by: Wenda P.
- Setting up a tracking timetable
- Learning what to track in your stock’s performance
- Devising a format for tracking
- Continuing your education in stock investing Tracking is a disciplined program of monitoring a stock to observe its behavior at different times so that you can make educated adjustments to your portfolio. Even if the time’s not right for you to revamp your stock holdings, tracking or monitoring can produce several useful outcomes, including:...
- You can learn a lot about what causes stock movement.
- You can become more educated about the stock market in general.
- You can maintain your motivation to pursue a disciplined and focused investment program.
- You can use your periodic tracking to check on stocks that you considered previously but decided not to purchase. When reviewing these stocks, you may be able to pick up some information about these stocks that you missed earlier.
In this article, I explain how you can systematically track your stocks, making the most of your investment time, energy, and dollars, as you gain experience with the flow of the stock market.
Setting Up Your Tracking Timetable
I suggest that you formally track your stock’s performance on a quarterly basis. The following list gives you some reasons why regular tracking is important:
- Quarterly tracking is all you need to maintain a welldesigned investment program.
- Companies issue their earnings reports on a quarterly basis.
- Companies pay dividends on a quarterly basis.
- Three months is a reasonable interval to collect and file away all the paperwork that comes in for later review. Corporate earnings reports and dividend announcements do not come out precisely at the end of each calendar quarter. These reports have a tendency to trickle out over several weeks. This unpredictable schedule isn’t a concern, unless one or more of the companies in which you’re invested begin to have wildly erratic dates for issuing their quarterlies. You may say, “I enjoy tracking my stocks. It’s fun. Besides, I want to be on top of my stocks and the market situation in general.” Avoid the temptation to do more than quarterly tracking for the following reasons:
- You may be swayed by daily fluctuations in the value of your stock, leading you to make unwise buying and selling decisions. The underlying fundamentals of the companies worth investing in do not change from minute to minute.
- You may begin to think that you’re going to uncover some key bits of information that others have missed, which is not going to happen. By the time these little gems hit the market, all the big players already know about them. Keep in mind that these folks also act on rumors, wild guesses, speculation, fear, and many other less-than-reliable clues. Where do you find the information? Go back to the sources that I recommend in Chapter 5 for obtaining basic pre-purchase information. Look to either The Wall Street Journal, Investor’s Business Daily, or Barron’s. Information on annual sales and annual earnings, along with calculations of year-toyear changes, appear in more comprehensive publications, such as Standard & Poor’s Stock Reports or the Value Line Investment Survey. Various Internet sites can help expedite a lot of the work that goes with digging out information on stocks and tracking your portfolio. The list of possible sites is enormous, with new addresses appearing daily.
- NAIC (National Association of Investors Corporation) Personal Record Keeper ( www.better-investing. org/computer/prk.html) Some portfolio tracking sites are available by subscription only, but these sites usually come with a free trial. Besides providing assistance with updating the numbers on your stocks, Internet sites also offer links to various company reports and mandatory filings with the Securities and Exchanges Commission (SEC), analysts’ recommendations, current news items, and much more.
If you have the time, you may consider looking at company press releases on the company’s Web site. These reports are also available on some of the many stock quotation Web sites. For the truly ambitious, become acquainted with a Web site maintained by the U.S. Securities and Exchange Commission called EDGAR (Electronic Data Gathering and Analysis) at www.sec.gov/edgarhp.htm. This site contains all the mandatory reports that companies must file with the SEC. Be wary of unattributed, unofficial information on the Internet. Tracking the source of rumors and “facts” on the Internet is next to impossible. Some information is deliberately planted by insiders to stimulate stock movement from which they can profit.
Tracking the Stock
Are you ready to see how your stock is doing? Get out your calculator and scan your financial news sources for the following information:
- The stock’s price. Get the opening and closing price for the quarter. Divide the closing price by the opening price, multiply by 100, then subtract 100, and what you’ve got left is the percentage that the stock’s value changed during the quarter. A positive percentage means that the stock’s value increased, while a negative percentage indicates a decrease in value. If you observe too many negative quarters in a row, you may want to consider selling the stock ( see Chapter 8). You also want to find out the high and low price during the quarter. Subtract the low price from the high price to find out the trading range. A stock with a narrow trading range is fairly stable, which may or may not meet with your current investment goals. On the other hand, a stock with a wide trading range may be too volatile. If the range is much wider than the market’s overall range, you may want to find out what is going on with the company, if you can.
- The earnings per share (EPS). You should be able to find this ratio in any good financial news story about your company’s quarterly earnings. If not, the formula is net income minus the preferred stock dividend, all divided by the number of common shares outstanding. You can find these numbers in company reports, but letting The Wall Street Journal or some other news source do the math is a whole lot easier.
Tracking the EPS over time is a good indicator of the company’s progress, but be careful about comparing EPS quarter to quarter because many companies have peak sales seasons that skew the EPS figures. For example, retail stores sell far more during the holiday shopping season than any other time of year. Compare similar quarters to get the most use from the EPS figure.
