Compounding Snowballs

In the Christmas spirit, let's talk about giving. There are not many gifts that keep on giving for years on end. Kids outgrow new bikes, dolls get dusty in the corner, but stocks will keep giving. In this post we are going to talk about good stocks for a New Year's present, (considering I’m a little late for Christmas, or most other holidays). Here are my top 15 picks for a stock gifts for a child. Disclaimer, not all kids will know or love these companies so please choose the one that jumps your hurdles, not mine. Also, I will link all my previous articles about each metric on the bottom of this article. Just to give you a taste of each company I will share a little bit about them and then you may look at the table I composed at the bottom. I chose each company because they are commonly known by most kids and for the most part not super risky. The table will show the metrics I value and the hurdles they have to jump to be considered. Not all hurdles have to be jumped, but ...

I know the image doesn’t say the words Earnings anywhere. As an investor, you look at the value of the company. The company’s value is based on their Earnings. And that is why it says value and is still related to P/E Ratios. The first thing you need to know about P/E Ratios is what P and E stand for. P stands for Price and E for Earnings. Therefore, P/E is a Price to Earnings Ratio or to put it in another way, Price divided Earnings. A P/E Ratio calculates how much you will have to pay to get a dollar of the company’s earnings. If Mattel’s(MAT) P/E Ratio is 31.3 that would mean when you pay $31.30 you would get a dollar of Mattel’s earnings. Here’s how to calculate it. As the metric clearly states in the name you divide the company’s Price share by their Earnings per share. I use Morningstar for my stock research. First, you need to find the Earnings per Share, that is located on the Key Ratios page. Mattel’s Earnings per share is $1.02 and their Price per share is $31.97, ...

My third post is going to be about Dividends. As we talked about in my first post, Compounding Snowballs , Dividends are very important to compounding. When I first learned about Dividends I only cared about two things, when I would get paid and how much. I can give you answer to both. You usually get paid four times a year, every quarter or once every three months. To figure out how much let’s use another Lemonade Story. Farhang and his wife Kristin are both interested in becoming shareholders of the lemonade stand. Lily and Sara created four shares. Each member of the family gets a quarter of the lemonade stand. Kristin wants to know after investing, how much will she get as a dividend? Lily and Sara tell their mother that they will pay 40% of their earnings as a dividend. Meaning each shareholder will get 10% of their profits. Farhang was confused by this metric so he asked his daughters to explain their reasoning. “There are four shares sold. To become a sharehol...

This next post is about Debt. I think this is one of the most important parts of investing. People can get hung up on how much or little Debt the company has, but it’s always important to dig deeper. The company could be opening new stores or launching a new website, sometimes there is an important reason that they have that Debt. For the people who like rules I want to stress that you, as an investor, needs to set your own comfortable boundaries. Some people are comfortable with more Debt. It depends if you don’t mind taking a risk or if you are a stay in the boat type of person. When you hear the horror stories about companies closing down or when you walk by your favorite local restaurant and has spontaneously shut down, most of the time it’s because of Debt. Yes, sometimes if it’s a restaurant it might not be up to code, that could be because they couldn’t afford it. Why couldn’t they afford it? Because of Debt. Forbes says 8 out of 10 businesses fail because of lack of cash,...