Wednesday, November 10, 2010

What do investors really care about? (in edit)

Here is a message that was sent by a Kapitall user. I can answer the share buyback portion, but I would like to have a discussion about the rest of his message. Thanks!

"Thanks for replying.

My point of view is best described in the wiki article you sent:
"Another reason why executives, in particular, may prefer share buybacks is that executive compensation is often tied to executives' ability to meet earnings per share targets."

My point is - I, as a stock holder, am basicaly not interested in the EPS number itself. Nor the ROI ROE P/E and so on. Im interested in the market reacton, the price. The yield. The luck?

So, in bear times, when the whole market does down, I do not get anything from buybacks - just numbers, financial ratios. While I`m sure those are great times for the company to buy its stock, an induvidual not-hedged investor receiving the dividends in this situation is better positioned.

Of course the dividends may be cut and I ignore the buyback`s tax bonuses (because I can ignore them thank to Russian broken laws).

I also have one more question on this topic that is not covered anywhere I saw: can the company reissue those bought stocks? Does it counts in the long-term investment portion of balance? If true it`s just an other speculative player, which does in fact work against me - because in this case the company will benefit more from the lowest possible stock prices.
Am i missing something?"

In response to the share buybacks, yes that is true. Buying back shares would decrease the float, which would cause the EPS to rise. The same earnings would be divided by fewer shares, and the executives get a bigger bonus. In bear times, I would use the fundamental information to make sure the company isn't going down the tubes. Usually, a share buyback program is a good indication that the company is doing well. A lot of investors look for them, then perform fundamental analysis on the company to make sure it is a good investment. Bear times is usually just market fluctuation, which should be used as a buying opportunity. Also, a buyback might help to resist a strong downturn of the stock price during bear times.

Thursday, October 21, 2010

Leverage (in edit)

1. What is financial or investment leverage?

Leverage is attained when you borrow money to fund the ownership of something. For example, your house and its mortgage. You want to buy a $100,000 house but only have $25,000, so you borrow the rest of the money from the bank in the form of a mortgage. You are then able to pay the bank back the borrowed amount in monthly payments over time.

2. How am I leveraged?

Normally, the average person would set aside a portion of their income that they want to invest each month. They would use that money to reinvest in the same security, or pick a new one each month. To be leveraged, you would instead choose to borrow a large amount of money (called a margin) to invest immediately, and gradually pay off the amount with your portion of monthly income and returns on your investment. If your investment is highly successful, you can pay off the margin easily. If your investment fails, though, you will still have to pay off the margin.

3. How are companies leveraged?

A company can similarly be leveraged by borrowing money to finance operations without increasing company equity. The company would borrow money and use it to expand, increase production, or buy fixed assets to reduce their operations costs.


Being leveraged can be very risky. There is potential for higher gains, but there is equal potential for higher losses. Always do strong analysis before investing, and always manage your risk according to your financial stability and preferences.

Monday, October 18, 2010

Why Would A Company Buy Back Stock?

Written by Daniel Guttridge

A buyback is when a company buys shares of their own stock on the open market, which reduces the number of shares issued, or the float.


The laws of supply and demand take effect here. Since the supply of shares is more limited, the price is likely to rise. With the expectations of a price increase, demand usually increases and fuels the price increase.


Also, since the company is buying their own shares, it shows that they have confidence in their future. Investors see that the company has confidence and they expect the value of the shares to increase in the long term.


1. Tax issues: Buybacks allow the share owners to pay the taxes on the stock whenever they choose to sell. They only recognize profits when they sell. When you receive a dividend, you have to pay taxes on it by the tax year-end.

2. Dividends are hard for companies to reduce. When a company decreases it's dividend per share, it can be a sign that the company is going through financial trouble. Buybacks can be more opportunistic by having an extended time frame to buy the shares back, which allows the company to choose how much they will buy back at different times.


Not every buyback is a good thing, though. Companies sometimes announce buybacks to hide other issues within the company. Some aggressive growth companies will issue large amounts of stock, which will dilute the individual share value. Buybacks can then counter the large issuance of stock and increase the share value.

