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Dear Readers,

Although I am not an official member nor do I have any connection to the ERX other than being an investor, I have received numerous questions and requests to write another article. So, this article will simply answer your questions about my last article. Note that all names will be anonymous and identities will be protected to avoid any trolling or insulting 🙂.



So, let's get on it with it then!

Question 1) What does the market cap mean?


Caps...get it, like, market caps....ok

Answer: Well, the market cap is a very important number to know and a very important number to understand. This question is often ignored and this number often trips up new investors/stock marketeers.

To answer this question, you need to know about the per-share price. The per-share price of a stock is the price of each individual share. It does not calculate a companies overall worth. In fact, except for its use in some calculators and minor calculations. The per-share price is virtually meaningless to investors doing fundamental analysis. The reason we aren’t concerned with per-share price is that it is always changing and, since each company has a different number of outstanding shares, it doesn’t give us a clue to the value of the company. For figuring out the true value of that company and it's shares, we need the market capitalization or market cap number.

The market cap is found by multiplying the per-share price times the total number of outstanding shares. This number gives you the total value of the company or stated another way, what it would cost to buy the whole company on the open market.

Here’s an example:

Stock price: .50 gold

Outstanding shares: 5,000

Market cap: .50 x 5,000 = 2,500

Here is another example:

Stock price: .1 gold

Outstanding shares: 40,000

Market cap: .1 gold x 40,000 = 4,000

This is how you should look at these two companies for evaluation purposes. Their per-share prices tell you nothing by themselves.

What does market cap tell you?

First, it gives you a starting place for evaluation. When looking a stock, it should always be in a context. How does the company compare to others of a similar size in the same industry? It also tells you the "value" of a company. Remember that "volume" is the amount of interest of trading of a particular companies stocks at a given time. Don't get those two confused.



Question 2) What are bonds and why is the eUS treasury selling them on the ERX?

Answer: This is a very good question. I'll try to give you a brief overview. A bond is an IOU (informal document that acknowledges debt to someone) issued by a corporation, government, or governmental agency to cover money the bondholder has lent. If you own stock in a company, you are a part owner of the company. As a bondholder, you are a creditor. Confused? Well, hold on, I’ll explain that right now.

Corporations issue bonds as a way to borrow large sums of money. Companies have two basic ways to raise money for expansion, acquisitions, or other uses. They can issue stock or borrow the money. You buy bonds, which gives the government money. When the government's GDP grows and after a few weeks, months, years (it depends), the eGov will pay you, the bond holder, back at a fixed, low interest rate. Governments and governmental agencies also use bonds to raise money.

Now, I am going to delve a little deeper. This information applies more to real life, but it will help you in the future anyways.

There are three basic concepts that will help you understand bonds:

1) Par value – Par value, also known a face or principal value, is how much the bondholder will receive at maturity. A $1,000 par value bond will be worth $1,000 when it matures.

2) Coupon – Coupon is the interest rate the bond pays. It is called the coupon rate because bonds once came with a book of coupons, which the holder had to clip and send in to receive an interest payment. Bond investors are still referred to sometimes as “coupon clippers.” This interest rate does not vary over the life of the bond, although there are some bonds, which have a variable interest rate tied to an external index.

3) Maturity* – Maturity refers to the length of time before the par value is returned to the bondholder. It may be as short as a few months, 50 years, or more. At maturity, the bondholder receives the par value of the bond.



Question 3) What the bloody hell is the PEG?

Answer: Yet, another good question. You see this abbreviation everywhere, what does it mean? This is a very important number, and it is used by the Dept of Treasury to stabilize the market, but Stock Investors can also use it. I will focus on how the PEG is used in trading stocks for this article.

The P/E (Price to Earnings Ratio) is the most popular way to compare the relative value of stocks based on earnings because you calculate it by taking the current price of the stock and divide it by the Earnings Per Share (EPS). This tells you whether a stock’s price is high or low relative to its earnings.

Some investors may consider a company with a high P/E overpriced and they may be correct. A high P/E may be a signal that traders have pushed a stock’s price beyond the point where any reasonable near term growth is probable.

However, a high P/E may also be a strong vote of confidence that the company still has strong growth prospects in the future, which should mean an even higher stock price.
Because the market is usually more concerned about the future than the present, it is always looking for some way to project out. Another ratio you can use will help you look at future earnings growth is called the PEG ratio. The PEG factors in projected earnings growth rates to the P/E for another number to remember.

You calculate the PEG by taking the P/E and dividing it by the projected growth in earnings.

Making it Easy:

PEG = P/E / (projected growth in earnings)
For example, a stock with a P/E of 30 and projected earning growth next year of 15% would have a PEG of 2 (30 / 15 = 2).

What does the “2” mean? Like all ratios, it simply shows you a relationship. In this case, the lower the number the less you pay for each unit of future earnings growth. So even a stock with a high P/E, but high projected earning growth may be a good value.
Looking at the opposite situation; a low P/E stock with low or no projected earnings growth, you see that what looks like a value may not work out that way. For example, a stock with a P/E of 8 and flat earnings growth equals a PEG of 8. This could prove to be an expensive investment.

Conclusion: Alright. Well, that covers most of the topics that you guys PMed me about. I sincerely hope that this was helpful to answering your questions and if you still have any other questions or comments, just mail me and I’ll be sure to get back to you. Also, thank you to those people who mailed me personally to thank me for writing my last article. It is a writers dream to have people admire his/her work to the extent of the reader thanking the writer. So, thank you all. Oh and here is your hot girl:

The Next Hot Girl:



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Sincerely,
Marcus Patterson
CEO of Patterson Holdings Company *Remember to Invest in PHC*