Matt Krantz

Cheat Sheet / Updated 04-12-2023

Make the most of fundamental analysis by getting familiar with financial statements and investment terms as well as knowing the best places to find fundamental data.

Article / Updated 09-29-2022

People who invest online are usually do-it-yourself investors. This means they're probably working without a tax consultant. But this can make it hard to understand how the money they earn while investing is taxed. That's where understanding capital gains taxes enters the picture. When you sell a stock held in a taxable account that has appreciated in value, you usually have taxes to pay. Generally, such capital gains taxes are calculated based on the holding period. There are two holding periods: Short-term: That's the type of capital gain you have if you sell a stock after owning it for one year or less. You want to avoid these gains if you can because you're taxed at the ordinary income tax rate, which, as I explain shortly, is one of the highest tax percentages. Long-term: That's the type of capital gain result you get if you sell a stock after holding it for more than one year. These gains qualify for a special discount on taxes. You must own a stock for over one year for it to be considered a long-term capital gain. If you buy a stock on March 3, 2019, and sell it on March 3, 2020 for a profit, that is considered a short-term capital gain. Also, an important thing to remember is that the holding-period clock starts the day after you buy the stock and stops the day you sell it. Selling even one day too soon can be a costly mistake. If you're interested in cutting your tax bill in a taxable account, you want to reduce, as much as possible, the number of stocks you sell that you've owned for only a year or less because they're taxed at your ordinary income tax levels. You can look up your ordinary income tax bracket at this Internal Revenue Service website. Need an example? Say a stock rose from $10 to $100 a share (for a $90 per share gain). Say that you had $50,000 in taxable income that year and sold the stock after owning it for just three months. Your gain would fall from $90 to $67.50 after paying $22.50 in taxes. By owning stocks for more than a year, gains are taxed at the maximum capital gain rate. The rate you pay on long-term capital gains varies based on your normal tax bracket, but such rates are almost always much lower than your ordinary income tax rate, if not zero. Yes, zero — some investors' long-term capital gains are tax free! Long-term capital gains rates, though, can change dramatically due to political pressure. The following table shows the maximum capital gain rates for 2009 and 2010 for typical investments such as stocks and bonds. Maximum Capital Gain Rate If Your Regular Tax Rate Is Your Maximum Capital Gain Rate Is Greater than 35% 20% 25% or higher 15% Lower than 25% 0% Source: Internal Revenue Service

Cheat Sheet / Updated 02-18-2022

Investment banking has a big impact on the world you live in, whether you have investments or not, and understanding what investment bankers do is important. Part of investment banking has to do with mergers and acquisitions, like why companies buy other companies and what’s in it for them. Even people who aren’t big on investing sometimes get the urge to be part of an initial public offering, more commonly known as an IPO. If visions of yachts and Bentleys are dancing in your head, we’ll disabuse you of those dreams, while letting you know what it really means to get in on an IPO.

Cheat Sheet / Updated 12-13-2021

Whether you’re new at investing online or a grizzled veteran, you can always find better ways to make the internet work for you and your portfolio. You’ll want to make sure you know a few basics before you get started. And some tricks of the trade will literally help you to trade. Finally, you’ll want to know the terminology of investing online to make sure you are talking the talk.

