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Dividend Champions and Dogs of the Dow High Yield Investing!

This course lifts you to mastery over the hottest proven income stock strategies from the Dogs of the Dow to the S&P 10.
Scott Brown
1,629 students enrolled
English [Auto-generated]
Selecting the strongest rising dividend income stocks will be as simple as filling a grocery list.
Running a double digit or above income producing dividend stock portfolio will be a snap.
Protecting your precious capital gain profits with risk reduction strategies such as stop-loss orders will be as simple and as clear to you as tic-tac-toe.
Following simple proven dividend stock income systems from “Dogs of the Dow” to “Stocks for the Long Run” will take you little time under low stress — each dividend investing system you will learn is endorsed by top finance professors from Wharton to Harvard business schools.
Harvesting needed stock dividend income every month or quarter will be as simple as one-two-three using this dividend champion approach.

ATTENTION: Updated Thursday, August 25, 2016, 12:35 P.M.

As Seen on NBC News, ABC News, CBS News, Fox News, News Channel Ten, Hawaii News Now, Louisiana News Channel, Travel Weekly, The Post Gazette, and The Christian Science Monitor…

Breaking News: How Much You’d Earn With a 25% Average Annual Return?

From the Desk of Daniel Hall J.D., Attorney at Law

Dear Fellow Investor:

Hi, my name is Daniel and if you want to succeed with buying income then pay very close attention.

Here’s a special message for every business owner who needs to make their money work as hard as possible but doesn’t know an effective way to consistently generate income safely. Many business owners suffer from the idea that almost any dividend stock is a good investment.

But nothing could be further from the truth.

Take Banco Popular [BPOP]. This darling-of-Wall-Street boutique banking stock was trading around $18 at the beginning of the century. By 2009 it traded at $1.63.

No dividend paid is large enough to cover a retirement crushing 91% loss such as this.

So, if you’re a business owner or stock investor seeking to buy rising income generating stocks, then this is exactly what you’re looking for.


Hi Scott; You are the only Academic Research Professor that I have ever heard of who has studied and gathered together the required volumes of market data needed to understand how to successfully invest/trade the markets and have the burning desire to stay with it and make it work for you. What makes it special and notable is your desire to show others the right path.-CW on 11/11/2015


I’d like to introduce you to our cutting edge Udemy exclusive course “Buying Income: How To Buy Dividend Stocks For Maximum Cash Flow Income.” Our course shows you how to buy dividend stocks that not only generate reliable income but also have a higher probability of increasing in value over time.

With “Buying Income: Dividend Stocks For Maximum Cash Flow Profit!” this breakthrough resource helps you …

  • Evaluate dividend growth stocks not just for income potential but also for stock price appreciation.
  • Build predictable income now with cash-flowing dividend stocks while minimizing risk.
  • Build absolute independent confidence in your investment making decisions.
  • Minimize your tax burden by arranging your investments in a tax savvy way
  • Time your investments correctly to increase income and potential growth while minimizing your risk.

… and much, MUCH more!

And what makes this even better?

Now you never have to deal with buying bad dividend stocks blindly. You know what I mean.

These go down in value based on bad recommendations and advice from CNBC talking heads and investment newsletter emails!

Which also means you’re sitting there right now likely feeling stuck in the mud. You feel just like most people locked in worthless stocks who started out investing for dividend income — and got the shaft!

These inflation draggers not only have poor returns but are even more likely to tank deeper into the abyss over time…

This Revolutionary Course Cures Your Suffering from Bad Advice and Unclear Training

And best of all… you’ll start seeing results immediately with “Buying Income: Dividend Stocks For Maximum Cash Flow Profit!” in less than a week. Reduced tuition for this life transforming course is a pittance at $299 considering the benefits you’ll receive.

Here are some facts.

The historical return of the stock market has been 12% on average per year. Standard deviation is 20%.

That means that about a third of the time investors will score 32% returns blindly buying dividend stocks — you’ll learn why inside. My colleague Dr. Scott Brown will show you how to increase your probability of extracting higher — and possibly much higher — returns than 12%.

What if you achieved 25% year-after-year in your dividend stock investing by simply focusing on the ones that actually rise? We can’t promise your returns but this scenario is well within the realm of statistical probability.

A one-lump investment of $25,000 today turns into $2,168,400 in just 2 decades. This much cash invested in special dividend stocks — you will discover inside — would generate between $43,368 and $108,420 in annual dividend income for your family.

But get this — it come in even in your sleep!

A $25,000 investment contributed between an individual 401k and a Roth IRA done year-after year earning 25% grows into $10,716,885 over that same period. This would kick off between $214,337.70 and $535,844.25 in Champagne dream life-style annual dividend income!

So again, if you’re a business owner looking for a safe way to buy income generating stocks, understand this:

  • The sooner you start the sooner you can make your income grow buying quality dividend producing assets — shares of common stock in up-trending dividend paying firms.
  • The market is ripe for these types of investments, if snooze you will lose.
  • The price in this training sporadically increases — and NEVER decreases — so enroll now.

This watershed Udemy course “Buying Income: Dividend Stocks For Maximum Cash Flow Profit!” from attorney Daniel Hall, J.D. & finance professor Scott Brown, Ph.D. holds the key to your success with buying income from the stock market.

AND for immediate viewing you have Live Dividend Stock Investment Examples! [$1,995 Value].

You will know which dividend stocks are rising within seconds after enrolling.

Think of the financial safety and comfort of your loved ones. I urge you not to delay one day more,

Attorney Daniel Hall, J.D.

Accredited Investor and Founder of …


1001 Harbor Lights Drive Corpus Christi, TX 78412-5342 USA

P.S. This just in,

There is no one like you [Dr. Scott Brown] that I know of who is this transparent. That is what makes your service and education so valuable. Please keep on. The honesty is real and refreshing and makes me learn something. Don’t baffle us with [BS]. You are the real deal. …and you can quote me on that. If you post this please only use my initials.” Thanks, -LB, Pacific Northwest 09/01/2015

P.P.S.The way you are teaching your
strategy makes the terms trader, investor, short term, long term, irrelevant
and with little meaning. Putting this out front in your intro might be
–Charlie White, USA 11/7/2015

P.P.P.S. This is a risk free offer. Udemy offers you a 30 day money back guarantee.

* This course is updated every week except for when Dr. Brown goes on holiday.

An Introduction to Getting Rich Investing in Double Digit Dividend Income Stocks

Introductory Video by Attorney Daniel Hall J.D. Explaining Why This Is Important

Attorney Daniel Hall J.D. explains the importance of this course. As an internet marketer he finds the possibility of buying income out of the stock market to be powerful.

Daniel further explains the importance of buying on rising dividend stocks.

He emphasizes that years of dividend yield can be wiped out in a week on a weak dividend stock. Most retail investors are ill prepared for dividend stock investing.

This course is intended to prepare you the best for dividend income stock investing.

Introductory Video by Dr. Scott Brown Explains How You Will Benefit From Course

Hi! I am Dr. Scott Brown. I am a professional stock investor with many years of profitable experience under my belt.

In fact my first dividend investment made over 70% in one year. That was Caterpillar [CAT] way back in the nineties.

The same stock is still on the dividend investing list I create for you.

I want you to get the most out of this course. There are seven key features you must understand.

The first is the core knowledge. These are the 123 lectures that come before the dividend stock investment video newsletter.

This will bring you up to speed fast. You will soon know far more about the stock market than your broker.

That is if you have one. If you are just starting out you must work your way through each of these lessons.

Then test your knowledge with the section quiz.

The video newsletter that accompanies this course is truly unique. I actually show the dividend stocks that I deem of adequate strength to merit a test purchase.

The newsletter is organized by day of the week.

I update at the end of each trading day. For example if today is late Monday evening or Tuesday morning you would watch the prior evening update from Monday.

As videos age more than a week I push them down into the archive. This allows you to go back in time to see what was going on.

I also try to send an educational announcement once a week. But I do get busy so delay can occur.

These are designed to give you contemporary insights into issues impacting dividend stock investing.

If you have a question regarding dividend stock investing it is highly likely that other students have the same question. Please try to ask questions on the discussion board.

I strive to respond as fast as I can.

That said I do understand that you may have a concern that you do not want to post in public. In that case please send me a private message from within the Udemy platform.

I will respond as fast as I can. My normal policy is to respond to you within 24 hours.

Finally know that I do send out promotional announcements from time to time. These are courses that may also be of interest to you.

My primary duty is to steward your development as a dividend stock investor. Hence I tend to send more educational than promotional announcements.

Get started working through the course as soon as you can. This knowledge will surely pay off for you as it has for us! Welcome aboard,

-Doc Brown

Probing Your Memory of How to Get the Most Benefit From This Income Stock Course

This quiz tests your understanding of the best ways to get the most from this course. These actions include studying each lesson, mastering the quizzes, and watching the market updates.

The Skinny Low Down on what You Can Really Make in the Markets in Dividend Stock

Who wants to be a Millionaire Earning Double Digits with Dividend Income Stocks?

Who Wants to Be a Millionaire?

You may remember the game show. Millions watched and day dreamed about hitting it big.

I can’t think of a harder way to make a million bucks!

Here is a slow but easy plan. Take $300 per month and invest it at a 9% rate of return with a 20% turnover. You are young and don’t care about taxes.

You let them take about a third of your investment winnings at the end of each year. At zero inflation it would take you 41 years to become a millionaire. And if inflation kicks up just 3% it will take you around 60 years.

Let’s say you get smart and open a Roth and an individual 401(k) after you make your matching contribution to your stodgy employer sponsored plan — of few selections.

Now it will take you 36 years at 9% with an investment of $300 in stocks with no inflation. And again, just 3% inflation will increase the wait to 49 years.

This can be cut to 31 years by increasing the investment to $500 per month at a return of 12%. Five hundred bucks a month is $6,000 grand a year.

That’s $17.85 invested each and every day in the stock market. This can be saved by packing a bag lunch rather than starting the outflow at Starbucks with a Latte Grande in the morning.

Finally remember that the return on the S&P 500 has been around 12% for the last seventy seven years. Just do it!

Using the Total Dollar Return on a Dividend Stock — New Guide to Lasting Wealth!

