P/E DOES NOT STAND FOR PRETTY/INTERESING...

But alas, the P/E Ratio is a basic tool used in the world of fundamental stock analysis, so knowing what it is, is pretty/essential.

From ABOUT.COM: STOCKS

If there is one number that people look at than more any other it is the Price to Earnings Ratio (P/E). The P/E is one of those numbers that investors throw around with great authority as if it told the whole story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.)

The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider.

You calculate the P/E by taking the share price and dividing it by the company’s EPS    

P/E = Stock Price / EPS  


For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5 ($40 / 8 = 5).

What does P/E tell you? The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price.

Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean this is a sleeper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these “diamonds in the rough” before the rest of the market discovered their true worth.

What is the “right” P/E? There is no correct answer to this question, because part of the answer depends on your willingness to pay for earnings. The more you are willing to pay, which means you believe the company has good long term prospects over and above its current position, the higher the “right” P/E is for that particular stock in your decision-making process. Another investor may not see the same value and think your “right” P/E is all wrong.

For the more visual learners such as myself, below is a hot european guy giving a good explanation of P/E and it's relevance in considering a stock.



Hot european guy (H/E/G) uses the future earnings method to determine the P/E, where the most common (or so I have read) method is to use the "trailing" or last 12 months earnings instead. 

In this video the guy with the great hair is discussing P/E and it's relation to actual earnings.

Increasing P/E Ratios - How Much is Too Much? - The most amazing bloopers are here

And in this video, the guy who says uummm a lot presents some interesting facts and perspective about the current S&P P/E.  He says CAUTION AHEAD!




P.S. I originally put this post together for the blog I created for the women's investment club I belong to. We call ourselves the M.O.N.I. club.

FINANCIAL WEAPONS OF MASS DESTRUCTION

I posted this video on my other blog, click here.

That's Billion with a B...

From the New York Times:

Thousands of top traders and bankers on Wall Street were awarded huge bonuses and pay packages last year, even as their employers were battered by the financial crises.

All told, the bonus pools at the nine banks that received bailout money was $32.6 billion, while those banks lost $81 billion.

Some compensation experts questioned whether the bonuses should have been paid at all while the banks were receiving government aid.

Ya think? I feel like I stumbled into Alice in Wonderland where a fat caterpillar is smoking a lot of hookah, speaking a bunch of gobbledygook and advising me to take mushrooms so I might understand it all. Is it opposite day?

I'M MAD AS HELL...

I am getting scammed by the government. Specifically the Parking Violations Bureau of the City of Los Angeles. I went away for Memorial Day weekend, and apparently an officer who was having a particularly low competence day decided to up their average and write me a ticket for missing a license plate. I was parked in Parking Lot C at LAX. There was no ticket on my windsheild, I heard about it a month later from a letter letting me know that I better pay it, lest I start accruing additional fines. Now, this is outrageous because BOTH MY PLATES WERE ON, HAVE BEEN ON, AND ARE STILL ON! The tags are even up to date (which I am proud to say that for the first time in many years, I did not let them expire and get a ticket before I updated them). When I called to complain the gal who spoke to me said that the ticket wasn't even valid because it didn't indicate if the front or the back plate was missing, and that it would probably go away. I felt pretty good about that, I wasn't going to have to waste any more of MY TIME on this foolishness. Not so. A month goes by and Thursday I get another letter saying that the ticket is valid, my front plate is missing, and if I want to avoid paying the $25 fine (plus fees if it is not paid within 21 days), I have the option of submitting the following items:

1. A copy of the letter with the proof of correction verified by signature from a law enforcement agency or a dated photograph of the front of the vehicle with the license plate properly attached to the vehicle.

2. $10.00 reduced fine amount per citation plus any late penalty amounts.

This is B.S. I called the office again, got the typical rude girl who wouldn't let me get a word in edgewise, and after she had worked me into a frenzy of anger and bewilderment, offered to transfer me to the office were I could take MY TIME to make my case at a hearing over the matter, after paying the fines. Oh, and by "offering" to transfer me she mentioned that it would cost $2 to transfer the call and hung up before I could even blink. A recording instantly came on "offering" to take my credit card information. I hung up and lost it. I called my district councilman and complained to one of his people. They said the were sorry, had received tickets at the airport before and "that is frustrating" but they couldn't help me and I will have to go through the process. I AM NOT PAYING IT!!! THIS IS THE LAST STRAW!!! I will not pay $25 or $10 or $2! I have been wondering were all the rage is over what has happened in our economy. Today I found mine. They cannont have my money for a bogus, doctored ticket that I didn't earn so they can pay for Michael Jackson's funeral.

...AND I'M NOT GOING TO TAKE IT ANYMORE!

HELP ME OBI WAN KENOBI...

I am not someone who likes to reinvent the wheel. Instead I like to take the more efficient route of finding an expert to show me the ways of the Jedi. What I look for in an Obi Wan is someone with whom I share the same values, who inspires, motivates, educates and provides pathways and strategies to get where I want to go. Luke Skywalker had Obi Wan Kenobi. I have Suze Orman.