Article / Updated 11-08-2021

Ordinarily when you invest in stocks online, you hope to profit from a company's good times and rising profits. But there's a whole other class of investors, called shorts, who do just the opposite. They search the internet for news stories about diners getting food poisoning at a restaurant, for instance, and look for ways to cash in on the stock falling. To sell a stock short, you follow four steps: Borrow the stock you want to bet against. Contact your broker to find shares of the stock you think will go down and request to borrow the shares. The broker then locates another investor who owns the shares and borrows them with a promise to return the shares at a prearranged later date. You get the shares. Don't think you're getting to borrow the shares for nothing, though. You'll have to pay fees or interest to the broker for the privilege. You immediately sell the shares you have borrowed. You pocket the cash from the sale. You wait for the stock to fall and then buy the shares back at the new, lower price. You return the shares to the brokerage you borrowed them from and pocket the difference. Here's an example: Shares of ABC Company are trading for $40 a share, which you think is way too high. You contact your broker, who finds 100 shares from another investor and lets you borrow them. You sell the shares and pocket $4,000. Two weeks later, the company reports its CEO has been stealing money and the stock falls to $25 a share. You buy 100 shares of ABC Company for $2,500, give the shares back to the brokerage you borrowed them from, and pocket a $1,500 profit. When you short a stock, you need to be aware of some extra costs. Most brokerages, for instance, charge fees or interest to borrow the stock. Also, if the company pays a dividend between the time you borrowed the stock and when you returned it, you must pay the dividend out of your pocket. You're responsible for the dividend payment, even if you already sold the stock and didn't receive the dividend.

Article / Updated 07-06-2021

If you are investing online and have a taxable brokerage account, you need to understand how dividends work. Remember that a dividend is a distribution of a portion of a company's earnings to some of its shareholders. Dividends can be issued as cash payments, stock shares, or even other property. Dividends are paid based on how many shares you own or dividends per share (DPS). If a company declares a $1 per share dividend and you own 100 shares, you will receive $100. To help compare the sizes of dividends, investors generally talk about the dividend yield, which is a percent of the current market price. A company's net profits can be kept within the company as retained earnings. A company may also choose to use net profits to repurchase their own shares in the open markets in a share buyback. Dividends and share buy-backs do not change the basic value of a company's shares. Dividends must be approved by the shareholders and may be a one-time pay out, or as an ongoing cash flow to owners and investors. Start-ups and some high-growth companies such as those in the technology or biotechnology sectors rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth and expansion. Microsoft, for example, did not pay a dividend until it had already become a $350 billion company, long after making the company’s founders and long-term shareholders multi-millionaires or billionaires. Larger, established companies tend to issue regular dividends as they seek to maximize shareholder wealth. You can calculate a stock’s dividend yield by dividing the annual dividend by the stock’s price. But you can also get it from almost every financial website. Reuters, for example, has an extensive database of dividend information. To get a company’s dividend yield using the Reuters Web site, follow these steps: Go to Reuters’ stocks main page. Enter a ticker symbol in the View Overview For blank. Select the Financials radio button to the right of the red search button, and then click the red search button. In the new page that appears, scroll down to the dividends section. In the Dividends table, (using General Electric as an example), you can see what a company’s dividend yield is now and what it was on average over the past five years. You can also see what kind of dividend yields other companies in the industry pay. The following table shows what kinds of dividends are typical in various industries. Dividends That Industries Pay Industry Five-Year Average Dividend Yield, % Real estate investment trusts 3.0 Multiline utilities (electric power and natural gas) 3.1 Major drugs 1.6 Conglomerates 1.6 Software 2.0 Source: www.reuters.com Companies in the following sectors and industries have among the highest historical dividend yields: basic materials, oil and gas, banks and financial, healthcare and pharmaceuticals, utilities, and REITS. Dividends must be approved by a company’s board of directors each time they are paid. Remember the following important dates: Declaration date: The day the board of directors announces their intention to pay a dividend. On the declaration date, the Board will also announce a date of record and a payment date. Date of record (ex-dividend date): The day when the stockholders are entitled to the dividend payment. A stock will usually begin trading ex-dividend or ex-rights the fourth business day before the payment date. In other words, only the owners of the shares on or before that date will receive the dividend. Payment date: The date the dividend will actually be given to the shareholders. Most dividends are paid on a quarterly basis. For example, if a company pays a $1 dividend, the shareholder will receive $0.25 per share four times a year. Some companies pay dividends annually. A company might distribute a property dividend to shareholders instead of cash or stock. Property dividends can be any item with tangible value. Property dividends are recorded at market value on the declaration date. How to calculate the dividend payout ratio The percentage of net income paid out as a dividend is the dividend payout ratio. This ratio helps project a company's growth. Actually, the retention ratio (the amount not paid out to shareholders in dividends), is used to project growth. Suppose that a company's cash flow statement showed that it paid $2 billion in dividends to shareholders and the income statement showed that it reported a net income of $4 billion. To calculate the dividend payout ratio, do the following: This company paid out fifty percent of its profit to shareholders during this year. Dividend reinvestment plans Some online brokers and companies that sell their shares to investors directly allow you to use dividends paid by a stock to buy more shares of the stock. These programs are called dividend reinvestment plans (DRIPs). The advantages to investing in ​DRIPs are as follows: Enrolling is easy. Dividends are automatically reinvested. The process becomes entirely automated and requires no more attention or monitoring. Many dividend reinvestment plans are often part of a direct stock purchase plan, and the investor can automatically purchase additional shares of stock through checking or saving accounts. Purchases through DRIPs are subject to little or no commission. DRIPs allow the purchase of fractional shares. An investor can enroll a limited number of shares in the DRIP and receive cash dividends on remaining shares. Basic Risks of Dividend Investing Investing in dividend stocks carries some risk — the same as with any other type of stock investment. With dividend stocks, you can lose money in any of the following ways: Share prices can drop. This situation is possible regardless of whether the company pays dividends. Worst-case scenario is that the company goes belly up before you have the chance to sell your shares. Companies can trim or slash dividend payments at any time. Companies are not legally required to pay dividends or increase the payments they make. Unlike bonds, where a failure to pay interest can put a company into default, a company can cut or eliminate a dividend whenever it wants. If you’re counting on a stock to pay dividends, you may view a dividend cut or elimination as losing money. Inflation can nibble away at your savings. Not investing your money or investing in something that doesn’t keep pace with inflation causes your investment capital to lose purchase power. With inflation at work, every dollar you scrimped and saved is worth less (but not worthless). Potential risk is proportional to potential return. Locking your money up in an FDIC-insured bank that pays an interest rate higher than the rate of inflation is safe (at least the first $100,000 that the FDIC insures), but it’s not going to make you rich. On the other hand, taking a gamble on a high-growth company can earn you handsome returns in a short period of time, but it’s also a high-risk venture.