After analyzing all of the jumps and bumps in the dividend stock market things become crystal clear. There is a huge reward for bearing risk.

This may not be so for a single trade. But high returns are possible on average.

The second observation is that high risk can cough up higher returns. But high risks can also dish up a total loss.

When dealing with dividend stocks things become a little more complicated.

Here we have to calculate the total dollar return on an investment. This is measured in dollars.

Total dollar return accounts for all cash flows while you own a dividend stock.

These cash flows come in two flavors.

The first cash flow is any dividend payments. The company cannot take dividends back once they pay them.

So dividend cash flows are always positive.

But capital gains can turn into capital losses with a hard one day downturn in the market. This brings us to a subtle point.

Capital losses can easily destroy an entire year of dividend yield in a single trading day.

That is why this course is different. This course shows you how to spot high dividend yield firms.

And this course shows you how to keep your dividend yield investments in rising income stocks.

This helps ensure that the following relationship remains positive for you on balance.

Total Dollar Return on a Stock = Dividend Income + Capital Gain or Loss

The total percent return is the yield on an investment as a percentage of the original capital placed at risk. This is your return for each dollar invested.

Percent Return on a Stock = [Dividend Income + Capital Gain or Loss] ÷ Beginning Stock Price

This can also be expressed as …

Percent Return = Total Dollar Return on a Stock ÷ Beginning Stock Price [i.e. Beginning Investment]

An Example Calculating Total Dollar — Total Percent Returns on Dividend Stocks!

Imagine investing a grand in a stock trading at $25. The stock rises to $35 after a year.

And during that time the company managers pay you a $2 dividend over the year at 50¢ a quarter.

What was your total dollar return?

Here is how you calculate it. First calculate how many shares you purchased at the beginning of the year.

$1,000 ÷ $25 = 40 Shares

Secondly you have to calculate capital gains.

40 shares X $10 = $400 gain [yippee]

The third calculation is the income garnered from dividends.

40 shares X $2 = $80 Income [another yippee]

Now you can calculate the total dollar return as …

  • Total Dollar Return = $400 + $80 = $480

Once you know this it is easy to calculate the total percent return.

First calculate the dividend yield.

Dividend Yield = $2 ÷ $25 = 8%.

Second calculate the capital gain yield.

  • Capital Gain Yield = [$35 -$25] ÷ $25 = 40%.

Thirdly you can now calculate the total percentage return as 8% + 40% = 48%.

As a final note observe that $1,000 ÷ $480 = 0.48 = 48%.

Comparing a $1 Investment in Different Assets with Inflation over Modern History

You must wonder what is realistic to expect from the stock market in terms of returns. Let’s consult a chart of the profit of a one dollar investment in different portfolios from 1926 to 2002.

A one buck investment in small company stocks grows to $6,816.41. Large company stocks generate far less at $1,775.34.

Looking at the fixed income side of the equation shows that a one dollar investment in long-term government bonds grows to $59.70. Treasury bills grow to $17.48.

Inflation causes a dollar to “grow” to $10.09 but buys the same amount of stuff as way back in 1926.

Then we look at Total Dollar Returns from farther back. This time we consider the growth of a dollar from 1801 to 2001.

A $1 dollar investment grows to a startling $8,800,000. Corporate bonds grow a dollar to $13,975. Treasury bills cough up $4,455.

A dollar investment in gold in 1801 compounds into a measly $14.38 between the beginning and the end of the last century.

History Always Repeats!

You will peruse an important chart of percent total returns for large company stocks. Here you can see very long periods of stock market growth unencumbered by severe bearishness.

Small stocks in the next graph show a similar pattern but with wider dispersion of both positive and negative total percent returns.

Long-term government bonds show tremendous gains in years of falling interest rates. This illustrates the importance of loading up on bonds when the yield curve inverts.

The chart of the total percentage returns of Treasury bills over the same period show no losses, only gains. The highest gains occurred in the late 70s during the high interest rate years of Volcker as head of the Fed.

The chart of total percent returns from inflation show a period of three years of intense deflation in the late 1920s that drove many businesses out of the market. There was another two years of deflation in the 1930s and two more in the 40s.

After that no deflation has occurred.

Visualizing Historic Average Return with the Simple or Arithmetic Average Return

The arithmetic average you learned in 2nd grade is a useful tool to summarize financial data. The arithmetic average is also called the simple average.

The formula for the simple average is …

Historical Average Return = Sum of Yearly Returns ÷ Number of Years

If you add up the returns from 1926 to 2002 charted in the prior lecture the sum is 939.4%.

Dividing by the 77 years covered yields a return of 12.2% on average per year.

That’s because,

Historical Average Return = Sum of Yearly Returns ÷ Number of Years =

939.4% ÷ 77 = 12.2%

Hence, if you want to make an educated guess about the returns you would get by simply stuffing your cash into the lowest cost equity fund in your employer sponsored 401(k) assume about 12% on average.

If you just contribute up to the matching your return will be much higher. With 100% matching you would earn a 24% return on your retirement savings based on history.

That is because the money your employer contributes is free cash.

You can buy dividend stocks in an individual 401(k) where you can self-direct. You don’t get any matching but you can get far higher average returns than 12%.

This is because dividend champions and contenders are usually large stocks. So you should get at least 12% plus the additional dividend income yield.

If you stick to a trend following system like the one you are learning here you stand to gain even more.

What Are Average Stock Returns with Regard to Risk Free Rates and Risk Premiums?

The risk-free rate on a riskless investment — in which you never lose — is important. Remember the last lecture that showed you the chart of returns of Treasury bills?

There was never a losing year.

That means that every investor in Treasury bills has received 100% return OF investment plus a small return ON investment. This gives us a very important baseline for estimating a risk premium when you invest in a risky dividend stock.

The risk premium is the extra reward on your dividend stock that you may [or may not] receive at the end of each year. It turns out that the risk premium for large stocks was 8.4%.

The average returns for larges stocks was 12.2%. Small stocks returned 16.9% with a risk premium above risk free T-bills of 13.1%.

Long-term corporate bonds average 6.2% offering a premium above the risk free rate of 2.4%. Long term municipal bonds offered up average returns of 5.8% with a risk premium of 2%.

U.S. Treasury bills coughed up 3.8% in average returns. This is the zero baseline of risk premium.

Notice that the risk premium for each of the investment classes above is simply the average return less 3.8%. A lot of academic research focuses on correctly measuring risk premiums.

Other erudite analysis centers on why a risk premium exists in the first place.

The dispersion of returns in terms of variance and standard deviation helps answer this question. Finally understand that the greater the potential reward the higher the chance of loss!

Measure Stock Market Shotgun Blast Patterns with Variance and Standard Deviation

The formula for the variance of returns is,

Variance = Sigma Squared =

Sum of the differences from the mean squared ÷ Number of Observations less One. Standard deviation is the square root of variance.

Variance is useful to understand.

I used to shoot skeet. Shooting a shotgun with a tight pattern carried the shot further and hit harder inside the pattern.

But tighter shotgun blasts are riskier for competitive skeet. That is because it takes better aim to shoot with a tight pattern.

Stocks that have returns all over the place offer greater opportunity of ending the year higher than the averages. But these same stocks also force the dividend investor to bear greater risk of loss at the end of the year.

Standard deviation is a direct measure of stock return volatility because it is in the same units as the average return. This makes it easily comparable.

The bell curve is called the normal distribution. It is also called the Gaussian curve.

This is another handy idea for dividend stock investors.

That is because the average and standard deviation can completely describe the normal curve. However when we consult a frequency distribution of common stock returns from 1926 to 2002 it is clear that the market offers up positive returns more often than negative.

That is because the true distribution of dividend stock returns is log-normal. The good news is that three measures describe this distribution, mean, standard deviation, and kurtosis.

An Example of Calculating Historical Variance and Standard Deviation of a Stock!

You will walk through an example of calculating the variance and standard deviation of returns from 1926 to 1930. The average return is 12.12%, the variance is 687.56, and the standard deviation is 29.45%.

Then you cover the numbers on different investments. The arithmetic mean and standard deviation are 12.2% and 20.5%.

Small company stocks offer average returns of 16.9% with a volatility of 33.2%. Long-term corporate bonds give mean returns of 6.3% on 8.7% standard deviation.

Long-term municipal government bonds yield 5.6% on 9.4% volatility. Intermediate length bonds give mean returns to investors of 5.6% with 5.8% volatility.

U.S. Treasury bills return 3.8% on 3.2% of standard deviation. Inflation averages 3.1 percent with 4.4% volatility in The United States of America.

The Bell Curve of Dividend Stock Normal Return Distributions Reveals Opportunity

The bell curve normal Gaussian distribution of stock returns shows that two thirds of the year’s large common stocks generate returns that ranges from a loss of 8.3% to a gain of 32.7%.

This represents a one standard deviation move. Sometimes you will hear this called a “one sigma move.”

Nineteen out of twenty years the stock market yields returns between losses of 28.8% to a gain of 53.2%. In just one out of a hundred years stock returns exceed this extreme price.

In this event, a three sigma move, the returns are up to 73.7% on the positive to 49.3% on the negative.

Garnering 73.7 points on stocks sounds like heaven until you look at the top 12 one day percentage declines in the Dow Jones Industrial Average. The worst day ever in the stock market occurred on December the 12th of 1914.

The stock market crashed a negative 24.4% during trading.

Nothing this severe would hit the market for seven decades until Black Monday. On October the 19th of 1987 the market collapsed 22.6%.

This seems less severe than the 12.8% one day drop on October 28 of 1929. But the market slid another 11.7% the next day.

It then collapsed another 9.9% on November 6th of 1929.

The market also hit the skids the year before the turn of the prior century. The Dow dropped 8.7% on December 18th of 1899.

And just when the market seemed like it was coming back the Dow slumped 8.4% on August 12 of 1932.

The next worst day was 8.3% down on March 14 of 1907. And Black Monday turned into puke October in 1987 when the market dropped 8% on the 26th.

What made the great depression so rocky for new investors were days like July 21 in 1933 when the Dow dropped 7.8%. This happened again in 1937 when the market crashed 7.7% in one day on October 18.

