The PE in this case ends up reflecting significant intellectual property more then a revenue stream.

Yeah, when anything's trading at a P/E of 57 that is most of the time the market basically saying "We expect this to earn more in the future"... sometimes last year was really bad and it skewed things or maybe a company is in that stage of growing their business, it can be a lot of things.

According to Yahoo the "Multimedia & Graphics Software" industry has a avg P/E of 23, that's not really the correct sector but whatever.

Yes, rather than the P/E from last year maybe you'd want to look at avg earnings or FCF from each of the last 5 years. There are a lot of things you look at, way too many to summarize here and in an industry like this that's so competitive and that fluctuates from year to year guessing right and beating the crowd is really freaking hard. I'm sure some guys can do that but ya not me at least not yet and most likely not ever on something like ATVI that everyone's paying attention to.

As an aside, I currently own 1 video game/MMORPG company called GRVY, they're Korean, they make Ragnarok Online among other things and they are super super cheap insano cheap IMO. And something like that is the only circumstance I'd ever own something in that industry.

Thats why accounting tricks exist. You don't believe that business people don't find some way to factor this in so there business looks as solid as everyone elses, do you?

Yeah, my dad is a corporate lawyer of 35 years so he's seen start ups, mergers, etc... more or less he's gotten to know lots of successful and unsuccessful people over the years, he said the most successful people all shared the talent/skills to value companies properly which is something I have no idea how to do =\.

Thanks for all the replies

1) I am forming a business that will sell three products on the Internet. I will sell overseas and in the States. Would there really be a benefit (tax savings) to forming the LLC in Nevada? I don't live in Nevada, and I live in a state that has state income tax. It's difficult to predict which states will be buying my product the most.

2) Is it always going to advantageous to form the LLC, and elect corporate tax treatment, and then make an S corp tax election as a way of avoiding self-employment tax? (I will be putting quite a bit of time in the business if it takes off.) I understand it might be more of a hassle setting up and maintaining. But, I don't know yet exactly how much of a hassle it will be. Since I won't know exactly how the business is going to do until I try it, I could maybe file for pass-through tax status initially, and if it looks like it will be successful long-term...I could hopefully switch to LLC/S-corp.

What effect does a dividend have on a stock's price?

I had previously thought that once a company announces something like an annual dividend, this increases the value of the company's shares because now stockholders are getting paid a dividend in the future. So, shares of the stock will increase in price and on the dividend payment date (ex date?) the price of the stock goes down.

I am pretty sure this is incorrect, but why? Where did I go wrong? Is the value of the stock unchanged? Does it go down in price to compensate for the dividend payment in the future? If my previous logic was wrong, why does the stock not go up in price if future dividend payments are declared?

Also, a less theoretical question, why does a company pay dividends? Why would they do such a thing as pay money out of net income money to shareholders?

Can anyone remember the name of that theory about when people use whole numbers that are too random, it usually means fraud etc?

Benford's Law

thanks for that, I kept typing in 'bradford's law' and I knew I was close :P

What I'm going to write down here is assuming that all markets are efficient and that nothing else changes. I'm going to use debt instead of common stock as an example because in case of common stock not only the dividend premium is affecting the stock but also the reduction of cash which might have averse affects on operating operations.

Say you loan your friend $100 on January first and he promises to pay you $110 January first the next year. Now assume that he is 100% of the times going to pay you and that there is an efficient market for this kind of debt. Now you check the price of this debt of on June first on the open market. You should note that the price on the loan has gone up to $105-risk free rate. Why is this? Because if you would sell the loan now you'd want more than $100 because you already held it for 6 months but haven't received any interest. The buyer should also be ready to pay more than $100 because he only has to wait 6 months for $110. So yes, the knowledge that there is a payment coming should increase the price over time and the payment itself should decrease the price.

Now in the real world this doesn't work like this because there is more going on than the dividend itself and markets aren't completely efficient.
Because the owners want to get a piece of the earnings. It might also be the case that the company has a large chunk of cash (or an unused line of credit) and they don't know what to do with it so they rather return it to the owners than having it sit on the balance sheet doing nothing.

I was just curious because the other day, I saw a stock announce a new annual dividend and the price spiked down. I was confused. If anything, I thought that the stock price would go up. It is possible that the price spike down was order flow from somebody selling off and unrelated to the dividend news, but it's unlikely. Any explanation for this? Theoretically, when a company announces a dividend and the stock is at price X, that should cause the price of the stock to increase to X + dividend right? (assuming efficient markets)

On Wikipedia, it says: "It is relatively common for a stock's price to decrease on the ex-dividend date by an amount roughly equal to the dividend paid. This reflects the decrease in the company's assets resulting from the declaration of the dividend. The company does not take any explicit action to adjust its stock price; in an efficient market, buyers and sellers will automatically price this in."