Article / Updated 07-02-2021

Before you can analyze research reports for your online investments, you have to get your hands on them. Several techniques are available to do this online — some cost you money, but many don’t. The following list highlights a few resources of both the free and not-so-free types: Online brokers: You don’t have to be a client of the full-service brokerage firms like Credit Suisse or Goldman Sachs to get their analysts’ research reports. Online brokers can sometimes get the goods for you. Charles Schwab, for instance, allows you to download reports from Credit Suisse, and Fidelity offers access to Barclays Capital’s reports. E*TRADE provides Credit Suisse’s research to customers with more than $100,000 in assets. Most online brokers also offer access to independent research, including reports from Standard & Poor’s Capital IQ, Argus, Thomson Reuters, and Morningstar. Getting research from your online broker is generally the best route because there’s usually no charge. Research providers: Some independent research providers sell their reports directly to investors. Standard & Poor’s, for instance, sells reports on more than 5,000 companies. The reports include a forecast of what the stock’s future price could be, called a target price, in addition to an analysis of the company’s earnings. The reports often cost around $50. S&P reports also use an easy-to-understand rating system. S&P rates thousands of stocks using a star rating system where the most attractive stocks are given five stars and the least attractive stocks get one star. If your broker offers S&P reports, you can get the S&P ratings from the top of the reports. Don’t assume that just because stock research comes from an independent research firm, it’s more accurate or better than research from large Wall Street firms. Sometimes research from Wall Street brokerage firms is very good. The quality of research varies greatly and largely depends on the strength of the specific analyst covering the stock. Research resellers: Yahoo! Finance allows you to search for research reports on specific companies or by specific firms with the help of its Report Screener tool. Some of the reports are free, but you must pay for most of them. Prices range from just $15 to hundreds of dollars. You can also buy research reports from Reuters by entering the stock’s symbol into the Search Stocks field and selecting the Research tab. Summary sites: If you want just the bottom-line recommendations from analysts, several sites summarize the data. Nearly all the websites that provide stock quotes also compile analyst recommendations. Some examples include Reuters provides analyst recommendations if you enter a stock symbol and select the Analysts radio button before you click the Search button. Zacks Investment Research provides brokerage recommendations at the bottom of the stock quote page. Just enter a stock’s symbol into the Quote text field, click Go, and select the Broker Recommendations link on the left-hand sidebar under Charts. Pay close attention to the average brokerage recommendation (ABR), a number that falls somewhere between 1 and 5. If the ABR is 1, that means analysts, on average, rank the stock a strong buy. If the ABR is 5, analysts, on average, rank the stock a strong sell. Zacks also ranks stock ratings by industry. NASDAQ.com offers a handy guide to upgrades and downgrades for all stocks, not just those that trade on the NASDAQ. Hover over the Market Activity tab along the top of the screen and then select Analyst recommendations, where you can see how many stocks were upgraded or downgraded that day. Most summary sites convert stock ratings into numbers on a one-to-five scale, where 1 is a “strong buy” or “outperform” and 5 is a “strong sell” or “underperform.”