Suze has all the a fore mentioned qualities and clearly has "the force." She is EVERYWHERE and in EVERYTHING. She has several books, a TV show, a website, podcasts, and makes appearances all over the world. She is also a friend of Oprah's, another Jedi Master.

Because I so admire her accomplishments and success, and because I want to do what is necessary to live rich, I am spending the month of May studying Suze. Dr. Maxell Malz, suggests that if there is a quality or behavior that you would like to acquire, you should pick someone who has that quality and learn more about them. His method is to "...study (them) for a month, to get so intimately familiar with the way he or she thinks that you can sit down and have a conversation with the person and solicit advice and coaching in your imagination." I will use her wisdom like a light saber against the evil forces of the The Empire at Bluefly.com (Cue Star Wars theme).

On a side note, Yoda has some profound ideas! Use the sunken ship as a metaphor for pulling your __________ (fill in the blank) from the swap in Dgobah.

HERE I GO AGAIN...

I started writing this blog in 2007. Within the first few posts I admitted that I have a short attention span and start and stop things all the time. I had a good run at posting and then one day, stopped. So here I am now re-interested and re-wanting to share info I learn from experts and other folks on how to get and live rich.

At this point I am the only one reading this blog I am sure. I 'll tell my mother and my sisters and my best friend that I have started up again. Those women know me pretty well but in case someone else accidentally winds up on this post, here is how I define RICH:

RICH IS HAVING ENOUGH FREEDOM TO DO WITH MY LIFE WHAT BRINGS ME THE MOST JOY.

Top Ten Things that bring me JOY:

1. Being able to live with myself and my decisions
2. My Family
3. My Friends
4. My Health
5. Service to others
6. Interesting and Challenging Work
7. Learning new things
8. Having new experiences
9. Getting enough sleep
10. Shopping

In the theme of this post, I offer you this: HERE I GO AGAIN! I...can't...stop...laughing! It's brilliant and Tawny Kitaen was hot. Someone should bring big hair back as an economic stimulus maneuver.

GIRL, YOU KNOW IT'S TRUE...MONEY IN YOUR 40'S

I turned 40 this week.  I reminded my dad that he now has a child who is "over-the-hill," he said that isn't possible given the fact that my mother is still a spring chicken.  Nice.

A milestone birthday like this one requires a good look at myself and where I have been, where I am at, and where I am going.  Looking back to where I have been there are some regrets (certain boys, not appreciating my 19 yr old thighs, my love for Milli Vanilli), but overall I feel pretty good about it.  Now I have a decent amount of experience to know what needs to be done going forward, and how to do it a little more gracefully.   Trying to judge where I am at, specifically in regards to finances, I came across the above interesting table on Money Central at MSN.com.  This is just a portion of the whole table put together from results of the Federal Reserve's 2004 Survey of Consumer Finances.  See the whole thing here.   While this doesn't tell me where I should be, it fulfilled my curiosity for knowing what the averages are, where my peers are at.  Looking forward to where I am going, Liz Pulliam Weston suggests that in your 40's "The time for mistakes is over. If you haven't begun to build wealth, to control debt, to look toward retirement, then now is the time."  Read her article Money in your 40s: It's make or break for some suggestions on how to do it.

All this reminiscing and planning has made for a lovely and productive afternoon.  At midway through my life I can gladly say that I have laughed a lot, and want to share some with you.  Click here.  (I would still make out with either one of those guys, if they were still around).  :  )

HOW MUCH SHOULD I BUDGET...?

To B or Not to B.  That is the question.  In this case B = BUDGET so the answer is YES... B, you should definitely B.  

It's easy to figure out where you want to spend your money (shoes, spa treaments, vacations, shoes) not so easy to figure out where you should.   Here is a chart with some wiggle room that I like and helped set my budget.

Housing = 35 - 45%

Auto & Transportation = 15 - 25%

Food = 10 - 20%

Installment & Loans = 10 - 20%

Utilities = 8 - 15%

Medical = 8 - 15%

Personal = 5 - 10%

Saving & Investing = 5 - 10%

Clothing = 3 - 5%

Some great "how to's" and video tutoring is available at practicalmoneyskills.com.   Click here to view Jean Chatsky's Budget Building Series, and download a FREE (Mac & PC) budgeting software here called MY BUDGET PLANNER.

Budgeting is an extremely important part of any good financial plan that most of us choose to ignore.  Only 40 percent of Americans use a budget to plan their spending, but 60 percent of Americans routinely spend more than they can afford, in at least one area of their lives.  So unless you are Paris Hilton and someone just gives you money to do whatever with... DO IT! (and look what it did for her).

A WOMAN OF WORTH IN YOUR COMMUNITY...