Finally, another black market day was February 1st of 1917 when the stock market fell 7.2% in one day.

The lesson is that you can become rich in divided stocks. But you will have to face the risk of massive one day drops.

Stop limit orders protect investors from massive one day drops.

What Now Were Your Compound Returns in an Average Year Over a Particular Period?

The simple arithmetic mean tells you your average return over a specific period of time. The geometric average shows you the average compound return over the same period.

We look to the returns from 1926 through 1930. The geometric average return was 8.87%.

This says that the actual earnings over those years was 8.87% compounded annually.

The simple average is likely too high for long term forecasting. The geometric average is likely too low for short forecasts.

Take large company stock returns from 1926 to 2002. The geometric mean was 10.2% while the arithmetic average was 12.2%.

The volatility was 20.5%.

Small company stocks served up a higher geometric mean of 12.1% with a simple mean of 16.9% and standard deviation of 33.2%.

Mean and average have the same meaning in statistics and are used interchangeably.

Long-term corporate bonds offered a geometric average of 5.9%, arithmetic mean of 6.2% on 8.7% sigma. Again the terms standard deviation, volatility and sigma are often used interchangeably.

Long-term municipal bonds yielded a geometric average of 5.5% with an arithmetic average of 5.8% and 9.4% volatility.

Intermediate term municipal bonds returned 5.4% based on geometric mean with volatility of 5.8% and an arithmetic mean of 5.6%.

U.S. Treasury Bills returned a geometric mean of 3.8% and an arithmetic mean of 3.8% with a standard deviation of 3.2%. Finally, inflation rose 3% by measure of the geometric average and 3.1% by the arithmetic mean with a volatility of 4.4%.

How Risk Free Rates Represent Time Value of Money Compensation for Just Waiting!

When you buy into an investment money is glued in place. You can’t use it to buy food or go on a vacation.

For that reason economists like to consider the opportunity cost of just sitting on your money. If you put your money in Treasury bills history says that you will get all of it back for sure.

This is a risk free deal. For that reason the interest you earn on Treasury bills is a risk free rate.

Since you just have to wait and do nothing to get the risk free rate we say that it measures the time value of money.

If we invest in a risky investment we could lose some or even all of our money in the deal. We should expect to earn more than the time value of money.

This amount more is the risk premium. It should increase with the riskiness of an investment.

This lecture culminates with a chart of average annual percent return mapped onto the annual percentage standard deviation of those returns.

The graph shows that T-bills offer the lowest returns but also have the least volatility. Returns and standard deviations increase as we map those of t-bonds, large company stocks and small company stocks.

As the risk of each of these four investments differs the numbers fall in line with the conclusion that increasing risk in the form of volatility — measured by standard deviation — is associated with increasing returns.

Challenging Your Knowledge Of The Past History of Dividend Income Stock Returns!

This quiz will address your understanding of total dollar return as well as the rate of return above the risk free rate. Variance is examined as well. Opportunity cost, and dividends as a percentage of price is queried. You will also be asked to show your mastery of arithmetic and geometric averages as well as the calculation of total percentage return.

Buying and Selling Dividend Stocks for a Double Digit Income with Capital Gains!

The Process of Depositing, Opening, and Trading any Individual, Roth, or 401[K]!

Will Rogers was a Cherokee. He became famous for lariat performances riding on top of a horse — an incredibly difficult feat.

Over time he became an American icon who commented in 1935 in the aftermath of the great stock market crash,

Don’t gamble. Take all your savings and buy some good stock, and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.

This course teaches you to focus exclusively on stocks that are rising into new highs. If a test purchase on a dividend stock falls back you will sell out on your initial limit stop order.

The limit stop order is set 5% below your entry price.

This takes patience. Some sure fired looking stocks will turn and flop on you.

This section teaches you how to get started buying and selling dividend income stocks.

Step 1; open a trading account at an online brokerage. If you want to live off your stock trading open an individual trading account. Just remember that you will be hit with the full forces of taxes on your trading profits.

I believe that the best trading account of all is the Roth IRA. You contribute after-tax dollars. That means that you can take the principal out at any time for no penalty.

The next best thing is the employer sponsored 401(k). But restrict your investment to the matching — if any. Finally the individual 401(k) is the biggest retirement savings powerhouse because it kicks out the best tax deduction for most households.

The individual self-directed 401(k) contribution comes straight off your W2 income. The individual 401(k) has the highest contribution limits and can be fully self-directed.

Make sure that you activate the account with margin. This allows you to reenter on the same day when you are knocked out of a position.

You may not want to reenter on the same day. But a margin account gives you that option.

Step 2; deposit saved up money into the account.

Step 3; buy shares of stock.

Step 4; pay commission on sale of stock.

Step 5; reinvest profits or take your lumps on a losing test purchase and move on to another rising stock. This is the general mechanics of how to buy and sell dividend income stocks.

How Stock Brokers Are Now Divided into Full Service, Discount and Deep-Discount!

Before May 1st of 1975 you could not negotiate commissions with a brokerage. Full service brokers were able to hack away much of your return with absurd fees.

The vast sums of money earned by do-next-to-nothing financial waiters and waitresses was summed up in the Amazon bestseller Where Are the Customer’s Yachts?” The book was written seventy five years ago.

Virtually all brokerages were full service before 1975.

Today full-service service brokers are the minority. Brokerages have split into three groups.

  • Full-service.
  • Discount.
  • Deep-discount.

These three groups differ in levels of service and commissions charged. Popular full service brokerages include A.G. Edwards and Merrill Lynch.

Discount brokerages include TD Ameritrade, E-Trade, Charles Schwab, and Fidelity brokerage. Deep discount brokerages include Scottrade and Interactive Brokers.

As online trading becomes more competitive the lines have blurred. Competition has slashed brokerage commissions and increased access to information.

How Security Investors Protection Insurance [SIPC] Protects Your Stock Accounts!

Security Investors Protection Corporation [SIPC] is an insurance fund that protects investor brokerage accounts of member firms against fraud. This does not protect your account like the Federal Depository Insurance Corporation [FDIC] that guarantees up to a quarter of a million dollars of savings deposited at a bank.

And no depositor has lost their hard earned bank savings since the first of the year of 1934.

The SIPC does not protect your account from loss due to adverse market movements. But it does help when it comes to the Wolves of Wall Street.

SIPC coverage insures your account for up to a $500,000 with a cash max of $100,000. You may end up the victim of fraud but the clever brokerage managers could direct the case into arbitration.

How Dispute Arbitration Protects Bad Stock Brokers and Throws you Under the Bus!

The stock brokerage industry on Wall Street protects itself through arbitration. This arbitration has been criticized as partial, opaque, and inefficient.

In 2013 499 claims were decided in arbitration according to the New York Times. This was out of a total of 1,900 cases of fiduciary violations.

Career arbitrators are paid by the brokerage. This creates a clear conflict of interest.

These types of arbitrators are shooting for the minimum so that the brokerage will bring them back.

The industry reported that 77% of the 499 claims resulted in a monetary settlement. But $1 awarded is treated the same as $1,000,000 in these statistics.

The best way to avoid arbitration is to manage your money independently without the advice of a broker. To do this you will have to study a course like this with intensity until you know as much or more than any broker who could possible "service" your account.

Clarifying the Differences between Cash and Margin Accounts to Avoid Long Waits!

When you open your account you will have the option of creating a cash account. You will also have the choice of creating a margin account.

If you are like you me you would select the cash account.

That is because I don’t like to pay for margin. But one day I ran into a problem.

I was knocked out of a stock position and had to wait various days for the cash to clear in the account. The stock I purchased had to clear like an out of state check.

I was frustrated.

I discovered that the solution to this problem is to select a margin account when you start. You won’t get charged for it as long as you only buy stocks or deep in the money calls with cash.

But if you get bumped out by a bad move you will be able to get right back in!

An Example of Margin Transactions across a New Retail Investor’s Balance Sheet

Here is an example of buying stock on margin. You buy 1,000 shares of a stock trading at $24 dollars per share. You put up $18,000 and borrow the rest.

The amount borrowed is $6,000. And the amount under margin is 75%

= $18,000 ÷ $24,000.

You now have $24,000 in assets you control with $18, in equity and $6,000 in margin loan.

When you purchase on margin the minimum that has to be in the account on entry is the initial margin. But after the trade is on the market can drop to a lower value called the maintenance margin.

The brokerage will send you an email if the account balance drops below the maintenance margin in adverse moves. I do not recommend that you invest this way.

But if you do then do not ever meet a margin call. Just close the position and start over.

You were wrong about the market direction. Accept it and move on.

Let’s say that your brokerage requires an initial margin of 50% and maintenance margin of 30%.

If you have $20,000 in savings in the account you can buy up to $40,000 of stock because,

$12,000 ÷ 0.50 = $40,000. This will buy you 800 shares worth $40,000 at $50 per share.

Imagine that the stock falls to $35. Now the amount remaining in the account is $28,000. Margin is now,

$8,000 ÷ $28,000 = 28.6%. This is less than 30%.

You will receive an email requesting that you pony up more cash. Again, do not do this.

Never meet margin calls. Close the position and regroup.

An Example of the Effects of Margin from Selling Stock in your Margined Account!

Now let’s imagine that the market volatility dropped. The brokerage has decided that the risk of adverse moves is lower.

The brokerage has loosened its margin requirements from 50% to 60%.

You can now buy $50,000 dollars of stock because,

$30,000 ÷ 0.60 = $50,000.

The brokerage charges you 6% interest on the margin which is really borrowed money. You buy 1,000 shares of stock for $50 a share. What is your return if the stock is selling at $60 per share in a year?

Your investment will be worth $60,000 because 1,000 X $60 per share = $60,000. And you will owe 6% on the $20,000 you borrowed. Remember that you started with $30,000 but bought $50,000 of stock.

That’s a $20,000 loan. And 6% of that is $1,200 because,

$20,000 X 0.06 = $1,200.

The loan plus interest totals to $21,200. If you pay that off you will have $38,800 left in the account because,

$60,000 - $21,200 = $38,800

You started with $30,000. Hence you earned 29.33% because,

$8,800 ÷ $30,000 = 0.29.33 = 29.33%

Let’s imagine the same scenario but the stock ends the year selling at $40. Your investment is worth $40,000. But you have to repay the $21,200 borrowed on margin.