Article / Updated 07-02-2021

As an online investor, you might be interested in finding out how many investors are shorting a stock you own, a statistic known as short interest. Some investors even incorporate tracking short interest in their strategies by seeking stocks that are heavily shorted, on the theory if the shorts are wrong, the stock might surge higher in a short squeeze. Exchanges release short interest data on stocks on the third Monday of each month. You can easily get the data online. A helpful source is NASDAQ. You can look up the level of short interest on almost every stock, including those that trade on other exchanges such as the New York Stock Exchange. Here’s how: Point your browser to NASDAQ. Enter the stock’s symbol in the blank space beneath the Get Stock Quotes heading. Click the blue Info Quotes button underneath the blank. Choose Short Interest from the drop-down menu in the middle of the screen. You see a detailed list that shows you the number of shares being shorted. That number in itself doesn’t tell you much because different companies have different numbers of shares trading, or shares outstanding. So, to put the level of short interest in perspective, you also get to see the average daily share volume. Lastly, you see days to cover, which is calculated by dividing the number of shares shorted by the average daily share volume. The bottom line? The higher the days to cover, the greater the amount of real short interest in the stock.

Article / Updated 07-01-2021

People who invest online are usually do-it-yourself investors. Without a tax consultant for guidance, online investors need to understand how the money they earn while investing is taxed. That means understanding capital gains taxes. When you sell a stock held in a taxable account that has appreciated in value, you usually have taxes to pay. Generally, such capital gains taxes are calculated based the holding period. There are two holding periods: Short-term: That’s the type of capital gain you have if you sell a stock after owning it for one year or less. You want to avoid these gains if you can because you’re taxed at the ordinary income tax rate, which as I explain shortly, is one of the highest tax percentages. Long-term: That’s the type of capital gain result you get if you sell a stock after holding it for more than one year. These gains qualify for a special discount on taxes. You must own a stock for over one year for it to be considered a long-term capital gain. If you buy a stock on March 3, 2009, and sell it on March 3, 2010, for a profit, that is considered a short-term capital gain. Also, an important thing to remember is that the holding period clock starts the day after you buy the stock and stops the day you sell it. Selling even one day too soon can be a costly mistake. If you’re interested in cutting your tax bill in a taxable account, you want to reduce, as much as possible, the number of stocks you sell that you’ve owned for only a year or less because they’re taxed at your ordinary income tax levels. You can look up your ordinary income tax bracket on the The Tax Foundation's website. Need an example? Say a stock rose from $10 to $100 a share (for a $90-per-share gain). You had $50,000 in taxable income that year and sold the stock after owning it for just three months. Your gain would fall from $90 to $67.50 after paying $22.50 in taxes. By owning stocks for more than a year, gains are taxed at the maximum capital gain rate. The rate you pay on long-term capital gains varies based on your normal tax bracket, but such rates are almost always much lower than your ordinary income tax rate, if not zero. Yes, that’s right, in the 2009 and 2010 tax years at least, some investors’ long-term capital gains were tax free. Long-term capital gains rates, though, can change dramatically due to political pressure. The following table shows the maximum capital gain rates for 2009 and 2010 for typical investments such as stocks and bonds. Maximum Capital Gain Rate If Your Regular Tax Rate Is Your Maximum Capital Gain Rate Is 25% or higher 15% Lower than 25% 0% Source: Internal Revenue Service (www.irs.gov/publications/p17/ch16.html)

