evaluation of specific plans, unpredictable behaviors, and unanticipated events that affect the economy of a certain individual, business, organization or country. A fundamental analysis mainly focuses on social, political, and economic forces that drive the trends of the supply of and demand for currencies.

A forex training program on fundamental analysis will help you understand the different factors that fundamentalists pay attention to. These factors can include bank policies, government policies, overall economic trends, natural disasters, and social stability. A fundamental analysis can help much in developing mid-term to long-term investment decisions. Forex investors and traders must take note though that fundamental analysis will not help much in day trading because a fundamental analysis mainly evaluates major economic, social, and political forces.

Fundamental analyses involve different kinds of evaluations of macroeconomic factors. A fundamentalist makes use of different economic indicators of a certain country to predict a sensible valuation of the currency of that country. These economic indicators typically include GDP growth rates, interest rates, retail sales, and unemployment rates. A fundamental analysis can also involve an assessment of consumer price index, industrial production reports, and manufacturing production.

Newcomers to the foreign exchange market typically ask why there is a need for fundamental analysis. Fundamental analyses have been developed out of the fact that the economic condition of a certain country directly affects the performance of its currency in the foreign exchange world. This also makes it important for forex investors and traders to keep an eye on financial calendars released by different countries and private sectors. However, traders and investors must understand that macroeconomic factors are not the only drivers of the performance of specific currencies - the valuation of currencies is also affected by many other things like technical factors, and third party reports.

A good forex training program will show you how you can use fundamental analysis while trading. It will show you how to use economic calendars including when and where to get copies of them. It will also give you tips on how you can keep yourself informed of the economic indicators that are getting much of the market's attention. Most importantly, it will help you understand the importance of knowing market expectations for data and whether or not expectations have been met. - 23200

About the Author:

Forex trading starts with a desire to learn and a drive to become a great trader. Learning forex strategy takes dedication and a good teacher. But once you learn how to trade and do so successfully your life will change and you have options and financial resources you never had before.

What You Need To Know When Buying Foreclosed Properties

By Mark Knowles

The abundance of bank owned properties that are available all around the world are evident. However, what many people are interested in, is finding out different ways that they can turn these bank owned properties into their own.

Bank owned properties become sole possession of a bank when payment has not been rendered on the property by the tenant who had previously owned the home. Many people call these properties by many different names, repossessed homes is a term that you have probably heard many times before.

The real estate business is searching aimlessly for ways that they can get rid of these bank owned houses. However, with the way that the economy is many people are hesitant to even try to buy one of the properties for themselves.

The people that do decide to purchase the houses are the ones that are making a wise decision to turn the investment into a lucrative financial tool.

These properties are sold for close to nothing simply because they are foreclosure on. Banks do not like holding onto properties, they want to sell them as quickly as they possibly can therefore there is a lot more flexibility as far as pricing is concerned.

If you are serious about purchasing a bank owned property the very first thing that you do in order to claim the property is make an offer on the home. You do not need to make a large offer but it should be a number that the bank will be willing to work with as far as payment is concerned.

In many accounts if you make a legitimate offer on a home that has been bank-owned you will inadvertently end up getting the property. The bank will run all of your information to ensure that you can afford to pay for the home that you are desperately seeking for your very own.

It takes a few days for the bank to come back with an answer to your bid on the property. As long as your information suits the kind of tenant that they are looking for you will probably more then likely end up getting the property that you want.

The next thing that you should do upon receiving approval to be able to purchase the home at the price you specified is have someone come in and inspect the home. A home inspector will make sure that everything in your new home is working correctly and check for any imperfections before you put down your money to buy the home.

All of the things that the inspector notes will need to be taken care of out of your pocket if you choose to purchase the home. Many foreclosure properties are bought as is which means that any imperfections of the home will have to be rectified by the person that purchases the home.

Many people use bank owned properties for a plethora of different things. Some people may choose to live in the properties themselves, while most people fix up the dwellings and decide to rent or sell them to another family after they have made all the proper alterations. - 23200

About the Author:

One up and coming market segment for the property investor is bank owned properties and with thousands of bank foreclosures for sale, now is an excellent time for cash buyers.

Forex Trading Hours - They Are Not The Same!

