Investing

Crazy Week for Economy and Investors

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The beginning of August has brought nothing but turmoil to investors and the economy. Politicians played chicken with the debt ceiling despite the warnings of every single non-politician who knows even a little bit about economics. Although a deal was reached to raise the debt ceiling at the last minute, it was too late. Americans, and the rest of world, are rightly asking can Washington do anything now that it is so polarized into camps of us and them. That uncertainty comes at an inopportune time since there is already so much uncertainty surrounding the current state of the economy. Next came the downgrade of US debt by Standard and Poors. Make no mistake, this was a political, public relations ploy. The original S&P U.S. downgrade played up a very high percentage of debt to GDP, and even gave a number at which things would be "good enough" for the United States debt to not get a downgrade. However, when a math error that was big enough to move the number well into "good enough" territory was discovered, S&P downgraded U.S. bonds anyway, making many wonder what S&P bond ratings are even based on. The company may have damaged its …

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Reporting Short Sales for Income Taxes

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Reporting most investment income is pretty straightforward. Calculate the gain or loss and enter it on Schedule D. The only trick is whether to report as a long-term or short-term capital gains or capital losses. With short sales, however, there are a couple of tax tricks to know about how they get reported. Long-Term or Short-Term Short Sales The most important thing to understand about short sales, is that they are almost always considered short-term capital gains or losses. Unlike a traditional investment where you buy and hold the property, with a short sell, you do not own the property at all. You borrow the shares from your brokerage who gives you the proceeds of the sale. You close the sale by buying back the same shares you sold. It may seem like you determine whether a short sale is long or short-term by the amount of time that passes in between when the short sale is initiated and when it is closed. However, this is not the case. In order to be a long-term capital gain, you have to OWN the property in question for more than one year. With a short sale, you never own the property. Or, …

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Banks to Buy Back Shares, Raise Dividends After Passing Fed’s “Stress Test”

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Several major banks, including most of those deemed “too big to fail,” are set to raise their dividends and announce large stock repurchases after passing the latest Federal Reserve “stress test.” Banks and financial institutions that have repaid their government bailout TARP funds and passed the stress test have been given the go-ahead by the Federal Reserve to make new capital-based decisions such as increasing their dividend payouts or doing share buybacks. Shortly after the Fed’s announcement, the financial sector came alive with press releases about how the banking stocks would take advantage of the new allowances. J.P. Morgan announced both a higher dividend and a share buyback, for example. Banks Raising Dividends After Drastic Cuts During the height of the banking crisis, most banks and financial stocks were forced to cut their dividends to minimal levels, or even to zero. Eliminating their dividends took away one of the major reasons to invest in financial stocks, which historically have provided solid dividend income to investors. Even the the financial sector’s best preferred stocks were forced to slash their dividends. The quick moves by the big banks and Wall Street firms to reverse their dividend cuts offer a glimpse at how …

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PIMCO Total Return Bond Fund Cuts U.S. Government Holdings

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Pimco Total Return is the biggest bond mutual fund in the world. It has a long-term track record that any bond fund would be jealous of. As a result, its fund manager, Bill Gross, has become something of an oracle of investing in bonds. Recently, the mutual fund reported its holdings. Like all mutual fund reporting, the data provides only a snapshot of one day of holdings within the fund. The Wall Street Journal reports that the allocation of assets in the Total Return fund in U.S. Government bonds and securities dropped again to just 12 percent of the overall portfolio, down from 22 percent at the end of 2010. Gross has become increasingly critical of the government’s intervention in the bond market and in particular of the Fed’s action to hold down interest rates by buying U.S. treasuries.  One can understand his frustration as these manipulations make it difficult for a money manager to do his job, regardless of their overall value (or lack thereof) to economic stability and growth. The real irony is that with U.S. treasury yields depressed, and Gross having sold out almost anything he can at the Fed’s inflated pricing, there are few places to …

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Apple Earnings Way Up for Quarter

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Most analysts had expected a big quarter for Apple, propelled by big holiday sales numbers. They were right; they just didn’t go high enough with their estimates. Apple reported revenue of $26.7 billion for its first-quarter which ended on December 25th. (The company uses a fiscal year for its earnings and reporting.) That’s earnings of $6 billion, or 6.43 cents per share, which is up 78 percent from a year ago. FactSet Research said analysts were predicting earnings of around $5.42 per share and revenue of $24.4 billion. Not coincidentally, all of this good news comes the day after the company announced that CEO Steve Jobs was taking a medical leave of absence. Apple stock traded ended the day down 2.25 percent at $340.65. Trading in the stock was halted after hours. When it resumed, shares were up in after-hours trading.