- The price to earnings ratio (P/E ratio). The basic formula for figuring the P/E ratio is the price of the stock divided by the company’s EPS over the past 12 months. Note that because this formula depends on the price of the stock, which changes daily, the P/E ratio also changes daily. P/E ratios vary from industry to industry, but they can help you size up your company’s stock against its competitors. For example, say that Company A and Company B both have earnings per share of $2, but Company A’s stock is selling for $18, while Company B’s stock is selling for $30. All else being equal, the stock of Company A (with a P/E ratio of 9) is probably a better investment than the stock of Company B (with a P/E of 15), because you’re paying less for a stock with the same relative earning potential. Be a bit wary of reading too much into a P/E ratio. It is an important measure of past performance, but not a reliable indicator of future growth.
- Return on equity (ROE). You can find the ROE ratio in the Standard & Poor’s reports, Value Line, or at some of the Web sites in the Resource Center at the back of this article. The ROE ratio tells you how well the company is doing with stockholders’ invested money. Anything over 15% is very good.
The stock’s current beta. This number is also available in Standard & Poor’s or Value Line. You may remember from Chapter 5 that beta is an indicator of the stock’s risk, and betas do change over time. Make sure that the stock’s current beta matches your investment needs.
- The quarterly dividend figure. A dividend is simply the amount of the company’s earnings being paid out to the individual stockholders. Not all stocks pay dividends, even if they have earnings. If a company previously paid dividends, the omission of dividends is a serious sign. For newer, growing companies, failure to pay dividends may mean little or may be positive if earnings are being directed into new product development and expansion of production. If dividends were paid, record the “ yield” percentage. The Wall Street Journal prints yield figures daily.
- Your total investment. On each of your updates, add the amount you paid for your stock (your opening investment), the amount of any additional purchases, and the amount of any stock purchased through a dividend reinvestment programs (DRIP). The closing total in this quarter becomes your opening investment total in the next quarter.
- The value of your shares. The opening value of your stock holdings is the number of shares you had at the beginning of the period multiplied by the previous period’s ending share value. The closing value is the current number of shares times the current per-share price. This closing number becomes the opening share value figure for the next quarter. To figure your percentage of gain or loss of value for this quarter, subtract the closing value figure from the opening value figure. Divide the gain or loss by the opening value figure, and convert the resulting number usually a decimal into a percentage.
Use a calculator to do the math. The numbers aren’t always whole numbers in multiples of 10. You may deal with changes such as a total stock value rising from $4,582 to $4,969. The gain in this example is $387. Divide the gain, $387, by the opening period total value, $4,582, multiply by 100, and you get a stock price gain of 8.45%.
- Setting up a tracking timetable
- Learning what to track in your stock’s performance
- Devising a format for tracking
- Continuing your education in stock investing Tracking is a disciplined program of monitoring a stock to observe its behavior at different times so that you can make educated adjustments to your portfolio. Even if the time’s not right for you to revamp your stock holdings, tracking or monitoring can produce several useful outcomes, including:...
- You can learn a lot about what causes stock movement.
- You can become more educated about the stock market in general.
- You can maintain your motivation to pursue a disciplined and focused investment program.
- You can use your periodic tracking to check on stocks that you considered previously but decided not to purchase. When reviewing these stocks, you may be able to pick up some information about these stocks that you missed earlier.
In this article, I explain how you can systematically track your stocks, making the most of your investment time, energy, and dollars, as you gain experience with the flow of the stock market.
Setting Up Your Tracking Timetable
I suggest that you formally track your stock’s performance on a quarterly basis. The following list gives you some reasons why regular tracking is important:
- Quarterly tracking is all you need to maintain a welldesigned investment program.
- Companies issue their earnings reports on a quarterly basis.
- Companies pay dividends on a quarterly basis.
- Three months is a reasonable interval to collect and file away all the paperwork that comes in for later review. Corporate earnings reports and dividend announcements do not come out precisely at the end of each calendar quarter. These reports have a tendency to trickle out over several weeks. This unpredictable schedule isn’t a concern, unless one or more of the companies in which you’re invested begin to have wildly erratic dates for issuing their quarterlies. You may say, “I enjoy tracking my stocks. It’s fun. Besides, I want to be on top of my stocks and the market situation in general.” Avoid the temptation to do more than quarterly tracking for the following reasons:
- You may be swayed by daily fluctuations in the value of your stock, leading you to make unwise buying and selling decisions. The underlying fundamentals of the companies worth investing in do not change from minute to minute.
- You may begin to think that you’re going to uncover some key bits of information that others have missed, which is not going to happen. By the time these little gems hit the market, all the big players already know about them. Keep in mind that these folks also act on rumors, wild guesses, speculation, fear, and many other less-than-reliable clues. Where do you find the information? Go back to the sources that I recommend in Chapter 5 for obtaining basic pre-purchase information. Look to either The Wall Street Journal, Investor’s Business Daily, or Barron’s. Information on annual sales and annual earnings, along with calculations of year-toyear changes, appear in more comprehensive publications, such as Standard & Poor’s Stock Reports or the Value Line Investment Survey. Various Internet sites can help expedite a lot of the work that goes with digging out information on stocks and tracking your portfolio. The list of possible sites is enormous, with new addresses appearing daily.