This implies that you will end up with just $18,800 in the account.

$40,000 - $21,200 = $18,800

This generates a 37.33% loss because ($30,000 - $18,800) ÷ $30,000 = -$11,200 ÷ $30,000 = =0.3733 = -37.33%. Notice that margin cuts both ways.

You start with $30,000. You can buy just 600 shares because,

$30,000 ÷ $50 = 600 shares

At $60 the investment is worth $36,000 because,

$60 per share X 600 shares = $36,000. Your return without the leverage of margin is 20% because,

$6,000 ÷ $30,000 = 20%

This return of 20% without leverage is 9.33% lower than the 29.33 percent leveraged up under margin.

But what if the stock ends the year at $40 per share? What then?

At $40 the account is worth $24,000 because $40 X 600 = $24,000. That is a loss of $6,000 on the original $30,000 investment.

The loss without leverage is 25%. This is far lower than the loss under margin of 37.33%.

Now suppose you buy 200 shares of a stock at $50 per share at $10,000. But you have just $6,000. You borrow $4,000 with a rule of 30% maintenance margin.

Your initial margin is 60% because,

$6,000 ÷ $10,000 = 60%

You will receive a margin call if the account balance drops to $7,000 because,

$3,000 ÷ $10,000 = 30%

This allows us to formulate the maintenance margin level and the critical stock price for margin call. In this example margin call hits you at $28.57 per share.

Using the Effective Annual Return Makes an Investment Comparable Year after Year

You must use the effective annual return [EAR] to compare investments. This expresses returns on an annualized basis. This is calculated as [1+EAR] = [1 + holding period percent return]^m

Imagine buying a stock at $34 and selling it 3 months later for $36. You received no dividends and prices are without commissions. What is your EAR?

The Holding Period Percent Return is 11.76% because [38-34] ÷ $34 = 4 ÷ $34 = 0.117647 X 100 = 11.76%.

1 + EAR = [1 + Holding Period Percentage Return]^m = [1 + 0.117647]^4 = 1.560338

Therefore EAR = 1.560338 – 1 = 56.03%

Understanding Street Name Registration Beneficial Owner of your Dividend Stocks!

Pledging your securities as collateral for a loan is called hypothecation. This allows the broker to sell the securities if you can’t or won’t make a market call.

The broker is listed as the registered owner of the security while you are the beneficial owner under street name registration.

Trading accounts can be differentiated as to how they are managed. A wrap account is where all the expenses are wrapped into a single fee.

A discretionary account is where you authorize your broker to trade for you. Don’t ever set up this kind of arrangement.

Trade independently. An asset management account includes check-writing privileges, credit cards, and margin loans.

An advisory account is where you pay someone else to make buy and sell decisions for you. Don’t ever enter into one of these either.

You can also buy shares direct from companies through dividend reinvestment programs called DRIPs. Another alternative is to invest in mutual funds.

Grasping at the Mechanics of Short Selling Common Stocks for Conceptual Mastery!

A short sale occurs when the seller does not own the stock. This allows the investor to take a short position with the hopes of selling high and buying back lower later.

A long position is easy to understand. You buy into a stock today at $34.

You sell the shares in a month at $57 and profit. You bought low and sold high.

An investor in a short position will sell today at $83 for example. If they buy the stock back months later for $27 they profit. They sold high and bought back low.

Formulating Investment Objectives to Balance Return with Risk in Dividend Stocks

Why even invest at all? We invest today to have more tomorrow.

This is deferred consumption. We want more to spend later.

Investment objectives must be formulated with risk tolerance in mind. You should think about not just return but also risk.

Considerations include whether you select an investment manager. If you become competent from this course you will not need an investment manager.

Should you engage in market timing with the 3 stock dividend portfolio? Here you try to anticipate the direction the stocks will move in. This entails specific security selection.

Should you diversify through the Dogs of the Dow portfolio? What minimum resources do you need and what are the costs?

What is your investment horizon in terms of when you need the money? How will you ensure that you have enough liquidity to get into and out of the market easily?

What tax bracket are you in? Do you have any special circumstances that impact your dividend stock investing?

An Example of Short Selling Under Different Sensitivity Analysis Case Scenarios!

You short 100 shares at $30 a share. The broker offers 50% initial margin and 40% variation margin on short sales. You sell short $3,000 of stock at $30.

This means that you are short 100 shares on $1,500 initial investment

The stock falls to $20 a share. You are up $1,000 because you have a $10 profit on 100 shares.

You also sit at 125% margin because $2,500 ÷ $2,000 = 125%.

But what happens if the stock rises to $40 per share. You have a $1,000 loss at $10 times 100 shares. Your new margin is 12.5% because $500 ÷ $4,000 = 12.5%. Since the brokerage requires 40% in maintenance you are now on margin call.

Short interest is the amount of common stock held by short sellers.

Short selling is common and substantial stock sales are created by short sellers. But with a short position you can lose more than your total investment.

There is no limit to how high the stock can go.

Cementing Your Knowledge of the Mechanics of Buying and Selling Dividend Stocks!

This challenge will test your knowledge of brokerage accounts, account insurance, margin, initial and maintenance margin. This quiz also spans margin calls and liquidity.

Embracing the Different Types of Investment Securities Bought or Sold Worldwide!

Discovering the Major Subtypes from Equity, Interest and Derivative Securities!

Every investment class is different just like on the African Savannah. The hippos hang out in their water hole. The Giraffes are over in the trees eating fresh leaves high up.

And the lions are on their mound.

Every security type has distinguishing characteristics just as different animal species and individuals in the group. And each has a different personality or shape.

This creates differences in gains and losses. Differences also affect the way prices are quoted for each investment.

Three basic types are interest-bearing investments, equities, and derivatives.

The major sub-types of interest bearing investments are money market instruments, and fixed income securities. Equities are broken into two major sub-types of common or preferred stock.

You will restrict your investing to dividend paying common stock as an outcome of studying this course. But preferred stock is useful for you to understand.

The major sub-types of derivatives are options and futures.

Mapping Interest Bearing Assets from the Money Market to Fixed Income Securities

Money market instruments are issued as short-term debt that large corporations and governments are obligated to pay back. These investments contractually promise to make a single payment at a pre-established future date.

That date is less than one year at issuance.

Fixed income securities are longer debt contracts also issued by large public firms, municipal, state, and federal governments. These investments promise to make payments on a pre-arranged schedule that stipulates the date and amount of each.

When these interest bearing investments are issued the payments to you span more than a year.

Examples include U.S. Treasury bills [T-bills], bank certificates of deposit [CD], as well as corporate and municipal money market debt.

The gains are known because of the payment schedule. But the borrower could default.

So payment is not guaranteed and bondholders can take losses.

Interest is paid indirectly as a discount from face value based on the quoted interest rate. Investors need to know how to calculate the face value based on interest rates.

New Corporate Bond Price Quotation Examples from a Purely Fixed Income Portfolio

A bond quotation includes the ticker symbol of the issuer of the bond. The one digit fraction is the annual coupon rate.

This is currently a one digit fraction. If interest rates rise above 10% rates will be expressed as two digit fraction.

This is a corporate bond and as such makes two payments semi-annually per year.

The one digit fraction has two digits to the side of it. Those two digits designate the year the bond will mature.

The current yield [CUR YLD.] is equal to the annual coupon divided by the current price. The volume [VOL] shows the number of bonds that traded that day.

The closing price for the day is shown as a percentage of the face value of the corporate bonds. The closing price is also shown to up [+] or down [-] from the prior day.

Why You Should Always Prefer Common Stock Dividend to Preferred Stock Face Value

Common stock confers ownership in a corporation. A part owner of a corporation keeps whatever is left over if the company goes bankrupt and an asset fire sale is completed.

Preferredstock usually has a fixed face value. Preferred dividends must be paid before common dividends can be distributed to share-holders.

The face value of preferred shares have to be paid in bankruptcy as well. Other large Fortune 500 firms are the typical buyers of preferred stock.

You will not likely ever buy preferred stock. You will almost certainly restrict your investments to common stock.

Many companies that issue common stock also pay cash dividends to their shareholders. But neither the amount nor the date of dividend payment is guaranteed.

That said most companies don’t change their dividend payout policy very often. For that reason we say that dividend payments are sticky — because they don’t change much.

As a dividend stock investor your last concern is on the dividend payment. That is because the common stock you must own to receive the dividend fluctuates up and down over the year.

Years of accrued dividend yield can be destroyed in a few days, weeks, or months in a falling common stock.

Preferred stock dividends are promised by firm managers but there is no legal obligation to pay — in so far as no common stock dividends are paid. Preferred stock rises and falls just as common stock does.

How Derivatives Are Born From a Primary Underlying Asset Sold By Business or Gov

A primary asset is originally sold as a security of some king by a business or government to raise money for operations. A primary asset is termed the underlying when a derivative contract is written against it.

A derivative asset is derived from an existing traded asset. This is not issued by a business or a government.

A derivative has nothing to do with the fund raising efforts of the underlying in the case of a share of stock.

Forward rate agreements are currency delivery contracts between large multinational firms facilitating export and import transactions. These operate in the interbank foreign exchange market.

The Forex market offers small increment forward rate agreements for individual retail traders.

A futures contract is an agreement to deliver a primary financial asset or physical commodity of standardized date, place, and quantity. These trade across organized exchanges.

An option contract gives the owner the right without the obligation to buy or sell an underlying asset at a specified strike price over a specific period of time.

A Brief Introduction to the Concept of Financial or Commodity Futures Contracts!

Examples of financial futures include those contracts written against holdings in the S&P 500, T-bonds, foreign currencies, and Eurodollars. Commodity futures have underlying holdings of corn, crude oil, sugar, and live cattle for instance.

Profits to futures trading are made when the market prices rise after formation of the contract for buyers — and the losses accrue directly to the seller. Sellers gain when the market price of the underlying financial or physical commodity price drops during the life of the futures contract.

Speculators can close the position before maturity to lock in gains or cap losses. The leverage inherent in futures contracts is much higher than it is for margined stock.

