10 numbers every investor should know

Savvy stock pickers know that a few simple formulas and a little math can reveal the difference between a buy and a bust. Here are 10 key investing ratios, what they mean and how to use them.

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35Comments
Jan 5, 2014 3:53PM
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Article states P/E is calculated by "...dividing earnings per share by the stock price".  That would be E/P.  P/E is dividing stock price by earnings per share.  How can something so basic be published incorrectly....does no one proof read this stuff? 

Nov 13, 2013 8:41PM
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The only number that matters right now is 85 billion/month in QE.
Nov 14, 2013 11:10AM
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10 numbers to tattoo on the forehead of every financier, career politician, lobbyist, economist, analyst, administrator, inheritor, alumni and old wealth loser...

1. $700 TRILLION in derivative instruments used for terrorism, not recovery.
2. $85 BILLION in QE that went to the top 5% and NEVER trickled to Main Street.
3.  90 MILLION fellow Americans with ACTUAL skill sets terminated and blocked from jobs.
4. TOO MANY universities graduating cheaters & text peckers who can't read, write or do math.
5. THOUSANDS of billionaires when ONE is too many to sustain economy.
6. 1999- the year we got the Gramm Leach Bliley Act & Goldman Sachs IPO. 
7. 1986- the year the Tax Reform Act passed, last year BIG paid a fair share in taxes.
8.  5 years-- too long for Obama Agenda that hasn't resolved ONE relevant issue or crisis.
9.  8 years-- the length of time it took George W. Bush to destroy America's future.
10. ONE- the number of GROUPS that need to prevail above all others for our survival. It's name? THE UNITED STATES OF AMERICA. All others be damned, FOCK OFF and DIE.
Nov 14, 2013 12:19PM
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BigBrute,

 

$17.1 Trillion and $3.6 Trillion matter a bit also!  ;)

Nov 19, 2013 8:46PM
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Very informative article. I liked it.
Jan 7, 2014 1:13AM
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Hey, No law-life is hell; don't you find it strange that all us republican trash are on here commenting? Aren't we all supposed to be too stupid to read and form intelligent opinions? But somehow, I find that there are far more conservative minded types commenting on here than liberals. Hmmmm....
Jan 9, 2014 11:27AM
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I am a CFP and I will tell you all you need to know about investing right here.  Keep in mind this is free advice so you get what you pay for.

1. Ratios might be important to a mutual fund manager, but are worthless to your average investor.

2. Avoid stocks (unless you are a gambler) and invest only in mutual funds.

3. Virtually all stock brokers and financial planners are crooks (unless charging an hourly fee for advice - good luck finding one, there is no money in it compared to commissions).  All they want is to get in your pocket via commissions - PARTICULALRY ONES THAT SELL INSURANCE PRODUCTS - annuities, whole life, etc.

(IMPORTANT INSIDER NOTE - THESE IS AN INVERSE CORRELATION BETWEEN COMMISSIONS ON INVESTMENT PRODUCTS AND WHAT IS TRUELY IN YOUR BEST INTEREST.  WRITE YOUR CONGRESSMAN.  I AM GENERALLY AGAINST TOO MUCH REGULATION, BUT THIS IS ONE THING THE GOVT COULD ACTUALLY DO TO HELP PEOPLE.  THE MOST SUCCESSFUL BROKERS ARE CROOKS FOR EXACTLY THIS REASON.  THE MORE YOU SCREW YOUR CLIENT, THE MORE YOU MAKE $$$...PERIOD!)

4. Buy mutual funds that are appropriate for your age and risk tolerance.  Realize that you are still taking a risk, but no risk, no reward long term.

5. Saving money every pay period, whether invested or not, is just as important as anything.  Don't live check to check, unless one of those "expenses" is saving.

6. If you do decide some stocks are appropriate for you, keep it to a minimum and NEVER buy something because someone on the TV or the internet or someone at the coffee shop said so.  By the time you are hear the recommendation, it is too late.  Resources such as Morningstar and Value Line are helpful, but select a stock you feel good about.  If it fails, you have no one to blame but yourself.

7. Timing of the market (significantly increasing or decreasing your stock vs. bond vs. cash MUTUAL FUND allocation) is not a weekly or monthly thing.  It is only based on MACRO events such as major market or life events.  Market crashed like 2009?  Go all in baby! Don't be stupid and go to cash.  Market is high (granted low/high is subjective and not that easy to judge)? maybe back off to more conservative investments, going back in WHEN (not IF) the market crashes again.  Ditto for life events, retiring sooner or working longer than expected. Health reasons, windfalls, unexpected events, etc..

8. Be patient!

GOOD LUCK!  And don't waste your time reading articles like this or listening to ding bats on the stock market channel.  Get a grip, get educated, and leave emotion out of it.  Be a Mr. Spock and your will "live long and prosper."

