Question:
I’ve started watching my stocks on Yahoo Finance. What is the Bid/Ask that they list? Take Microsoft… Bid is 40.30 X 1300… wait it jumped to 40.42 x 3100. I get it’s “real time data” but what is this, and do I care?
Answer:
If you are a day-trader, yes, you care, otherwise probably not. The Bid is the price at which another investor is willing to purchase shares of the company, in this case Microsoft Corp. (NASDAQ: MSFT) and the “X 1300” is the number of shares they are willing to buy at that price. Ask, on the other hand, is the price at which a current holder is willing to sell and the number of shares would be depicted in a similar manner to the “X 1300” you mention.
Question:
Dover Corp recently spun off Knowles Corp. and thus I own Knowles shares. Can you tell me a little bit more about what a spinoff is, why they do it and what it means for the parent company? Also, what do I do with the new shares?
Answer:
After the financial markets closed on February 28, 2014, Dover Corp. (NYSE: DOV) spun off Knowles Corp. (NYSE: KN) shares to its shareholders. Each holder received one share of Knowles for every two shares of Dover held. Investors received cash in lieu of fractional shares. Knowles makes acoustic components used in hearing aids, microphones, cell phones and consumer electronics. Dover Corp spun off Knowles to allow the company to pursue a more aggressive growth strategy. CEOs love growth and if Knowles was driving Dover earnings higher, Knowles would still be a part of Dover.
Dover is expected to grow earnings by almost 13% annually in the next three to five years. The stock price is up 4% since the spin-off. Knowles is up 2.8% since their inception and expected to grow by about 6% annually. We sold the spinoff because the company does not meet our investment criteria. Before we consider a stock for investment it must be ranked “A” or better by Valueline, “A-“ or better for S&P earnings and dividend quality, or “2” for safety. We recommend you sell your shares of Knowles and continue to hold Dover.
Question:
I am a follower of your show and keep hearing about this Bitcoin stuff. I brushed it off until recently when I read up on it a bit more, seems very interesting and big players are getting involved. I think your listeners would benefit greatly from covering this interesting topic.
Answer:
Bitcoin is a peer-to-peer digital currency, also known as a crypto-currency that can be transferred instantly and securely between any two people in the world. Think of it as an electronic form of cash. Bitcoins are essentially just a number that corresponds to a particular Bitcoin address. The crypto-currency really came into focus when Silk Road, an online black market based on Bitcoin, was shut down. Immediately following the shutdown, Bitcoin’s value plummeted, but quickly recovered.
This leads to one of our major concerns, volatility. Trading around $13 in January 2013, $200 in November, and $1,200 by Thanksgiving (+9,000%), the electronic currency now trades around $450, meaning it has fallen more than 60% from its November high. At one point last year, Bitcoin’s value even surpassed that of gold! To further emphasize the volatility of Bitcoin, you should know the value rarely stays the same, even for the duration of a transaction. The “cool” factor and media attention surrounding the Bitcoin has recently added momentum, driving the value higher. As a result, many have attempted to steal Bitcoins. More than 120 new types of malware now exist with the goal of stealing Bitcoins from their owners.
Regulation is another unknown for Bitcoin. Last November, China’s Central Bank warned that Bitcoin carries substantial risks and issues new rules that prohibit financial institutions from dealing in the digital currency. Prices for Bitcoins plummeted on the Chinese exchange on the news before mounting a small comeback. The People’s Bank of China is now considering whether to order the country’s banks to close Bitcoin trading accounts. Doing so would eliminate the last major remaining channel by which people in China can buy the virtual currency. In December, Beijing ruled that individuals were free to buy and sell Bitcoin at their own risk, but after deeming it to be an online product and not a form of currency.
The biggest holder of Bitcoin currently is the U.S. government after the FBI seized some 144,000 coins, about $66 million worth, from Silk Road. The IRS has even made a recent ruling regarding how the “currency” should be treated. The ruling states that the Bitcoin should be considered property, and taxed as such. This means that those living in the U.S. will now have to track their Bitcoin purchases so that they don’t submit fraudulent tax returns.
In February, Mt. Gox, the Bitcoin exchange responsible for 70% of all Bitcoin transactions, reported that around 850,000 Bitcoins were stolen from its accounts. While $450 million in coins were later found, the losses were significant enough to force Mt.Gox into bankruptcy protection, and shut down its site.
We do not recommend investing in the Bitcoin.
Question:
Roughly how do inflation protection mutual funds work? Do you recommend them? What are the alternatives?
Answer:
Inflation-protected mutual funds hold Treasury Inflation-Protected Securities, which are treasury securities indexed to inflation in order to help protect investors from the negative effects of inflation. For example, say you own a bond yielding 3% and inflation is 2%. Your bond is now only yielding 1% on a real basis. TIPS seek to protect you from the negative effects of inflation by adjusting the face value of your bond by an adjustment factor related to the rate of inflation, measured by the consumer price index. As a result of this adjustment, in principal, your coupon payment is also adjusted higher.
TIPS funds took a hit in 2013, posting their worst year on record losing 7.82%. We don’t currently recommend TIPS for our clients, as recent inflationary data still shows inflation is in check at just 1.1%. We believe if you are concerned with inflation, investing in stocks is the way to go, specifically those in the Consumer Staples sector, as these companies are usually able to pass along higher costs to the consumer with ease.
At Henssler Financial we believe you should Live Ready, and that includes understanding how your investments work. If you have questions regarding your investment strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