Enormous gains and losses are possible for futures traders. Treasury bond contracts are traded in 5 digit quotes.

How a Call Option Gives You the No-Obligation Right to Buy a Hot Momentum Stock!

The owner of a call option has the right to buy an asset. But he or she is not obligated as is the case of the buyer of a futures contract. The price you pay today is the option premium.

Option premium is another way to say option price.

The deal is struck at a specific price. The strike price is also called the exercise price.

This is the underlying price at which the asset can be bought or sold.

The most common type of option is American style despite more complicated pricing than the alternative. The other style of option is European.

A European option can only be exercised on the expiration date. European-style S&P 100(TM) Index Options [Symbol: XEO] are an example of European style index options where the S&P 100 equity index is the underlying asset.

Options are different from futures in that call buyers and put sellers do not have to buy or sell the underlying asset. Each can simply sell out or buy back the position from the secondary market to close.

Another difference is that futures traders have to allocate margin to open a position. An option buyer pays premium and an option seller receives premium to open a position.

How Momentum Stock Options Are Quoted in the Financial Press and Across Platform

Option buyers profit if the underlying price rises high enough above the strike. Option owners risk a total loss the closer adverse price movements approach or pierce below [above] the strike of a call [put] as expiration nears.

Option put and call sellers keep the premium if the option expires worthless. But research shows that option writing is very bad business compared with buying calls [best] or puts [next best].

That is because the gain in an option write [sell] is limited. But losses are unlimited and have been shown to catch up to option selling traders.

Option chains include the symbol, bid price, ask price, strike, expiration, volume and last price for a put and a call as well as open interest. These can be expanded on your platform to see the theoretical value, implied volatility, and delta.

An Example of Investing in Dividend Stocks versus that of Momentum Stock Options

Here is an investment example in stocks. Say you have $10,000 to test in common stocks. A stock is up-trending on excellent volume selling at $50 per share.

You buy $10,000 / $50 = 200 shares.

Here are two scenarios that happen when you test a new stock. It can rise to $55 per share a month later.

The gain is ($55 x 200) - $10,000 = +$1,000 = +10%

However my tests fail at the rate of a fair coin toss. Let’s say the stock dumps to $45 per share a month later.

The loss = ($45 x 200) - $10,000 = -$1,000 = -10%

What if you bought options? Say a one month $50 strike call option sells for a $4 premium price.

A call contract costs $4 X 100 = $400. This will buy 25 contracts because,

25 contracts = $10,000 / $400 = 2,500 shares.

You now control 12.5 times the size of a long position in the underlying stock. If the stock rises to $55 per share one month later the gain is $2,500 because,

{($55 – $50) ´ 2500} - $10,000 = $2,500

But if the share price slumps to $45 per share one month later the investor suffers a total loss because,

($0 X 2,500 Shares) – $10,000 = -$10,000

The lesson is to master option theory and mechanics first. I am sure you would learn juggling before attempting with lit sticks of dynamite!

Double Checking Your Grasp of the Vast Global Menus of Investment Opportunities!

This quiz tests your understanding of the differences between different market securities. You will also be asked to identify an underlying asset as well as the difference between an American and a European style option.

Your mastery of dividends, option strategies, and return potential are queried. Then Dr. Brown will ask you questions to determine if you understand option premium, and stock share purchases.

Taking Note of the Good, Bad and the Ugly Adding Mutual Funds to your Portfolio!

Why Did the Mutual Fund’s Market grow from 5 Million to 55 Million in 2 Decades?

In 1980 when I was a lot younger few families had faith in stocks. Equity indexes had languished.

Just 5 million Americans owned mutual funds.

And many companies as well as federal, state, and municipal governments maintained pension plans. The pension plan morphed into the employer sponsored 401(k). Companies added hefty matching to entice employees off the dole.

The federal government helped by making 401(k) plan contributions as deductible as possible without making it a tax credit. Puerto Rico morphed the employee sponsored 401(k) into their 1165(b) plan.

But the 1165 (b) plan is only deductible for Puerto Rican residents.

The Keogh plan morphed and split into the Roth IRA and the individual 401(k) plans. Both are self-directed.

Rare instances of the Keogh plan exist today. Puerto Rico maintains a Keogh plan to allow local residents to roll over their 1165(b) plan into a self-directed scenario.

Then the bull market surged in common stocks. At the peak in 2001 investor had added an additional $505 billion in net new cash into mutual funds.

By then 45% of Americans owned mutual funds. This has dropped since the crash of 08’ and 09’. As interest in common stocks waned just 43% of U.S. households owned mutual funds by 2014.

That’s 53.2 million households — down from 55 million in 2001.

Mutual funds were called investment pools before the great crash of 29’.

The new securities laws of 32’ and 33’ forced investment pools into high regulation as mutual funds. A fund manager [money manager] buys and sells for the pool who is paid to do so.

Mutual funds are a form of financial intermediary as are commercial banks and life insurance companies. And like hedge funds the money managers of mutual funds move the market around.

After this course you will never invest in an actively managed fund. You will know more than the vast majority of mutual fund managers by virtue of learning from Dr. Brown — who trains Wall Street mutual fund managers.

Recognizing Investment Companies and Mutual Fund Types From Open to a Closed-End

A business that pools funds from individual investors is an investment company. An open-end fund is an investment company that is ready to buy and sell shares to investors at the end of any trading day.

A closed-end fund issues a fixed number of shares onto the secondary market. Investors buy and sell exclusively from other investors.

The closed investment pool does not redeem shares.

Open end funds invest capital as money market or long-term funds. Long-term pools that focus purely on equities are stock funds.

Those that focus on fixed income are bond funds. Those that invest in both are known as blended funds.

Blended funds are among the worst investments in the mutual fund industry.

Mutual funds are not valued by share value. Your participation in the fund is measured by net asset value (NAV). Open-end fund NAV values trade at fair market value because the fund stands ready to redeem.

Closed-end funds usually trade at a discount.

This discount is thought to reflect uncertainty when fear of a market drop looming ahead is high. Anticipation of taxes on embedded gains could be another reason. Other researchers suspect that the discount on closed-end funds is due to anticipation of high fees with lackluster performance.

Regardless of the reason, the closed-end discount tends to oscillate generating mean reverting behavior.

Closed end funds close down after issuing shares. That is why we call them closed-end funds.

Mutual Funds are like Any Other Corporation with Shareholders Electing Directors

A mutual fund is a corporation. It is owned by shareholders.

Shareholders elect a board of directors.

Most mutual funds are created by investment advisory firms like Fidelity. Large brokerages such as Merrill Lynch also create investment pools.

Investment advisory firms earn fees for managing mutual funds. A regulated investment company pays no taxes on portfolio income. Taxes are passed through to mutual fund investors.

To qualify as an investment company the firm must hold nearly all assets as investments in stocks, bonds, and other securities. No more than 5% of assets may be allocated to any particular stock or bond. All realized investment income has to pass through to investors in the mutual fund.

Securities law requires that the investment company fund manager provide a prospectus to any investor who wishes to participate in the pool. Mutual funds are also required to publish an annual report to investors.

Navigating Mutual Funds While Avoiding Absurd Loads or 12b-1 Junk-Management Fee

Mutual funds are notorious for ripping off investors with bogus fees. The first is the worst.

Sales charges are called loads. Next time a charismatic salesman calls you pushing a fund remember that he or she is only after the load.

Front-end loads are hefty sales charges that come straight off the initial investment. Back-end loads are sales fees that are charged when you want to get out.

12b-1 fees are used to cover distribution and marketing costs. Funds are allows to waste up to 1% of investor money under this SEC rule.

Equity index funds do not charge these fees.

But all investment pools charge management fees. These usually run from 0.25% to 1.00% of the total assets of the pool per year. These can also be based on performance or fund size.

Trading costs are not directly reported. These can be seen as turnover.

The higher the turnover the more it will lose on churn. That is because higher turnover generates more trading costs.

Stock [equity] index funds have the lowest turnover.

Mutual funds must report expenses in a standardized prospectus. This must include loads and deferred sales charges. Fund operating expenses must be detailed as to which are management versus 12b-1 fees. Legal, accounting, reporting, and management costs must also be disclosed.

The lesson is to avoid funds managed by a particular manager. Also avoid specialized funds such as those that are country specific; China for instance.

Costs are higher in such actively managed funds.

Breaking the Buck on Money Market Mutual Funds that Mimic Bank Deposit Accounts!

Short-term investment pools are money market funds. Money market mutual funds (MMMF) are investment pools that are specialized in investing in money market securities.

Money market funds can be taxable or tax exempt.

You may be invested in a money market fund and not know it. Individual investor cash residuals are frequently swept into money market.

This gives you a small return to combat inflation on idle funds when sitting on the sidelines of the stock market.

Banks offer money market deposit accounts. These give savers more interest than a typical deposit.

But there is a big difference. Money market deposit accounts at banks are secured by FDIC protection.

But bank deposit accounts cannot be invested in the stock market.

Winning the Liar’s Poker of Deceptive Mutual Funds Stated Investment Objectives!

Many different types of long-term funds exist. Up until recently all investment pools were categorized as either stock, bonds, or a blended combination of both.

But the proliferation of derivatives as well as currency and commodity ETFs made such simple classification inadequate. The investment objective of mutual funds guides the designation today.

This is inadequate as well. Savvy investors look at the actual holdings of the fund to determine what type it is.

Stated objectives such as capital appreciation, growth, growth and income, and equity income do little to indicate fund type. Small company, or mid-cap tells you nothing about fund composition.

Global, international, regional, country, and emerging markets are also woefully inadequate in guiding any serious investor as to the daily operation of the fund in allocation decisions.

Sector funds invest by industry. Biotechnology, internet, and energy are examples.

Other fund types include index funds.

Social conscience green funds focus on companies engaged in social good. Sin funds invest in tobacco, liquor, and gambling. These offer higher returns than those stocks issued by socially conscious managers.

But mutual fund investors are hammered by the excess fees of these actively management funds. That also goes for tax-managed funds where improved returns are eaten down by the high fees of active management.