Generally, a buyback has positive effects on the company's shares, but investors should do strong research (just like with any other investment) before investing in a buyback.

Edited by David Neubert

Monday, October 11, 2010

Tax Credits

1. What is a tax credit?

It is a dollar for dollar discount on the total taxes an individual or entity may owe.

2. What do you get tax credits for?

Sometimes the government will give businesses tax credits for including non-petroleum gas usage, motor vehicle alternatives, welfare relief employment, and rising research expenses in their operations. The government may also give tax credits for disaster relief or property development for certain buildings. There are also some other non-standard reasons tax credits may be given.

Individuals may also receive tax credits for some similar activities as businesses, such as adoptions and using solar panels to power their homes. They are given these credits to directly reduce their tax amount, dollar for dollar. If you made $100,000 and your tax rate is 20%, you would owe $20,000 dollars. If you received a tax credit of $5,000 for using solar panels, you could reduce your total tax amount to $15,000.

The main difference between individuals and businesses, though, is that an individual can only use tax credits for the following year. Businesses, though, are able to use any tax credits at any time.

3. How does it affect the company's shares?

Tax credits are added to the balance sheet, usually in footnotes. When performing fundamental analysis, they will affect the book value of the shares.

For example, if you leave the tax credits out of your analysis and the market share price matches the book price, adding the tax credits will leave the market share price undervalued. If you are a value investor, this is exactly what you are looking for in your analysis.

Wednesday, August 25, 2010

Trials and Tribulations of a Beginning Investor

Jason: I am first and foremost a beginning investor. So when I started up at Kapitall, I soaked up advice like a sponge. One of the first, and most important, rules in investing is to ‘buy what you know’. Now, I’m at a point in my life where I don’t have a lot of things that I am totally committed to. I have a PlayStation3, (Sony) that I am very committed to. I generally wear Nike things, and I have my checking and savings accounts in Chase Bank (JPMorgan Chase). There are things that I’d also love to have, such as the luxury of buying a Starbucks mocha every day, my own AB car (that gets me from point A to point B), and a nice cooling Amerigon seat for it. These are all things that I would look for first under the ‘buy what you know’ mantra. There’s one big issue with that saying, primarily for beginning investors like me: how do you not become emotionally attached?

Currently, while holding Amerigon in my practice portfolio, I have watched the stock grow from the price I bought it at ($8.60) to the price it closed at as of August 17 ($11.05). If I were to put my graduation money ($1,000) into Amerigon when I first bought it in my practice portfolio, I would have been sitting on a nice $285 gain today. So where to from here? I have a number of questions surrounding my ever-growing desire to buy this stock, including:

Will this stock continue to grow?
What is this stock's 6 month projections?
Can I get a profit even after I've watched the stock hit it's year high?
Is this stock just gonna TANK as soon as I put my real money in?

For answers and sound investment advice for these questions, I turn to another Summer Investor, Danny Guttridge.

Danny: Well, Amerigon definitely has the potential to continue growing. What I recently realized is that a stock isn't just affected by it's products or how well the company is doing. There are a multitude of outside factors, such as market influence and the laws of supply and demand. Is the market growing and will it continue, or are we headed for another recession? Is the market in a slump, providing discounts, or is it at the top of its range with stocks also trading at the top of their ranges?

I had always felt like I needed to take action immediately, and I lost a lot of money that way. I ended up with a very expensive lesson on patience and thoroughness. You need to learn how, when the stock's direction is ambiguous, to wait it out to see what it will do.

Jason: When dealing with the specific emotional attachments, it helps to think of the money you put into the real stock market as your 'play money'. It sounds weird. My personal goal is to save $20 per paycheck ($10 for future stock investments, $10 to see Ken Griffey Jr. in his Hall of Fame induction in 10 years). In 6 months, by next January, I will have enough investing experience to feel comfortable trading, and also have a simple $250 to invest. I won't feel as emotionally attached to that money, because I know that it was a direct result of NOT buying those mochas every day. I will then use that $250 as a learning platform for investing even further down the road.

