Ahh. The P/E ratio. Possibly the easiest thing to understand in the history of stocks and bonds.
It also tells you virtually nothing, but I’ll save that for later.
The P/E ratio stands for Price/Earnings or the price of one share of stock divided by per share earnings. Some people call the wonderful ratio the “earnings multiplier” in order to make something very simple a little more confusing.
Let’s take, for example, one of my favorite stocks Amazon (AMZN) (numbers via Yahoo Finance):
Amazon has an absurdly high P/E ratio (the average is 20). So what does an outrageously high P/E ratio mean? A high P/E ratio means that for every one dollar Amazon earns (outside the stock market) the market is willing to pay $609.80 for a share of stock. In other words, almost everyone feels that Amazon has a potential to earn a lot more money some day in the future, but right now Amazon earns very little compared to how much the market thinks they should earn.
Generally you want a low P/E ratio when purchasing stocks (compared to similar companies). If a company (Tom’s Widgets for example) has a P/E ratio of 2, that means the company’s earnings per share is HALF of what the market thinks one share of the stock is worth. If the low P/E is genuine, then people are underpaying for the price of Tom’s Widgets because the price of the stock doesn’t reflect everything Tom’s Widget owns (e.g., plants, widgets, inventory, the CEO’s Bentley, etc.). Of course, you must approach low numbers with a sense of caution. Although a low P/E means the market undervalues the company, a low P/E could also mean the company will soon declare bankruptcy.
Like every other measure in finance, if you take the P/E ratio on its own it tells you next to nothing. Enron once had a pretty healthy P/E of 50. That did not end well. Also, the trailing P/E only reflects what the company earned in the past, not what the company will earn in the future (no one knows that). If you know for a fact what company’s will earn in the future, you really shouldn’t be reading this post.
A couple of days ago, it was announced that on Sunday night the Oscars would be streamed live, for the first time, on the internet.*
*I include the asterisk because we both know that the Oscars have been streaming live, illegally, for probably close to a decade. So what the announcement actually states was that people in charge of the ceremony, and ABC, would finally earn some profit from streaming the ceremony on the internet**
**I have to include the second asterisk because cable networks and cable companies have managed to deny all common sense again by only allowing those with cable subscriptions to view the ceremony online. Yes. This caveat surprises no one, cable networks have (except for CBS) been making boneheaded decisions like this for years; however, this particular boneheaded decision raises many valid points.
For one, if cable companies refuse to open up the ceremony to everyone on earth, then one must conclude that revenue raised from cable subscriptions on a whole greatly outweighs the ad revenue the cable companies would earn if they opened up all of their programming to the world via the internet. I could be wrong about this, but I know how much companies love making money, and if a company could make more money via live streaming to everyone, they would. But heck, cable companies are hardly trying to test the market. You know why?
Because they know the second they offer one big event via streaming people will flood cable company customer service centers with cancellation calls. The traditional cable subscription is already on the razor’s edge of oblivion. However, although the cable companies seem to know this, they also seem to believe that they can delay the inevitable by refusing to innovate. Which, let me tell you, always works out well for the company (sarcasm). I don’t know what the catalyst will be (my guess is 90% of quality programming being created by companies like Netflix), but it will happen sooner rather than later.
And I can’t wait.
This is a (very horrible) picture of my TV. Why do I show you a picture of my TV? Because my TV is celebrating the recent Time Warner Cable and Comcast merger the best way it knows how: by not having a cable hookup. None. Nada. I use it to watch DVDs and that’s about it.
I’m not the only one without cable. Almost every single one of my friends has no cable subscription. I can only give you one friend who subscribes to cable. The rest? They’re perfectly fine watching their favorite shows on the internet, whether legally or illegally.
It was just announced that Comcast is purchasing Time Warner Cable for $158.82 dollars a share. My initial reaction? How much revenue does Comcast gain from cable packages? I obviously don’t know much about the two companies, but I got a feeling the majority of Comcast revenue comes from providing cable to their somewhat unhappy customers.
The current generation doesn’t purchase cable and they never will. While that may not be evident to huge conglomerates right now, it will in ten years when subscription rates drop drastically. If cable companies rely on cable packages for revenue and if they don’t see how the times are changing, then I think we could see a huge problem for cable companies in five or six years. I understand that previous statement contained a lot of “ifs”, but I don’t have much faith in the 1,000 pound gorilla (now 1,500 pounds) seeing a need to change any time soon.
By now, you’ve probably seen a news article about Carl Icahn’s quest to convince the Apple board to repurchase shares outstanding of its stock.
Apparently, Icahn feels (or felt) that Apple needed slim down the $14,000,000 in cash hanging out on its balance sheet. Most companies will do that by purchasing stock.
If you’re like me, you’re probably wondering: “Why in the sam-hill would a company want to repurchase its own stock?”
You know what? That’s a very good question. To the lay person repurchasing stock seems counter-intuitive. Why repurchase something that you sold in the first place? Won’t a company lose some of the money that you already have sitting in the bank?
Like I said, very good questions.