Bond funds are classified by maturity range and credit ratings. Bond type, taxability and issuing country are factors in classifying the mutual fund by asset composition.

Bond investment pools include short-term and intermediate-term funds. General bond funds, high-yield funds, mortgage, world, insured and single-state municipal bond funds fall into this class as well.

Why a Blended Hybrid Mutual Fund is the Worst of Investments for Your Retirement

Funds that do not invest solely in stocks or bonds are called blended funds. These are also called hybrid funds.

You should call them wing-it funds. That is because fund managers can do whatever they want with your money in these pools.

They have the highest fees and the lowest returns when compared to a straight equity index fund like the Vanguard 500 Fund (VFINX).

Examples include balanced funds. Also in this classification are asset allocation funds.

Convertible and income funds are also hybrid funds.

A mutual fund style box is a visual chart of the investment focus of a fund. It consists of nine boxes.

Size is subcategorized into large, medium, and small. Style spans value, blend, and growth.

Focusing on a Mutual Fund’s Actual Holdings Rather than It’s Snake Oil Objective

The objective has long been criticized by academics as a poor measure of actual mutual fund strategy. Actual holdings paint a clear picture.

The Wall Street Journal classifies the most general purpose funds as to the market capitalization of holdings. They also classify as to where the fund tends toward growth or value.

Mutual fund objectives are classified within stock funds as emerging markets, equity income, European region, global stock, gold oriented, health and biotech, international stock, Latin America, large cap growth, midcap growth, midcap core, midcap value, natural resources, pacific region, science and technology, sector, S&P 500 Index, small-cap growth, small-cap core, small-cap value, specialty equity, utility.

Taxable bond funds are classified into short-term bond, short-term U.S., intermediate bond, intermediate U.S., long-term bond, long-term U.S., general U.S. taxable, high-yield taxable, mortgage, world bond.

Municipal debt funds are classified into short-term muni, intermediate muni, general muni, and single-state municipal, high-yield municipal, and insured muni.

Stock and bond funds are classified as either balanced, or stock/ bond blend.

Tapping an X-Ray Vision of Morningstar Mutual Fund Expense Ratio Vetting Service

Hedge funds collect pools of money from investors as do mutual funds. But hedge funds are not constrained with SEC registration requirements. They also are not required to maintain any particular degree of diversification or liquidity.

Hedge fund managers have much freedom in flowing investment styles or strategies.

Most of all their fees are absurd. The general management fee of 1-2% of fund assets does not seem like much. But it pales next to the typical performance fee of twenty to forty percent of profits.

Most pools do not penalize hedge fund managers for negative returns. It seems to me that if they lose they should pay out as much as they do when they gain.

Easier yet do not invest in hedge funds.

Unraveling the Mystery of the Closed End Fund Deep Discount Persisting over Time

A closed end fund issues a fixed number of shares that trade in the secondary market. There are around four hundred and fifty trading across U.S. stock exchanges.

In contrast there are over 7,000 long-term open-end funds.

Closed end funds are quoted by exchange, NAV, close, net change, volume, premium or discount, dividend paid, and 52 week market returns.

Most closed-end funds sell at a discount relative to their net asset values. This discount is sometimes huge. And it fluctuates over time.

A lot of academic research has attempted to unravel the source of the closed-end fund discount to no avail.

Specialized Indexed Investing in Hyper-Diversified Exchange Traded Funds [ETFs]

An exchange traded fund is also termed by the acronym ETF. This is an index fund that trades like a closed-end fund.

But it trades at fair market value. ETFs offer an edge over traditional indexed funds through specialized indexes. And exchange traded fund allows you to add currencies and commodities to any self-directed Roth or individual 401(k).

A well-known ETF is the Standard and Poor Depository Receipt known as the spider because if its acronym SPDR. This mimics the S&P 500 index.

An advantage of the SPDR over VFINX is that the spider has call and put options trading on it. You can also exit and enter simultaneously.

You don’t have to wait for your trade to clear at the end of the day as you do with VFINX or any other traditional index mutual fund.

Avoiding the Shark Bite Fees of Highly Over Paid Wall Street Hedge Fund Managers

Hedge funds collect pools of money from investors as do mutual funds. But hedge funds are not constrained with SEC registration requirements. They also are not required to maintain any particular degree of diversification or liquidity.

Hedge fund managers have much freedom in flowing investment styles or strategies.

Most of all their fees are absurd. The general management fee of 1-2% of fund assets does not seem like much. But it pales next to the typical performance fee of twenty to forty percent of profits.

Most pools do not penalize hedge fund managers for negative returns. It seems to me that if they lose it should pay out as much as they do when they gain.

Easier yet do not invest in hedge funds.

Measuring Your Discernment of Mutual Fund Madness and the Operators Who Run Them

This quiz test your general knowledge of mutual funds. This includes checking your understanding of fund types, turnover, expenses, fees, and facts.

You will also face questions regarding both open and closed end funds. Finally Dr. Brown will check your understanding of sin funds.

Dissecting Stock Market Operation, Ownership and on Vital Financial Information!

Penetrating the Secondary Market is Easier than Domination of the Primary Market

The intention of this section is to give you the big picture of the stock market. You will discover who owns stock.

Then I will show you how a stock exchange works. And finally you will begin to read and understand the stock market information from the financial press.

Investors purchase newly issued securities in the primary market. This is done through an initial public offering [IPO]. An IPO allows a company to offer shares of common stock for sale to investors in the public.

This is done regardless of income or net worth.

Once the stock is trading in the secondary market the shares can trade directly between public investors. Shares can also trade indirectly through brokers. And dealers — market makers and specialists — can buy and sell the stock directly from inventory.

The Multiple Step Process of Initial Public Offering Gives Birth to the Hot IPO!

An IPO is formed with the following steps. This costs the firm a minimum of one million dollars in associated costs and legal fees for listing across the NYSE.

The company first appoints an investment banking firm to organize the deal. Then an investment banker sets up the stock issue and organizes a fixed commitment if the offering is strong.

Otherwise weaklings get a best effort underwriting.

The company contracts security attorneys who prepare a prospectus. The prospectus is submitted to the Securities Exchange Commission [SEC] for approval.

This generates a preliminary prospectus called a Red Herring. The investment banker circulates the red herring among investors to gauge demand.

The red herring becomes a prospectus when the SEC approves the document. The underwriter places announcements online and in newspapers to begin selling shares.

Mapping the Money Spread between the Bid and the Ask of a Dealer and an Investor

The bid price is the quote dealers are willing to pay investors for their shares. This is the price investors receive from dealers when selling stock.

The ask price is the quote dealers are willing to sell to investors. This is the price investors pay dealers when they buy.

The difference between the bid and ask quotes is the bid-ask spread. This is often referred to simply as the spread.

Most common stock trading is done through a stock exchange or trading network online. Whether trading is done through a network or an exchange, the intent is to match investors who want to sell their stock with other investors who wish to buy.

Introducing the Big Board of the New York Stock Exchange and Mightiest on Earth!

The New York Stock Exchange [NYSE] celebrated its 200 year anniversary in 1992. This is the big board.

That is because price quotes were arranged by placards on a large two story board in the original exchange. Women were not allowed to work on the exchange for much of its history.

The NYSE has enjoyed the same location on Wall Street since the beginning of the last century.

The NYSE is a non-profit New York State corporation. The exchange has over a thousand members.

These exchange members own seats. Members own the exchange but it is managed by a professional staff.

The seats are bought and sold. In 2003 a seat on the NYSE cost about $2 million. Members can lease seats. Buyers of seats and leaseholders are carefully scrutinized.

A seat owner can buy and sell securities on the NYSE without paying commissions.

About a third of the NYSE members who hold seats are commission brokers. Brokers execute customer buy and sell orders.

Another third of seat holding members are specialists known as market makers.

Market makers are required to make a fair and orderly market for the securities over which they steward. When commission brokers are too busy they can offer orders to floor brokers for execution.

Floor brokers are also termed two-dollar brokers. These have become less important due to the efficiency of the SuperDOT system.

DOT stands for Designated Order Turnaround. SuperDOT transmits orders directly to specialists.

Floor traders are NYSE members who trade independently for their own accounts.

Nearly Three Thousand of the Greatest Stocks on the Planet List across the NYSE!

Two thousand eight hundred firms listed stock across the NYSE in 2003. The collective market value of these issues was about $15 trillion. An initial listing fee, as well as annual fees are levied based on the number of shares.

Companies have to meet certain criteria for listing stock across the NYSE.

They have to have a minimum number of shareholders, trading activity, number and value of shares in public hands, as well as annual earnings quotas. The NYSE exists to attract order flow for the transacting of shares across the exchange.

In 2003 the average stock trading volume on the NYSE was over 1 billion per day.

One-third of volume is from individual investors, half is from institutional investors, and the remainder is NYSE member trading. Most of the member trading is from specialists.

There are a number of specialist posts. Each is formed in a figure eight on the floor of the exchange.

Commission brokers receive customer orders at telephone booths. They can walk out to a specialist post to execute. They then return to their phone booth to confirm order executions, and receive new customer orders.

Coat colors worn by individuals on the floor of the NYSE designate the worker’s job and position.

Fathoming Stock Market Order Types From Market, Limit, Stop to Stop-limit Order!

A market order to buy or sell is executed at the best price available for immediate execution. A limit order to buy is executed at the best price available, but not more than the pre-selected limit price.

This order foregoes purchase if the limit price is not met.

A limit order to sell is executed at the best price available, but not less than the preset limit price. The order is ignored if the limit is not obtained.

A stop order to buy [sell] is executed when the stock price crosses the stop level from below [above]. A stop order converts to a market order to sell [buy] when the stock price crosses the stop level from above [below]. This is also known as a stop loss order.

A stop limit order is the best protection from downside loss. This converts to a limit order to buy [sell] when the stock price crosses the stop limit level from below [above].

Ride the National Association of Securities Dealers Automated Quotations System!

NASDAQ stands for National Association of Securities Dealers Automated Quotations system. The NASDAQ market was devised in 1971 as a computer network of security dealers.

This is the second largest stock market in the United States by total dollar volume of trading.