Article / Updated 06-30-2021

Trading in stocks online is not like shopping at your local major retailer, where prices are set. Because investments are priced in real time through active bidding between buyers and sellers, there are techniques to buying and selling. When dealing with investments, you have five main ways to buy or sell them online: Market orders: This is the most common type of order. You tell your broker to sell your shares at the best price or to buy shares at the current price. Because these orders are executed almost immediately and are straightforward, they typically have the lowest commissions. Limit orders: With a limit order, you tell your online broker the price you’re willing to take if you’re selling stocks and the price you’re willing to pay if you’re buying. The order will execute only if your price is reached. Imagine you own 100 shares of ABC Company, which are trading for $50 a share. The stock has been on a tear, but estimate it will fall to $30. You could sell the stock outright with a market order, but you don’t want to miss out on any gains in case you’re wrong. A limit order would let you instruct your broker to sell the stock if it fell to $45 a share. Limit orders are filled only at the price you set. If the stock falls further than the price you set, the broker might be able to sell only some of the shares, or none, at the price you set. Stop market orders: Similar to limit orders stop market orders let you set a price you want to buy or sell shares at. When a stock hits the price you designated, the order converts into a market order and executes immediately. Imagine that you have 100 shares of ABC Company, which are trading for $50 a share. But this time, you enter a stop market order for $45. And again, you wake up to find the stock plunged instantly to $25. This time, though, all your stock would have been sold. But, your online broker will sell the shares at whatever the price was the moment your order converted to a market order, which in this case could have been $25. Stop limit orders: Stop limit orders are customizable. First, you can set the activation price. When the that price is hit, the order turns into a limit order with the limit price you’ve set. Okay, ABC Company is trading for $50 a share when you enter a stop limit order with an activation price of $45 and a limit price of $35. It would work like this: Again, you wake up to find that the stock plunged instantly to $25. This time, your broker would turn your order into a limit order after it fell below $45. When the stock fell to $35, the broker would try to fill orders at that price if possible. But Unlike with the stop market order, you would not dump the shares when they fell as low as $25. Trailing stops: Regular limit orders are either executed or they expire. Trailing stop orders get around this problem by letting you tell your broker to sell a stock if it falls by a certain number of points or a percentage. If you’re buying and selling individual stocks, trailing stops can be a good idea. Even before you buy a stock, you should have an idea of how far you’ll let it fall before you cut your losses. Some investment professionals suggest never letting a stock fall more than 10 percent below the price you paid. If this sounds like a good idea to you, a trailing stop could work for you. Some brokers charge extra for limit orders, so check the commission fees before you start trading. And some brokers, such as Buyandhold.com, don’t offer limit orders. When you enter an order for a stock, you have a few other levers you can pull, including Designating lots: Many people buy the same stock many times. Each time you buy, that bundle of stock is called a lot. When you sell, your broker will assume you’d like to sell the lot that you’ve held for the longest time for recordkeeping purposes. If, for tax reasons, you’d like to sell a specific lot that’s not the oldest, you can tell your broker which lot you’d like to sell. Setting time frames: You can enter an order for a stock that is active only for the day you place the trade. If it’s not filled the order expires. You can also enter orders and let them stay active until you cancel them. Placing rules: When you issue an “all or none” restriction on your trade, your broker must completely fill the order or not fill it at all.