IBM Earnings Up

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IBM reported its 2010 third-quarter earnings today. The company reported earnings per share of $2.82 which is up 18 percent. The company did not announce any increase in the dividend paid per share, although that was not unexpected. The company continues to use share buybacks as the primary method to "return money to shareholders." The company’s third-quarter earnings announcement notes that the company, "returned $4.5 billion to shareholders through $0.8 billion in dividends and $3.7 billion of share repurchases," a ratio of approximately 1 to 46. However, the company did note that its free cash flow was down $300 million to $7.6 billion for the first nine months of the year. Coming up later today, Apple reports its earnings. The company does not pay dividends at all, preferring to build an enormous hoard of cash for some future purpose.

Apple Stock Good Investment or Passing Fad

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People are always asking me if I think certain stocks are a good investment. There is a flaw in the question, but we’ll get to that in a minute. Right now, let’s get right to the real question people are always asking me these days. Is Apple Stock a good investment? What people mean when they ask me that is not whether or not Apple is a good investment, but whether or not I think Apple stock will go up a lot … soon … really soon. They also want to know whether or not I think Apple stock will go down, but that is not why they ask the question. They want to buy Apple stock because it sounds like a smart investment, or because it feels like a smart investment. Of course, none of this has anything to do with an in-depth analysis of the company’s stock and it’s prospects for future growth and earnings. It’s all about buzz. They heard about the iPhone and it’s a big hit! They heard about the iPad and it’s a big hit! They heard about the NEW iPhone, and it’s a big hit! Now, they hear that Apple’s earnings are higher …

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Are Share Buybacks Really Good For Shareholders?

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IBM released their quarterly earnings. As is customary, the company announced various financial numbers like how much it earned per share and how much revenue it generated for the quarter, and so on. As is customary for IBM, the company also announced yet another giant share repurchase using shareholder money to buyback IBM shares of stock. The idea of a stock buyback is that the company figures that its stock is undervalued on the stock market. By buying shares of stock at those low prices, the corporation is increasing shareholder value by making a good investment in itself. Theoretically, those shares repurchased by the company at a low price can be used to pay out earned stock options, for example, at a lower cost. But, IBM — along with many other companies — has perverted the concept of a share repurchase or stock buyback. IBM Stock is currently trading near an all-time high stock price. While, it is possible that even at that price per share the company believes its shares are undervalued, that is not what is really going on here. IBM Stock Buybacks Share Repurchase Run Amok IBM is not a “new” tech company like Microsoft, Google, Amazon, …

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Facebook Valuation Estimates Billions Wrong?

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Now that the new Facebook movie is coming out, even more people are going to be clamoring for information about just what Facebook is, what the Facebook company is like, and, of course, how to invest in Facebook. The catch is, there is no Facebook. Not a Facebook company you can invest in at least. Should savvy investors be looking to buy Facebook stock when they can? Investing In Facebook Let’s start with the basics. When most people think of stock, they think of the stocks that trade on the major stock exchanges like the New York Stock Exchange. The companies that trade their stocks here are called publicly-traded companies, because shares of their stock are bought and sold on public exchanged like the NYSE, AMEX, and NASDAQ. There are also many companies, both big and small, that do not have stock shares that trade on the public markets. These companies are often referred to as privately-held companies, although that is not always a technically accurate decision. Facebook is NOT a publicly traded company. There are no Facebook shares of stock to buy on the NASDAQ or any other public stock exchange. That means that there is no way to …

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Safely Earn More Interest on Your Money

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I am always a bit curious when I read a cover story headline like the one on Kiplinger Magazine this month. It says 18 Ways To Earn 5% or More On Your Money. A lot of readers will make an assumption that goes along with that headline that they are talking about low-risk investments or no-risk savings products. After all, it doesn’t take a degree in advanced personal finance to know that there are literally thousands of ways to earn 5% or more on your money. Of course, most of those also come with a way to lose 5% or more on your money too. That is not what the article is about. Instead, this particular article, whose article title inside the magazine is, “Great Rates In A Low-Yield World” manages to give a better clue. The article is NOT about where to open a savings account to earn 5% or more. It is about how to get 5% YIELD on your investment. That is, 5+ percent as income, and not counting losses on invested capital. Real Earnings Are About More Than Dividends and Interest Unfortunately, while the article does indeed uncover available investments earning a 5% or higher yield, …

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