L'Oreal is donating up to $25,000 to the cause of a deserving volunteer who makes a difference in her community with their WOMEN OF WORTH campaign. Do you know someone who fits the bill? In addition to the donation, L'Oreal will make a $5,000 donation in the name of the winners to THE OVARIAN CANCER RESEARCH FUND (OCRF). Here are some of the requirements:

1.  She must be a woman 18 Years or older

2.  Have a record of exemplary service withing her community and the community at large.

3.  Be able to demonstrate the impact of her work within her community.

4.  Be aspirational and inspirational to others.

5.  Demonstrate commitment to her cause.

6.  Exemplify leadership.

7.  Non-compensated.

TURNING LOSERS INTO TAX SAVINGS...

From Kiplingers March 2008:

Losing money on an investment can be painful, but there is a positive side, you can use the losses to lower your tax bill.  In fact, cutting your losses instead of waiting for a bad investment to recover can be a savvy tax-saving strategy.    Here's why:  each dollar of losses offsets an equal amount of taxable capital gains, you can also offset taxes on up to $3000 of ordinary income ($1500 if you're married and filing separately) if your losses are high enough.  And if you still have losses left over, you can save them and use them to offset taxes in future years.

Paper losses don't count.  To use this strategy, you have to actually sell an investment, such as a stock or fund, for less than you paid.  That's why it makes sense to periodically purge losing positions that look hopeless.  "You want to do this throughout the year," says Janice Johnson, a tax consultant in New York City.  "You don't want to be caught selling at the end of the year when prices may be depressed."

Other losers I would like to get tax savings for:

1.  All the time I've spent watching reality TV (except The Nanny & Wife Swap)

2.  "The Heartbreak Kid" starring Ben Stiller

3.  My last blind date

THE LONGER YOU WAIT, THE LONGER IT WILL TAKE TO GET STIMULATED...

Putting off getting your taxes done may be costing you some sleep, may cost you penalties and finance charges, but it will delay your ECONOMIC STIMULUS PAYMENT, since payments are based on your tax return.

To receive a payment, taxpayers must have a valid Social Security number, $3,000 of income and file a 2007 federal tax return. IRS will take care of the rest. Eligible people will receive up to $600 ($1,200 for married couples), and parents will receive an additional $300 for each eligible child younger than 17. Millions of retirees, disabled veterans and low-wage workers who usually are exempt from filing a tax return must do so this year in order to receive a stimulus payment.

The IRS has a handy Economic Stimulus Payment Calculator on their site if you would like to see what your payment will be. Cool.

STAMP OUT HUNGER ON SATURDAY, MAY 10th...

The US Postal Service and Campbell Soup Company are getting together for a food drive on Saturday, May 10th. Participating is easy. Simply leave non-perishable food items in a sturdy bag (no expired items or glass bottles please) in front of your mail box and your mail carrier will pick it up. Your donation will be taken to a local food bank. Could it be any easier? Spread the word to your friends and neighbors. There are helpful downloads available at helpstampouthunger.com including a flyer for posting at work or around your neighborhood, and a Pledge Sheet and Collection Chart to get students excited and involved with the cause. You can even sign up to get a reminder email the day before. Last year the program delivered over 70 million pounds of food!

WHERE'S MY TAX REFUND? YOU CAN FIND OUT ONLINE...

It's April, bringing heartburn to some (probably most of us) who push doing our taxes right up to the deadline, and anticipation to others who are waiting for their return. Can't do much to help with the heartburn except recommend mint tea and better planning next year, but to those wondering where their return is, guess what? You can find it online! Just click here to go to the IRS INDIVIDUALS page and follow the instructions. You have to wait at least three weeks since you filed electronically or six weeks if you filed by mail, to get your answer.

To get to your personal refund information, be ready to enter your:

• Social Security Number (or IRS Individual Taxpayer Identification Number)
• Filing status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er))
• Exact refund amount shown on your return

Don’t fall for any email scams about your refund! IRS never initiates emails!

STAGGERING CREDIT REPORTS...

Oprah has AHA! and WOW! moments, sometimes I have DUH! moments. Here is my latest. I realized it was May and I had not done my annual check of my credit reports and FICO scores (I usually check them every January to start my year off right). I like to use annualcreditreport.com because it makes the process so simple. Here is a one stop shop to get your yearly FREE credit report from all three reporting agencies; EXPERIAN, TRANSUNION, and EQUIFAX. Just go to the site and follow the simple instructions. You also have the option of paying to get your FICO score from each agency ($6 - $8 each).

A couple of days later I was watching the TODAY show and hear Jean Chatsky mention that you should STAGGER getting your reports - one every 4 months - so you can keep an eye on any new negative or illegal activity. Of course! That makes so much sense. Keeping an eye on errors is a huge part of protecting your credit rating. According to a 2004 study (the latest available) by the Public Interest Research Groups, or PIRG, as many as 79% of credit reports have errors — 29% of which are serious enough to potentially result in a credit denial!

Click here for further information from SmartMoney.com about the importance of your credit report and how to improve it.