Detaching yourself from the emotional side of investing also means knowing when to buy and sell, and not holding onto the stock because you are too partial to it. This means we heed the advice of Danny again, who says that it's better to be a fundamentalist and chartist at the same time, and use your research to make an unbiased, objective decision.

Danny: After you learn how to decipher a company's fundamentals, good job, but you're still not ready to invest or trade. Just knowing that a company has good earnings and growth isn't enough. You absolutely need to learn technical analysis (charts, indicators, etc.). The picture to the right is an example of the chart and indicators I use for my technical analysis. Some investors label themselves as fundamental investors or technical traders, but having one side doesn't cut it. That's like going to build a house with just a hammer, not the whole tool belt. Good luck, because that's what you end up relying on.

After you practice this with repeated profits on a virtual portfolio, like on, then you can try your hand in the live markets. You can't let yourself get attached to your stocks, though. You have to set a loss tolerance and abide by it. No matter how much you love the company, you have to understand that they might not always love you back. That's why I've started researching and analyzing stocks of companies that I don't know much about. I have no loyalty to the company and I'm ok with selling as soon as my limit is hit.

Jason: Hopefully, this can help put some things into perspective. One of the biggest issues beginning investors have is knowing when to buy and sell. Many make the mistake of buying the losers because prices are low, and selling the winners to ensure profit. Again, it boils down to research and patience. And if we can a third: an objective view of your portfolio.

Let us know what you think!

Jason and Danny


Wednesday, August 18, 2010


Ok, so a lot of you are wondering how in the world I more than doubled my contest portfolio. I'm just that good. Just kidding.

First, let me explain that as a Kapitall employee, I am not eligible to "win" the contest. I do not get first place, I do not receive a prize. I am simply here to increase the numbers of the contest and increase your chance of winning.

Now, how did I double my portfolio? A glitch, and luck. I found a glitch in the system and was playing all of the scenarios with it so I could send it in to our programmers. I bought as many shares as I could of a certain stock, because I know that it trades between a 2 cent range. I bought at the low end of the range and sold at the high end. The glitch, though, was that I was given an extra amount of cash, so I put that into the stock when it was low as well. It acted as a margin account, so when I sold, it took back the amount it gave me and let me keep the profit. It's not supposed to do that.

The other part of how my portfolio doubled was a lucky penny stock. I bought it at $0.0001 and sold at $0.0002, so I was able to double what I put into it. I DO NOT SUGGEST DOING THIS. IT IS SIMPLY A GAMBLE AND NOT A WISE INVESTMENT DECISION. There are many things that can happen to a stock that has that low of a value, including the bankruptcy of the company.

So that's how I duped you all! Sorry for the scare. You all are still competing fairly with everyone else (hopefully nobody is cheating, because WE. WILL. FIND. YOU). Good luck everyone!

-Danny Guttridge

Fair Contest. Opening an account at KAPITALL is absolutely free of charge and the decision to enter the Contest to win real prizes is subject solely to the User's decision. Delayed feeds from U.S. equity markets are available on the KAPITALL platform, provided by fully licensed data providers. The system has been constantly tested to provide our users with a fair, secure and transparent trading environment. Our fair gaming policy is very strict; we make it our business to assure that each member is not being abused or exploited, by any fraudulent activity attempted by other players. In case you have encountered any fraudulent activity attempt or have been a victim to one, please contact KAPITALL immediately. Fraudulent activity affects all contestants. This type of activity will not be tolerated at KAPITALL and be caught engaging in such activity will be banned from using KAPITALL infinitely. Rest assured, KAPITALL reserves the right to eliminate a winning portfolio and not reward the prize in case of any fraudulent measures, including any actions made by the player that are not in accordance with the Contest rules or KAPITALL policies.

Monday, August 9, 2010

How to start on Kapitall in 15 minutes or less

Image from

I know a majority of Kapitall's newest users are pressed for time and maybe you're also newer to investing. Are you having fun yet? Here are three steps that will introduce you to the best Kapitall has to offer, in 15 minutes or less.