But I hope to give you some very good answers to those questions (in no particular order):
- Repurchasing stock increases earnings-per-share (EPS)
- Repurchasing stock theoretically increases the demand for the company’s shares (since there are is less shares to go around)
- Repurchasing stock gives companies something to do with extra cash since cash does nothing just sitting on a balance sheet (except for increasing the company’s liquidity or their ability to pay bills)*
- Repurchasing stock shows the public that the company’s leadership believes its stock is undervalued (since they’re buying them at a reduced price).
So basically, you have a board of directors who own a TON of stock in a company they direct. They feel that the price of the stock is currently undervalued. If they repurchase shares, they’re basically buying the ownership of their company back at a reduced rate. When the the price of a company’s shares go back up, less shares outstanding makes the cost of the shares increase even more than what they would have increased before the repurchase (in theory).
So that, in a nutshell, is a very basic explanation for why a company would want to repurchase its shares. Basically, it has to do with money (not surprisingly).
*Cash is an amazing thing for people, like me, who have never had it. For company’s and people who have lots of cash, it’s a curse. Why? Because cash does absolutely nothing to make more money; it just sits there. For example, let’s say that you work fifty hours a week to pay rent, and you have a dead-beat roommate who doesn’t pay rent and sits all day on the couch playing video games. For rich people and companies, cash is the roommate because it could be out finding a job and earning money. ”BUT” I hear you say “What happens when the company hits dire straights? Don’t they need to pay their bills?” They do, but you have other options, such as other stocks, that actually make money that you can cash out quickly when crap hits the fan.
New to twitter? Here are some tips for increasing your twitter presence:
- Follow back those who follow you: Not following because someone
- Engage. Engage. Engage.: Networking means building relationships. Twitter allows you to build relationships with the entire world. The best part? Anything longer than 140 characters is not allowed.
- Post what your followers want to see: I have a two personal twitter accounts. Why two personal accounts? Because none of my followers on my oldest twitter account give a darn about marketing, networking, or increasing their social presence. Since I created my new twitter account, I’ve almost surpassed the number of followers it took me 3 years to build on my old account. Sometimes building a new audience moves quicker than trying to improve the old.
- Always #hashtag: People you want following you find you by searching hashtags.
- Tweet often, but not continuously: I don’t tweet as much as I should, but people who have 100,000K+ followers tweet all the time. However, don’t be the person who sends out a long string of tweets that fills up a timeline, nothing leads to more unfollows.
This is how it starts…
Name the most important commodity that you own. Most people would say money; however, money can’t buy happiness, and you can always make more of it if you need it.
Time, on the other hand, has a limited to supply. Worst of all, you have no idea when the supply will run out. While you know when you’re spending money, most people waste hours and hours of time every day and have no clue.
My personal sin is playing iphone games. I don’t game obsessively, but I’ve wasted enough time playing flickhomerun that I’m a hypocrite for even writing this post.
Gaming wastes time. Plain and simple. In the time that you spend gaming, you develop your skills, learn a language, develop a relationship or catch up on the latest professional development. So why doesn’t everyone stop playing games all together? For some reason that’s easier said then done.
I’m not a behavioral psychiatrist, but I can tell you what works for me. Maybe you use some of these tips to help you cut out the time-vampires in your life (more…)
Extremely popular blogs usually have no comments. So what stops people from taking the extra step to let you know what they think?
- 1.Comments take time.
- 2.Comments invite judgement
- 3.Some people have nothing to say.
In my opinion, there is only one sure-fire way to guarantee comments on your blog: leave comments, tons and tons of comments, on other people’s blogs.
I can honestly think of no other way. Let me explain.
If people leave comments on your blog, they’re either leaving comments for one or two reasons: they want the exposure or they feel obligated. If you’re at the point where people comment for exposure purposes, I wish you congratulations. You have so many visitors you could sell them at the local Sam’s Club.
You will read hundreds and hundreds of blog posts about creating killer content. I’m writing one of those post right now; however, I want to do something different. I want to ask:
“What in the heck is killer content?”
Most people will tell you it’s the secret sauce between 0 readers and thousands of readers. I would agree. People often tell you without killer content your basically writing a diary for your self. I also agree. But how do you know the difference between great content and sub-par content?
In regards to killer content, I will quote Justice Potter Stewart’s famous phrase regarding pornography “I know it when I see it”. When you see something of that nature, you know you’re not watching a Disney movie. In fact, you know you’re not watching anything but pornography. Likewise, great content never leaves a doubt in the mind of the reader (or watcher). So how do you create content that leaves no doubt in the mind of your audience?
The general public no longer wants anyone to sell them anything. They want to decide on their own. Anyone selling something to the general public must do one of two things. They must convince the general public that the general public had the idea first…
build a trusted personal brand so the public will purchase anything you recommend.
Bingo. The former strategy leads to manipulation, big data, brand allocation and impersonal sales tactics. The second strategy helps individuals discover new items through an established person they already trust. Personal recommendations shift the entire selling landscape away from the marketplace. Instead of purchasing something because someone manipulated your emotions better than someone else, you purchase something because your connection, who you trust, would never steer you wrong.