Jan 7, 2014 11:03AM
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read article where it says  the common person does not understand  the  deficit trade vs 70 billion a month going into the deficit. ok  when the trade shrinks   (the dollar goes  where)  same with it gets higher  we are  17 trillion and growing  4 trillion since  king oboma has been  in.  no jobs  wages down  food  gas  up  taxes up  the stock  market has  come  out  and  said  the Q1234 maid a lot of  rich  people even richer  ???  they say there is 230  million in the  united states well if the feds would of mailed ea person a check  for a thousand  4 the last four  years still not hitting a trillion  where would the country  be  ????
Jan 4, 2014 11:47AM
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Only thing to remember is 401 k money..( positive breath )..You get paid, two days later your money is at wall street..Friday you get paid and invest in your own company, tuesday  10 am you will see your stock jump .invest in mutaul funds they buy by friday..1 st , 15 th and 30 th paychecks the same...so in july when you gave wall street three tuesdays or 3 installments. you now no why july was a record . so was last jan. and dec......all months with 3 tuesdays...just like certain months you get 3 fri. checks... if markets dont go up on this there is selling going on...this week k money was 31st...from friday check..the 30 th and 1 st and year ending residue....look at feb. (last year)... august and you can guess this month might follow once the k money gets all in.....do not directly invest in your own company....your k money never gets in at a good value....wait till your company dips then move in...profit  taking is always on non k money days....look it up.. notice all 3 months had holidays to shorten time and made a bigger impact. i will guess.. all three month had the most records on wall street...why does no one talk about this........hmmmmmmmmmmmmmm 
Jan 4, 2014 7:13PM
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For the most part the causal investor should stick with funds unless they have good resourses they can trust.... leave it to the experts and know your investor, check them out.... 
Jan 7, 2014 2:02PM
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Very good information for those of us not in the corporative side of the country.
Jan 7, 2014 12:21AM
Apr 26, 2014 7:18PM
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This is some handy vocabulary that I’m going to bookmark for future reference. Thank you! I’d like to add that these numbers come alive when you start seeing real data. When I began investing, I didn’t really understand the definitions to all kinds of trading terms until I saw some real examples. I signed up for a trial subscription to a stock market alerts service, and then my eyes opened up! https://www.barchart.com/my/stock-alerts/
Mar 15, 2014 4:25AM
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Two things to note:

1) Two bad examples are given for ( LONG TERM) Debt to Equity Ratio.  In general, the number should be less than 1/3 (33%).  If it's higher, a study of the long-term trend in the ratio must be studied to determine if the company traditionally holds that much debt and has been able to handle it over that long term.  If the debt is a new issue, check to see if an acquisition accounts for it.

2) Ben Graham's formula is not presented correctly here.
Ben Graham's original formula, as presented here, is V = E x (8.5 + 2G) where V is value, E is earnings per share and G is the growth rate of eps in percent.  This was based on bond rates in 1962.

He modified it in 1974 to be V = E x (8.5 + 2G) x 4.4%/A where A is the current AAA corporate bond rate and 4.4 was the rate in 1962.

Since 10-yr AAA corporate bonds are yielding 3.5% now, that indicates the V of stocks should be 26% more than "normal."  Applying that to the P/E of the S&P 500, the market isn't very pricey now.

Jan 7, 2014 7:04PM
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In calculating comparative P/E Ratios, be sure that the Earnings are calculated in the same manner.
Jan 7, 2014 12:08PM
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MSN -- they have a article on the price of pot doubling and they won't let you comment on the article and then removes the hot topi altogether. But instead, they put up a dumb article on investing and the sponsor is FORBES.... Why? - because MSN gets paid for every click on the articles.  The articles are designed to embark people emotions, to open them  (which are mostly immaterial)  because MSN wants the click charges Forbes pays. We will see how many thumbs down I'll get from Forbes and MSN employees monitoring this. (assuming they leave this on the site)   
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the vw van was and is an icon to bad they couldn't put the motor in front. they were very nice
Jan 7, 2014 2:24AM
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I wouldn't invest a single dime in the stock market.

Jan 4, 2014 8:10AM
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Correction coming this year on Wall Street. Reading reports of Billionaires quietly getting rid of their stocks. Yes that includes Buffett.  That means great opportunity when things hit bottom.
Jan 7, 2014 10:26AM
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An old senile geezer is trying to set the world's record for most consecutive lie filled posts in a row.

He did achieve 9 thumbs down in a row from me for his nine, nine, nine posts. LMAO

Now, how about 9 truthful posts in a row about how your brand of Christian Capitalism works? You know, about enriching yourself by any means necessary. Lying, cheating, stealing, manipulating, bribing, extorting, outsourcing, special favors/nepotism, slave wages and even some good old murder when all else fails. Thanks for that exceptional explanation of Christian Capitalism at it's finest. THANKS, BUT NO THANKS!

IN GOD I TRUST!

IN MONEY YOU TRUST!

Go peddle your lies to your base old geezer. It won't work with mainstream America!

P.S. In your upcoming posts, could you tell us more about Ayn Rand, John Galt, John Birch, Gordon Gecko and the Koch brothers. Inquiring minds want to know................... THE TRUTH!


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