Saturday, February 24, 2007

Writing Options

Time decay is your friend... if you're the writer.

Sunday, January 7, 2007

Does Only The Size of Monthly Payments Matters?

I have noticed a lot of Americans pay more attention to the monthly payments of something rather than to its total cost. Take for example, buying a car. A lot of people I have talked with think its a deal when they can pay lower monthly payments in exchange for a longer loan. Car salesmen use this to their advantage all the time. One of the first things they may ask you is, how big of monthly payments can you afford? They then steer you to an upgraded model along with a longer loan, but with lower monthly payments. To me, that tactic working as often as it does is just ludicrous. While their monthly payments are indeed lower, they end up paying more in the long run. Most people do not even think of running the numbers and when they are told that they should, they usually don't. Sigh, for the ignorant, ignorance is bliss.

And what of all those people who took out adjustable rate mortgages (many for those lower initial payments) when fixed rate mortgages were much more prudent, especially with interest rates being near historic lows. Many of them will not be able to stay ignorant for long though. Once they receive their wake up calls and their rates start adjusting, hopefully they will realize the error in their ways.

Wednesday, January 3, 2007

Taxes On Reinvested Dividends?

Recently one of our members found out that one of his coworkers believed that he did not have to pay taxes on dividends that were reinvested in a dividend reinvestment program (drip). His reasoning was that since he did not actually received the dividend (only the drp shares of stock), he was not taxed on them. Well, we are sorry to disappoint, but unless those dividends are in a tax advantaged account, Uncle Sam is indeed entitled to his cut. There are actually two transactions that occur with drip reinvested dividends. First you are paid a dividend, then second that dividend is used to buy shares in the company usually at the market closing price on the day that the dividend is paid. Every once in a while though, a company may pay a tax-free stock dividend, such as when a company decides to distribute to its shareholders, stock from the company portfolio of another company. Also, think when the next time someone figures that a certain stock did a certain percentage gain with reinvested dividends, and make sure to find out whether or not they're taking taxes into account.

Monday, January 1, 2007

Happy New Year!

Happy New Year! Time to reset your YTD metrics.

Sunday, December 31, 2006

Is Stock Share Price Alone A Good Indicator?

Our members know many people who truly believe that a $10 stock is cheap compared to a $100 stock. That delusive fantasy could not be farther from the truth. As an example, let us assume a case where the two companies have equivalent total earnings but that the company of the $10 stock had 10 times the amount of shares outstanding compared to the company of the $100 stock. That would mean that the $10 stock is actually no cheaper than the $100 stock. Here is an analogy that I hope everyone can relate to: Would you jump for joy if you were given 10 dimes instead of only one dollar bill?

To compare the cheapness or expensiveness of stock from different companies, we must turn our attention to their Price to Earnings (P/E) ratios. Usually companies with greater than average potential command higher P/E ratios than those companies with lower potential.

Saturday, December 30, 2006