By Steve Maenshel

Forex trading hours are important for anyone who plans to trade currencies at the Forex exchange market. The Forex market operates twenty four hours a day, five days a week, except for national holidays. Forex trading hours differ due to that various major financial institutions operate in different hours in different time zones.

Experts identify four major time zones, whose Forex trading hours substantially differ: Australia, Asia, Europe and America. Forex trading hours in Tokyo begin at 23:00 GMT on Sunday. This starts the weekly trading session. The weekly trading session closes on Friday at 10 pm in Chicago.

Forex market is open at the time of major holidays just as well. However, of course, it's not open in the country where the holiday is celebrated. For example, at the time of a major Christian holiday you can still get foreign currency quotes from the banks of Asian and Muslim countries, and the other way around. Thus, if you feel like trading, you will not have to wait for the holiday to pass in your country; you would just trade with others. It never happens that one holiday would happen in all of the countries all over the world at the same time.

One of the least suitable days for Forex trading is the weekends. This is due to that it is often hard to find a counterpart for your transaction, since the volume of both - sellers and buyers - is much less on the weekends. Novice Forex traders should try to only trade within the Forex trading hours on the weekdays.

Forex trading hours vary all over the world, making Forex market a colorful mixture of countries and currencies, including US Dollars, Canadian Dollars, Australian Dollars, Euro, Yens, Pounds etc. Thus you will be able to trade with any currency at the foreign exchange market.

Forex trading hours were established in order to give employees time for Forex transactions, which is not achievable at the time of active trades, as well as probably to give traders some time to "rest and relax".

The residents of different countries can be surprised that Forex trading hours start and end deep at night in their countries, however you should realize that the foreign exchange market works in different time zones, and thus while in some country Forex might seem to work "at night", in other countries Forex trading hours match regular working hours.

Forex trading hours in the main 4 timezones

Forex trading hours of various countries overlap one another, together totaling 24 hours each day for 5 days in the row. Thinner trades are also carried out on the weekends. Please take a look at the 4 main time-zones of the Forex trading hours (EST):

Tokyo, Trading Hours: 19.00 to 04.00 EST

New York: 8.00 to 17.00 EST

London, Trading Hours: 03.00 to 12.00 (noon) EST

Sydney: 17.00 to 02.00 EST

Forex trading hours are also an important part of a trading strategy, since the trades will differ depending on the Forex trading hours, which you choose to trade at. - 23200

About the Author:

About the author: Steve Maenshel can help you understand forex trading hours. For more forex trading information, visit his forex resource center.

Beware of the Debt Settlement Tax - What to Look For, What to Do

By Sean Payne

If you're still in debt, you're probably thinking about talking to your creditors about settling your debts for less than you owe. Beware, though. What you probably don't know about debt settlement is that it can have a great impact on your taxes.

If you're settling your debt for less than you ow, the tax laws consider this the same as "earning" money. One example would be if you took out a loan for $10,000 and were unable to pay it back. If you settled for $6,000, you have essentially pocketed $4,000. This really gets the attention of the IRS.

I'm sure that at one point, there was a loophole in the IRS tax laws that allowed for this to happen. Unfortunately, the IRS is quick to get wise about these types of things. Just like so many other tax loopholes, this one has been closed.

As I mentioned in the example above, settling credit card debt or any other debt for less than you owe your creditor will probably result in you being held liable for the "profit" you realize after paying off your debt. Keep this in mind when you file your taxes after settling your debts.

Even though this debt settlement tax may sound like a bad thing, you're still better off having settled your debt, even after taxes. In our example, you've realized a $4,000 "gain", but at most you'll have to pay about 30% (depending on your tax bracket). Even after you've paid the tax, though, you still only paid $7,200 in repayment of a $10,000 debt. That's a 28% discount, and is still a huge bargain.

The debt settlement tax comes as a surprise to many people, who don't realize that they owe taxes on their so-called profit or gain until the IRS comes to audit them. Don't let it take you by surprise.

If you require more information about how to plan for this tax, please talk to a CPA or other tax expert. - 23200

About the Author:

Sean Payne is a personal finance expert who has learned through trial and error (and a lot of advice) how to get out of debt. You can discover the secret facts about the debt settlement tax at Sean's website, where you'll find a unique "get out of debt course" that really works.