Two differences between the NASDAQ and the NYSE include the fact that the NASDAQ is a computer network. The NASDAQ uses market makers — as opposed to specialists — with inventory that buffers buy and sell order imbalances that could spark a run on a stock.

NASDAQ market markets serve the same function as the NYSE specialist.

The NASDAQ is the largest over the counter [OTC] market. An over the counter market is a securities market in which trading is almost exclusively restricted to dealers buying and selling for their own account.

The Nasdaq National Market [NNM] and the Nasdaq SmallCap Market make up the NASDAQ. Trading hit 471 billion shares by 2001.

That same year the NYSE traded 308 billion shares. But the market value of NYSE shares was $15 trillion. It was much less at $3 trillion for the NASDAQ.

By 2003 there were around 500 NASDAQ dealers [market makers]. This was about 15 per common stock. At the turn of the last century the NASDAQ opened up to the electronic communications networks [ECNs].

This allowed for fully web based trading between individual investors.

Orders are transmitted to the NASDAQ by the ECN. These are displayed alongside market maker quotes.

The NASDAQ network gives you bid and ask prices as well as recent transaction information. The inside quotes are the highest bid and the lowest ask.

You can gain level II quotes for a small fee. This is a listing of all bid and ask prices as well as the identity of the market maker.

There also exists an off-exchange market for organized exchange listed securities. A fourth market allows investors to trade among one another through a computer network.

Regional exchanges also generate substantial trading volume. Finally some firms are large enough to afford the expense of dual listing across multiple exchanges.

The most common is the NYSE and the London Stock Exchange [LSE].

Peering Deep into the Stock Market with the Dow Jones Industrial Average [DJIA]!

The Dow Jones Industrial Average (DJIA) is the most widely followed of all the indexes. It is simply called the Dow.

The DJIA tracks daily share price changes of the thirty largest companies in the United States.

Dr. Brown walks you through a chart of the DJIA. The trend is smoothed with a long term moving average.

How Stock Market Indexes Slice Images of the Overall Market by Equity and Number

Indexes are categorized by the market they track; the types of stocks tracked; quantity of stocks tracked; and the way the index is calculated. The first index formulation is price-weighted.

The second is value-weighted.

When some stocks do not trade for long periods of time index staleness reduces tracking accuracy. If stock prices do not update daily we don’t know the actual index level.

The S&P 500 index is value weighted. This means that firms with higher market values with have higher weights.

The DJIA is price-weighted.

This means that high priced stocks have high weights. Stock splits foul up the process.

The index divisor has to be adjusted for stock splits.

A $1 Million Example in a Price Weighted Portfolio with a Changing Index Divisor

Dr. Brown walks you through an arbitrary 3 stock example of how to assemble an index. This includes calculating the shares to buy from price weights.

Then a divisor is applied.

You observe the impact of switching out a stock. Then the divisor is adjusted.

From this price weighted example we move on to value weighting. You learn how to estimate the number of shares to buy.

Once again the divisor is adjusted. The example concludes by extending the example from two to three days.

Reviewing Key Points of the NYSE, NASDAQ and Other Major Stock Market Operations

This mental challenge tests your core knowledge of market makers, indexes, and divisors. Plus you will answer questions regarding specialists and order types.

Valuing Dividend Paying Income Producing Common Stocks on your Financial Acumen!

Discerning Between Dividend Discount Models and Price Ratio Models for Valuation

In this section you will examine common stock valuation models widely used by analysts. These are grouped into dividend discount and price ratio models.

Valuation based on a firm’s accounting statements and other financial and economic information to estimate share value is termed fundamental analysis.

Fundamental analysts try to buy stocks that are fundamentally undervalued and sell those that are overvalued. Warren Buffet is a master at fundamental analysis.

The is very hard in practice because the natural auction process of the stock market makes it very unlikely that the price today is truly different than the fundamental value. The fundamental analyst is usually wrong.

Estimating the Value of a Share of Common Stock with the Dividend Discount Model

The dividend discount model (DDM) is a methodology to value share price by discounting future dividend payments.

V(0) = D(1)/(1+k) + D(2)/(1+k)^2 + … D(T)/(1+k)^T

In the DDM equation V(0) is the present value of all future dividends. D(1) is the dividend to be paid t years from now. And k is the risk-adjusted discount rate.

Then Dr. Brown walks you through a numerical example.

This leads to the constant growth rate model where the dividend in the next period (t+1) is D(t+1) = D(t)x(1+g). The lecture closes with a numerical example of how to calculate the constant dividend growth model.

Assuming Dividends Will Grow Forever is the Heart of the Dividend Discount Model

The constant perpetual dividend growth model assumes that dividends will grow forever at a constant growth rate g. The model is,

V(0) = [D(0)x(1+g)]/k-g = D(1)/k-g = D(1)/k-g when g < k.

Dr. Brown walks you through a numerical value in the electrical utility industry. This leads to a result that indicates that the stock is undervalued.

Using Historical Industry Mean or Median or Sustainable Growth Rate in Dividends

The dividend growth rate can be estimated using three different techniques. You can use the company average historic growth rate.

You can also use the industry mean [median] dividend growth rate.

Finally you can estimate the sustainable dividend growth rate. Many analysts calculate and compare each.

Exploring Sustainable Growth Rate, Return on Equity, Payout and Retention Ratios

The sustainable dividend growth rate is derived from the balance sheet and income statement. It is calculated as follows,

Sustainable Growth Rate = ROE x Retention Ration = ROE x (1-Payout Ratio)

And ROE is calculated as,

Return on Equity (ROE) = Net Income / Equity

The payout ratio is the proportion of earnings paid out as dividends. The retention ratio is the proportion of earnings retained for investment.

Dr. Brown walks you through numerical examples. The lesson of the numerical examples is that none of the dividend growth models work well in practice in identifying under or over-valuation.

Assuming Dividends Will Grow Forever is the Heart of the Dividend Discount Model

The two stage dividend growth model sets an initial growth rate g1 for T years. Thereafter dividends grow at a rate of g2 < k during a perpetual stage of growth.

The two-stage dividend growth model is,

V(0) = [D(0)(1+g1)]/k-g1][1-[[1+g1]/[1+k]]^T+[[1+g1]/[1+k]]^T[D(0)(1+g2)/9k-g2)]

This is not a complicated formula. It simply has two parts.

The first part is the present value of the first T dividends. In fact it is the same formula as the constant growth model. The second part is the present value of all future dividends.

The lecture closes with a numerical example.

An Example of the Dividend Growth Model in Valuing a Fast Growing Company Stock!

Many times companies will have explosive growth that will taper off. Dr. Brown walks you through a numerical example of how to value the shares of a firm experiencing super normal growth.

To do this you must make assumptions as to how long the high growth will occur. You must also make assumptions as to when the growth rate will drop.

You also need to know the total dividends just paid as well as the required rate of return. This allows you to calculate the long run growth rate.

Finally the present value of the firm is estimated. This can be divided by shares outstanding for a share value assessment that is compared to market price.

Using the Capital Asset Pricing Model to Derive a Discount Rate on Common Stock!

The capital asset pricing model [CAPM] can estimate the discount rate for a stock. This formula is,

Discount rate = time value of money + risk premium = U.S. T-bill rate + (stock beta x stock market risk premium)

The T-bill rate is the return on 90-day U.S. T-bills. The stock Beta is the risk relative to an average stock.

Finally the stock market risk premium is the risk premium for an average stock.

The constant perpetual growth model is simple to compute. It is not usable for firms that do not pay dividends.

It is not usable when the growth rate of dividends is greater than the discount rate.

The constant perpetual growth model is very sensitive to the choice of the dividend growth and discount rates. Worse, these are very difficult to estimate accurately.

Hence the constant perpetual dividend growth model is unrealistic in practice. The two-stage dividend growth model is more realistic in that it accounts for two stages of growth.

It is only usable when the growth rate is greater than the discount rate in the first stage. The model does not function for non-dividend paying firms.

As with the constant perpetual growth model the dividend growth and discount rates are difficult to estimate correctly. Hence Dr. Brown does not recommend that you use any of the dividend growth models you have learned in your actual trading.

Just be aware of what they are and why you don’t want to use them in timing your dividend stock entries.

Using the Price Earnings, Earnings Yield, Price-Cash Flow Ratios to Value Stocks

The price to earnings ratio is also called the P/E ratio. This is the current stock price divided by annual earnings per share [EPS].

The earnings yield is the inverse of the P/E ratio. This is earnings divided by price [E/P].

High price to earnings stocks are called growth stocks. Low price to earnings stocks are termed value stocks.

The price to cash flow ratio [P/CF ratio] is the current stock price divided by the current cash flow per share. Cash flow is net income plus depreciation.

Most analysts focus on cash flow. Dr. Brown simply focuses on the IBD EPS Rating and so should you.

It is a simple yet just as accurate quick measure of earnings growth quality as a percentile of strength against all other firms in the IBD stock database.

Wide differences in earnings and cash flow are a potential warnings sign of poor earnings.

The price to sales ratio [P/S ratio] is the current stock price divided by annual sales per share. A high price to sales ratio accompanies dramatic sales growth.

A low ratio indicates that sales are sluggish.

The price to book ratio [P/B ratio] is the market value of a firm’s common stock divided by the book value of equity. A ratio greater than one indicates that the firm is creating value for shareholders.

However, investing in stocks very low P/B ratios has been shown to beat the market by finding hidden value.

An Earnings Analysis Example for a Major United States Firm Common Stock Values!

This lecture walks you through the calculation of the expected stock price for a major United States firm. The expected stock price is the historical P/E ratio times the projected earnings per share.

This is compared to the actual market price.

Then the expected stock price is calculated as the historical price to cash flow ratio times the projected cash flow per share. The third estimation of expected stock price is the historical price to sales ratio times the projected sales per share.

This is compared to the actual market value on a per share basis.

Using Value Line Investment Survey for Financial Analysis of a Major US Company!

Price ratio analysis is performed on a major United States firm. The price to earnings ratio is calculated.

Then the price to cash flow ratio is calculated. Finally the price to sales ratio is calculated.

These are compared to show you the wide range of values. Do not use these ratios to time your dividend stock trading due to poor accuracy.