Does it decrease back to the price the stock was trading at before the dividend announcement? Or, if the stock does not go up as a result of the dividend announcement, does the stock decrease to a price lower than before? Probably lower right? It is probably lower because the company pays the dividend out of its net earnings right?

If it does decrease the share price to a lower price than before the dividend announcement, then it doesn't go up by the same amount at the time of the dividend announcement right?


share price pre dividend announcement ($60)---> share price after $3 dividend announcement ($63)---> share price after dividend announcement ($58???)

Where am I going wrong?

Thank you by the way for your very clear answer. You have been very helpful.

Maybe I understand now. Stock X declared an annual dividend. The stock price should be unchanged because yes the company is paying you a dividend in the future but that dividend is also being paid out of company earnings. So, the price of the stock should remain flat. However, all things considered, the stock should move up or down. Why up? Because investors feel that it is an efficient (non-economic sense) use of the money. Why? A. Dividends have tax breaks and so the company may benefit financially and B. some funds only invest in dividend stocks and so the company has new buyers of the stock. Sometimes it goes down. Why? If the company is a growth stock like RIMM, a dividend payout means that the company is not investing in R&D and so is no longer a growth stock. This may lead to investors selling off and so therefore the stock goes down. However, just considering the dividend, the stock should remain flat because the dividend payout is offset by the loss of income through the dividend payout and so at the time of the announcement, the stock price should just remain flat.

Expectations. The fact that a company is paying $X in dividends does not mean the stock is more valuable. Plenty of analysts were already predicting/forecasting the amount of dividends that would be paid. Even non-analysts probably have an intuitive sense of the price of the stock based off the dividends that will be paid.

If the dividend is different from the aggregate expectations, you might see a change in stock price based off this information. News in and of itself does not necessarily effect the price of a stock. It's how the news compares to expectations that will influence the price of the stock.

anyone have recommendation for personal money management software? would you recommend mint.com?

Hi guys,

Quick question: Does anybody know of any sort of Stem Cell ETF? I would like to invest in companies like GERN, STEM, etc, but I have no idea which companies are going to be winners and which ones aren't, so I would like to index if possible. Thanks.

I've used Yodlee and Mint and I much prefer Mint. Everyone I know who uses Mint absolutely loves it.

How can I get started with Index funds? is it a good time to invest? If I had 5000 to invest for a long term, where should i put it?

read the stickies

Quick question here:

Im thinking about buying an investment property for $55,000 which rents for $750/month and pay all cash. It is a single family attached home inland California in a 55 and older retirement community. It does not need any remodeling and is currently vacant.

Assuming 1month/year vacancy the ROI on the rent alone would be 15%.

To me it seems like a great investment, am I correct or am I missing something?

Probably should ask in http://forumserver.twoplustwo.com/30...vesting-99351/

Are you figuring all taxes and general maintenance in that 15% ROI?

if you were going to hold onto a bond fund for 35years in a SEP, would it be the Vangaurd Total US Bond Fund or the Vanguard High Yield Corporate?

I was also wondering this. Maybe also long term bond (investor grade)?

So I recently started learning about some various ETF's. Naturally, I had some questions:

1. When you redeem your shares, how much are they worth? I don't understand how SPY, PBJ, QQQQ etc. are priced. Are they priced by total value of the stocks/no. of shares issued? Is there any weighting system going on?
2. I understand, generally, why an ETF would lag moves in the underlying stock. If say AAPL crashes due to bad news, the ETF would follow it because the ETF's NAV has now changed and so its shares will be affected as well (as NAV goes down, demand for those shares will go down as well). But why does the reverse happen? Does it ever happen that the ETF will go down causing it's underlying stocks to go down with it? I think I've seen GDX sell off only to have ABX and NEM follow. Why does that happen?
3. If an ETF is trading at a premium to its NAV, what is the arbitrage that brings it back to its NAV? Can you redeem shares of stock for new shares of an ETF? What if the ETF stops issuing new shares?


I'm trying to understand how ETF's trade and eventually figure out what kind of arbitrage opportunities arise when trading ETFs.

Check the prospectus of these things. Almost all indices, and their trackers, work different Haven't you asked this question before? Check that thread Institutional investors can exchange their individual shares for ETF shares and ETF shares for individual shares. This does create arbitrage and might work differently for every ETF. You could also short the ETF and go long the underlying stock or vica versa. This might be expensive and hard to do.