- NAIC (National Association of Investors Corporation) Personal Record Keeper ( www.better-investing. org/computer/prk.html) Some portfolio tracking sites are available by subscription only, but these sites usually come with a free trial. Besides providing assistance with updating the numbers on your stocks, Internet sites also offer links to various company reports and mandatory filings with the Securities and Exchanges Commission (SEC), analysts’ recommendations, current news items, and much more.
If you have the time, you may consider looking at company press releases on the company’s Web site. These reports are also available on some of the many stock quotation Web sites. For the truly ambitious, become acquainted with a Web site maintained by the U.S. Securities and Exchange Commission called EDGAR (Electronic Data Gathering and Analysis) at www.sec.gov/edgarhp.htm. This site contains all the mandatory reports that companies must file with the SEC. Be wary of unattributed, unofficial information on the Internet. Tracking the source of rumors and “facts” on the Internet is next to impossible. Some information is deliberately planted by insiders to stimulate stock movement from which they can profit.
Tracking the Stock
Are you ready to see how your stock is doing? Get out your calculator and scan your financial news sources for the following information:
- The stock’s price. Get the opening and closing price for the quarter. Divide the closing price by the opening price, multiply by 100, then subtract 100, and what you’ve got left is the percentage that the stock’s value changed during the quarter. A positive percentage means that the stock’s value increased, while a negative percentage indicates a decrease in value. If you observe too many negative quarters in a row, you may want to consider selling the stock ( see Chapter 8). You also want to find out the high and low price during the quarter. Subtract the low price from the high price to find out the trading range. A stock with a narrow trading range is fairly stable, which may or may not meet with your current investment goals. On the other hand, a stock with a wide trading range may be too volatile. If the range is much wider than the market’s overall range, you may want to find out what is going on with the company, if you can.
- The earnings per share (EPS). You should be able to find this ratio in any good financial news story about your company’s quarterly earnings. If not, the formula is net income minus the preferred stock dividend, all divided by the number of common shares outstanding. You can find these numbers in company reports, but letting The Wall Street Journal or some other news source do the math is a whole lot easier.
Tracking the EPS over time is a good indicator of the company’s progress, but be careful about comparing EPS quarter to quarter because many companies have peak sales seasons that skew the EPS figures. For example, retail stores sell far more during the holiday shopping season than any other time of year. Compare similar quarters to get the most use from the EPS figure.
- The price to earnings ratio (P/E ratio). The basic formula for figuring the P/E ratio is the price of the stock divided by the company’s EPS over the past 12 months. Note that because this formula depends on the price of the stock, which changes daily, the P/E ratio also changes daily. P/E ratios vary from industry to industry, but they can help you size up your company’s stock against its competitors. For example, say that Company A and Company B both have earnings per share of $2, but Company A’s stock is selling for $18, while Company B’s stock is selling for $30. All else being equal, the stock of Company A (with a P/E ratio of 9) is probably a better investment than the stock of Company B (with a P/E of 15), because you’re paying less for a stock with the same relative earning potential. Be a bit wary of reading too much into a P/E ratio. It is an important measure of past performance, but not a reliable indicator of future growth.
- Return on equity (ROE). You can find the ROE ratio in the Standard & Poor’s reports, Value Line, or at some of the Web sites in the Resource Center at the back of this article. The ROE ratio tells you how well the company is doing with stockholders’ invested money. Anything over 15% is very good.
The stock’s current beta. This number is also available in Standard & Poor’s or Value Line. You may remember from Chapter 5 that beta is an indicator of the stock’s risk, and betas do change over time. Make sure that the stock’s current beta matches your investment needs.
- The quarterly dividend figure. A dividend is simply the amount of the company’s earnings being paid out to the individual stockholders. Not all stocks pay dividends, even if they have earnings. If a company previously paid dividends, the omission of dividends is a serious sign. For newer, growing companies, failure to pay dividends may mean little or may be positive if earnings are being directed into new product development and expansion of production. If dividends were paid, record the “ yield” percentage. The Wall Street Journal prints yield figures daily.
- Your total investment. On each of your updates, add the amount you paid for your stock (your opening investment), the amount of any additional purchases, and the amount of any stock purchased through a dividend reinvestment programs (DRIP). The closing total in this quarter becomes your opening investment total in the next quarter.
- The value of your shares. The opening value of your stock holdings is the number of shares you had at the beginning of the period multiplied by the previous period’s ending share value. The closing value is the current number of shares times the current per-share price. This closing number becomes the opening share value figure for the next quarter. To figure your percentage of gain or loss of value for this quarter, subtract the closing value figure from the opening value figure. Divide the gain or loss by the opening value figure, and convert the resulting number usually a decimal into a percentage.
Use a calculator to do the math. The numbers aren’t always whole numbers in multiples of 10. You may deal with changes such as a total stock value rising from $4,582 to $4,969. The gain in this example is $387. Divide the gain, $387, by the opening period total value, $4,582, multiply by 100, and you get a stock price gain of 8.45%.