Testing Your Valuation Knowledge of any Hot Dividend Paying Common Stock Shares!

This challenge examines your understanding of the sustainable growth rate. You will also be asked to assess the outcome of changing the required rate of return.

Do you know the components of return on common stock? You will answer questions regarding different dividend growth models. Plus much more.

On Finding Hot Dividend Stocks with Fortune 500 Earnings and Cash Flow Analysis!

Introducing Professional Dividend Stock Investor’s Financial Accounting Concepts

This is your introduction to financial statements. This will allow you to undertake earnings and cash flow analysis using the income statement, balance sheet, and cash flow statement.

I personally use the IBD EPS Rating as a fast and accurate gauge of the quality of earnings. This index of earnings growth allows you to compare against thousands of other stocks in the IBD database.

This information comes from the Securities and Exchange Commission [SEC] through the Electronic Data Gathering and Retrieval [EDGAR] public online archives. The two primary reports that public firms are required to report are the 10K and the 10Q reports.

The SEC requires with Regulation FD. The majority of firms comply with regulation FD by sending email alerts for the company compliance internet newsletter.

Following the Balance Sheet, Income and Cash Flow Statements Investing in Stocks

The balance sheet is a time freeze of a firm’s assets and liabilities as well as the ownership stake of shareholders in the form of equity. The balance sheet is prepared for an annual and a quarterly date.

The income statement summarizes the firm’s revenues and expenses over a quarter or a year. This allows you to see bottom-line earnings per share.

The cash flow statement is an accounting for the sources and uses of cash by the company over a quarter or a year. This report summarizes the operating, financing, and investing cash-flows.

An asset is anything the company can sell in return for money. A liability is an obligation that must be paid. Equity is company ownership.

These can be combined into the accounting identity: Assets = Liabilities + Equity

Regular — Condensed Balance Sheet Example of a Fictional Fortune 500 Corporation

Dr. Brown walks you through a balance sheet. We examine current assets, fixed assets, investments, other assets, current liabilities, long-term debt, other liabilities, total liabilities, stockholder equity, and shares outstanding.

This also includes the year end stock price.

Then you will discover the condensed balance sheet. This is a fast summary composed of cash, operating assets, fixed assets, investments, other assets, and total assets. Assets are balanced by current liabilities, long-term debt, other liabilities, stockholder equity, and total liabilities and equity.

Remembering the Golden Rule that Net Income Equals Dividends + Retained Earnings

Income is defined as the difference between a firm’s revenue and expenses. This is utilized for payment of dividends to shareholders or used as retained earnings for future growth.

Net Income = Revenues – Expenses = Dividends + Retained Earnings

A condensed income statement itemizes net sales, cost of goods sold, gross profit, operating expenses, operating income, investment income, interest expense, pretax income, income taxes, net income, dividends, and retained earnings.

Memorizing that Net Income Does Not Equal Cash Flow Due to Depreciation Etcetera

It is important to remember that net income does not equal cash flow. Net income is puffed up with non-cash items. Some expenses and sources of income are not realized in cash.

Another non-cash example is depreciation. Depreciation reflects the deterioration of the value of an asset over time.

This is a cost but it is not realized in cash.

Cash-flow is all income taken in cash. Operating cash flow is net income adjusted for non-cash items. Investment cash flow is any purchase or sale of a fixed asset or investment.

Financing cash flow is money raised by issuing stocks or bonds.

The condensed cash flow statement includes net income, depreciation, operating cash flow, investment cash flow, financing cash flow, and net cash increase.

Gross Margin, Operating Margin, Return on Assets and Return on Equity Guideposts

The four most commonly reported ratios in 10K and 10Q statements transmitted to EDGAR are as follows. The gross margin is gross profit divided by net sales.

Operating margin is operating income divided by net sales. Return on assets [ROA] is net income divided by total assets. Return on equity [ROE] is net income divided by shareholder’s equity.

ROA and ROE use current end of year figures.

Book Value per Share Earnings per Share and Cash Flow as Income Stock Guidelines

Annual reports always include per share calculations related to book value, earnings, and operating cash flow. Book value per share [BVPS] is stockholder equity divided by shares outstanding.

Earnings per share [EPS] is net income divided by shares outstanding.

Cash flow per share [CFPS] is operating cash flow divided by shares outstanding. Not that each of these ratios require shares outstanding.

Once these ratios are calculated three commonly reported price ratios can be derived.

The price to book ratio [P/B] is the stock price divided by the book value per share. The price to earnings ratio [P/E] is the stock price divided by the earnings per share.

The price to cash flow [P/CF] ratio is the stock price divided by the cash flow per share.

Optimistic versus Pessimistic Forward Looking Scenarios in Pro-Forma Statements!

How do you analyze a fifty percent acquisition of a firm? The acquisition is treated as an investment.

The acquisition is intended to increase the number of sales outlets. Hence the firm announces an extended marketing campaign.

How do you analyze the possible impact of this transaction on the company financials?

First you have to get detailed information on the acquisition. Then you have to make assumptions about future income, cash-flow and other statement items.

You will have to develop an optimistic scenario and a pessimistic scenario. Once you have this you must build pro-forma financial statements.

These are forward looking.

An Example of Projected Profitability and Price Ratios of Fictional Public Firm!

Once the pro-forma statements are generated the ratios we discussed in prior lectures can be calculated again under optimistic and pessimistic scenarios. Once that is done the original gross margin, operating margin, return on assets [ROA], return on equity [ROE], book value per share [BVPS], earnings per share [EPS], ratios can be compared.

This allows us to calculate BVPS times P/B under optimistic and pessimist situations. This is also done for EPS times P/E and CFPS times P/CF.

Which pro-forma price is right, pessimistic or optimistic? You don’t know. And the more time that you project out in the future the less certain you will be.

Financial Projections Supposing Sales Increase or Decrease Ten Percent Examples!

Now we’ll run the numbers for a real corporation. We want to see what happens when sales increase or decrease by ten percent.

All numbers in are in the thousands. That would be except for EPS.

The main lesson is that earnings per share is extremely sensitive to fluctuations in sales. So pay close attention to news that portends a big drop in sales.

How Big Increases in Sales Impact Gross Margins by the Same Proportional Amount!

The pro-forma income statements show the result of a 10% increase or decrease in sales. This causes an equivalent fluctuation in gross margin.

Operating income fluctuates a lot throughout the year. But it is held constant in these forward looking statements.

Retained earnings from the income statement must reflect that of the balance sheet. Cash on the balance sheet has to reflect the net cash increase from the cash flow statement.

The balance sheet will not balance.

This is because the net cash increase will not equal retained earnings. All items making up the difference appear on the cash flow statement. Then we have to adjust plant, property, and equipment and goodwill to reflect the new values of depreciation and amortization.

Operating assets and current liabilities must also be adjusted.

An Example of Projecting the Profitability and Price Ratios of Fast Large Stock!

Now we have the pro-forma financial statements prepared for a real company. This allows us to calculate a ten percent increase or decrease in sales looking forward.

These upper and lower projected values are compared to the original values of gross margin, operating margin, return on assets [ROA], return on equity [ROE], book value per share [BVPS], earnings per share [EPS], and cash flow per share [CFPS].

Once these values are estimated the analysis is then extended into the calculation of three common sales ratios. BVPS times P/B, EPS times P/E, and CFPS times P/CF is shown under positive and negative sales conditions.

The main lesson of this lecture is that Earnings per share [EPS] and cash flow per share [CFPS] are particularly sensitive to sales fluctuations!

Impressing the Key Points of Stock Earnings and Value Analysis into your Memory!

This is an intensive examination of your understanding of key elements from the income statement, balance sheet, and cash flow statement. Dr. Brown asks you to identify elements that would or would not appear on a balance sheet or income statement.

Your understanding of operating expenses, cost of goods sold, interest payments and retained earnings are reviewed. Then you will check your knowledge of retained earnings, net income, cash flow and pro forma statements.

Psychoanalyzing the Bipolar Behavior of Mr. Market in Light of Stock Efficiency!

Considering the Efficient Equity Fact that the Stock Market is Very Hard to Beat

Ted Warren was a highly successful dividend stock investor. He made his money watching earnings and technical analysis breakouts into new highs.

He used to call the market price “fact the dictator.”

Academic studies now show that his approach is far more powerful than a pure fundamental approach. He melded technical with fundamental analysis. This is important when you seriously consider whether or not you can beat the market.

How New Technical Analysis Differs Greatly from Fundamental Investment Analysis!

Technical analysis is completely different from fundamental analysis. Fundamental analysis is based on the premise that increasing earnings [or cash flow] will increase the size of the company in monetary terms.

This will increase the share price.

Fundamental analysis is based on the first theory of finance from the 1950s by economics professor Modigliani and Miller. Their arbitrage argument showed that the only way managers can increase the value of a company is by increasing earnings.

This allowed for the formation of the capital asset pricing model [CAPM].

In this section Dr. Brown will introduce you to a radically different approach to investing called technical analysis. Dow Theory started it all

Introducing Support and Resistance as your #1 Stock Stop-loss Calibration Tools!

The trend line is a sloping line that best fits the gradual up and down rise or fall of a stock price over time. There are also horizontal levels that represent areas where the market seems incapable of rising above or falling below a prior price level.

The support and resistance areas have been shown to accelerate prices in one direction or another.

Prices rising into new highs or falling into new lows have been shown to be the best way to beat the market. In this lecture Dr. Brown introduces you to support and resistance.

Using Advance/Decline Lines, Closing Tick, Closing Arms or TRIN Technical Tools!

A stock index shows you the advance or decline of stocks over a given day. But it does not give you a numerical estimate of the strength of the individual stocks involved.

The ARMS index [TRIN statistic] allows you to see this.

The problem with this measure is that it is hard to find a service that charts the TRIN statistic under a stock or market chart. Even so, it is difficult to see how this information from the ARMS index is superior over simple trend analysis.

This is after all just a rehash of fact the dictator!

You can view and review the lecture materials indefinitely, like an on-demand channel.
Definitely! If you have an internet connection, courses on Udemy are available on any device at any time. If you don't have an internet connection, some instructors also let their students download course lectures. That's up to the instructor though, so make sure you get on their good side!
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