1) Sign up on
2) That took 2 minutes. Now take the Investor DNA quiz for insight into your investing preferences, and see who matches your DNA on Kapitall. Clock is at 5 minutes.
3) Join our portfolio contest. This entails opening a virtual portfolio with $10K play money (1 minute). On Wednesday this week, choose a few stocks (5 minutes) and win an iPod Touch 32G if your portfolio performs best among other players over the next 2 weeks. More details here. You have two weeks to make unlimited trades and change your original choices as you wish.

That took 13 minutes! Note that exploring Kapitall is addictive and I'm not responsible for the additional time you spend getting news and following the inevitable emotional rollercoaster. Now you can pat yourself on the back for beating expectations.

Good luck in the contest!

-Jenny Bradbury


Wednesday, August 4, 2010

Why Is Overconfidence Bad?

Well, I'm a loser. I mean this in the sense that I lose things, and I'm talking about Neubert's money right now. Since the portfolio contest for the Summer Investors has started, I've lost David over $100 between two stocks. Now, what am I doing wrong?

Could I be buying at the wrong times? Buying the wrong stocks? One of them, Ariba (ARBA), was partly a timing issue. I trusted that their earnings report would be better than analyst expectations because they haven't miss them for a while (read my explanation here), but I was sadly mistaken. I should've had David sell as soon as I heard about them, but by then it was already too late. This is the first example of why overconfidence can hurt you. I had overconfidence in the company and their ability to beat analyst expectations. Lesson learned: trust no one.

I also had overconfidence in my analysis of the company. I thought they were doing really well financially, but there must have been something I missed in the reports that they filed. I also had too much confidence in my own analysis abilities. I have big dreams of becoming a trader for a firm, but I seem to keep forgetting that I don't really know much and I have a lot to learn. Lesson learned: I know nothing.

Now, my goal is to actually do more thorough analysis, make better investment decisions, and have better risk management/lower loss tolerance. I'll keep you all updated on my progress.

-Danny Guttridge



Want to put your investing skills to the test? Join KAPITALL's Portfolio Challenge and see who can build the most successful virtual portfolio over a two-week period based on total dollar return. The owner of the winning portfolio will get an iPod Touch 32G!
There's no better way to build your investing skills than to test your ideas in the market, especially when it's risk-free.


  • The contest begins at 9:30 a.m. on Wednesday, August 11 and ends at 4 p.m. on Wednesday, August 25.
  • To enter, you must create and submit your KAPITALL Practice Portfolio before the August 11th start time (see How to Enter).

How to Enter:

  • Create a new Practice Portfolio on Kapitall with $10,000 (limit of one per user).

  • Label your portfolio with your own full name for identification purposes.

  • By Wednesday, August 11th, at 9:29 a.m. EDT add Sugarsuren Byambasuren as a KAPITALL contact and share your named Practice Portfolio with him.

  • 9:30 a.m. EDT, Wednesday, August 11: Begin investing! You may continue to trade within your Practice Portfolio through Wednesday August 25th, at 4 p.m.

  • The eligible owner of the Practice Portfolio with the highest total dollar return as of 4 p.m. on August 25th, 2010 will win KAPITALL's Portfolio Challenge and receive their very own iPod Touch 32G!

Terms & Conditions:

Join KAPITALL's Facebook Portfolio Challenge Group Page!

-Sugarsuren Byambasuren


Facebook Connect!

Early this morning, Facebook was launched on KAPITALL!

Now you can:

  • Sign in with your Facebook account
  • Automatically get connected with your Facebook friends that are on KAPITALL
  • Send KAPITALL invitations to your Facebook friends
  • Share your Lists, Company Snapshot or Tools on your Facebook wall

Many of us at Summer Investor, have been waiting for this moment for a long time. This is a great way to compete and share your investing ideas with your Facebook and KAPITALL friends.

-Sugarsuren Byambasuren