Stock quotes, demystified

Math is hard. Poverty is harder.

Q: Dear Control Your Cash, how do I read a stock quote?

A: Considering that you’re just a literary construct and not an actual person, it doesn’t really matter.

Q: Thanks. You know how to make a girl feel special.

Tickers and charts are easy to understand if you know what you’re doing. Take stock ABC, for instance.

That’s not an idiom. Take stock ABC. That’s the ticker symbol for AmerisourceBergen, a drug wholesaler based out of suburban Philadelphia. ABC trades on the New York Stock Exchange, which is what the “NYSE” represents on this page.

The first line tells you what price a share of ABC last traded at (as of 1:49 p.m. ET today), and how much ABC gained or lost from the previous trading day (last Friday).

That covers everything down to the Previous Close line in the first column. Open means what price ABC first traded at today. That gives you an idea of what direction ABC’s price was heading in earlier, but it’s not as important at what ABC closed at.

Bid and Ask are a little more complicated. For large, heavily traded companies, Bid and Ask usually don’t apply. But for companies whose stock trades sporadically, they’re important. That’ll require us to look at a different company for a while; DEF.

DEF is Claymore/Sabrient Defensive Equity exchange-traded fund (more on these later), which is operated by Claymore, a Chicago financial firm. DEF trades on NYSEArca, a smaller, online-only exchange that features the stocks of small companies.

You’ll notice it’s been a few hours since someone bought DEF. For a decently sized company, that’d be all but impossible. Shares of DEF last traded at 20.77 (these numbers will obviously have changed by the time you read this.) But since then, no one’s been willing to buy it for that much, nor has anyone who owns it been willing to sell it for that little. Buyers are offering 20.77 for more shares, but there are none left at that price. Because no one’s willing to sell it for less than 20.79. The broker who bid 20.77 a share for DEF was willing to buy a lot consisting of 3500 shares at that price. The broker who was asking 20.79 a share for DEF was offering a lot of 2500 shares.

Alright, back to ABC. The 1-year target estimate is what some analyst thinks the price will be a year from now. Treat this with the skepticism it deserves.

Day’s range and 52-week range are self-explanatory. Volume is the number of shares that were traded today. But you can’t multiply Volume by Last Trade to get the dollar value of the number of shares traded today, because not all the shares traded at 24.60. (Of course not, they fluctuated between the numbers listed in Day’s Range.)

The (3m) after Average Volume means 3 months.

Market Capitalization is essentially what the company is worth. There are several ways to value a company, the most obvious one being what someone would be willing to pay for it. But since there’s probably no one who wants to buy every last share of ABC, the best we can do is multiply the price of a share by the number of outstanding shares. Makes sense, right? The chart tells us that ABC is thus worth $7.2 billion.

Which means we now have an idea of how many outstanding shares of ABC there are, which would be 293 million (give or take a tenth of a percent or so, thanks to rounding.) Not that that’s important in and of itself, but it does tell us that about .42% of ABC’s outstanding shares have changed hands today. Which means that 99.58% of ABC’s outstanding shares stayed right where they were. (When the hotties on Fox Business say that “trading was heavy today”, it’s relative. Trading is always pretty light.)

The next two items should be reversed. Let’s start with EPS, which is earnings per share. It’s how much money the company made (according to its annual income statement), divided by the number of outstanding shares. A little multiplication shows that ABC made about $486 million last year, which is excellent, especially considering ABC’s market capitalization. (ttm) means trailing 12 months; in other words, looking at the company’s earnings over the past year.

P/E is price/earnings ratio, which is a indirect measure of what investors think a company’s stock will be worth. It’s the stock price divided by EPS.

ABC investors are willing to pay $14.79 for every dollar of income the company generates annually. In other words, it would take about 14.79 years for the stock to earn enough to pay for itself.

Which isn’t bad. Say you have another investment, like a $100,000 house that you rent out. If it took you 14.79 years to collect enough rent to pay for the house, that’d be an annual rate of return of 6.76%.

P/E ratio is important enough that it warrants its own post, but for now just know that a high number (usually >17 or so) means that the stock is either overvalued, or investors think it’s going to earn a lot more in the future. A number from 0-10 means that the company stock is a bargain, or the company’s going to start earning less. (A negative number means the company’s losing money.) ABC’s P/E ratio just happens to be right around what’s normally considered fair value. P/E ratios depend hugely on what industry a company is in. For instance, a healthy electric utility will usually have a lower P/E than will a barely profitable tech company. Governments regulate utilities heavily, and while they’re profitable, they cost a ton to start up and their profits are usually limited if steady.

That leaves Dividend and Yield. Successful, consistently profitable companies pay shareholders a dividend – sometimes annually, sometimes quarterly, sometimes even monthly. It’s a piece of the profits earmarked just for this purpose. If that sounds unduly generous, keep in mind that the shareholders own the company: it’s their money. They authorize the board of directors to hire executives who’ll authorize dividends, and those directors and executives hold shares themselves.

To keep things uniform, dividends are expressed annually. So if a company happens to pay a quarterly dividend, the number listed here is 4 times that. Yield is the dividend divided by the share price.

Q: Wow, Control Your Cash. You’re really smart. Did I mention that I’m tall, blonde, statuesque and lonely?

A: Very funny.

Someone should do something about how much money I spend

 

A vehicle to encourage responsible spending.

This is the fusion of two of our bugbears, each indirectly related to personal finance: media idiocy and public panic. The photo is of an application for a credit card issued by First Premier Bank of South Dakota. The interest rate on purchases and cash advances is:

79.9%

A reporter from San Diego’s NBC affiliate* with some air minutes to kill manufactured a story out of the application. Here’s his impassioned defense of an innocent viewer who was just blindly applying for credit cards one day when he ended up getting impoverished. Actually he didn’t, all he did was open an envelope, but news wouldn’t be news without a little embellishment:

Hageman acknowleged that his credit isn’t perfect, but he said it’s about average. He said the pre-approved offer didn’t mention the actual interest rate on the card — for that, he had to read the enclosed fine-print disclosure. (Editor’s note: the disclosure is the pre-approved offer. The offer is the disclosure. This is a distinction without a difference. “Your honor, I didn’t hit her, my fist did.”)

“I think you’re beginning to border on deception there,” San Diego State marketing professor Michael Belch said.

No, Professor Belch. Deception would be charging 109.9% or 139.9% while listing a rate of 79.9%. What you’re commenting on is candor, the opposite of deception. Which is apparently beyond the grasp of the overeducated.

So, serious question: is a credit card with a 79.9% interest rate an atrocious deal? There are two possible answers:

  1. Not really.
  2. No.

Let’s examine them in numerical order. [For you people who would pay interest on a 79.9% credit card, that means we’ll do 1) (ONE), and then we’ll do 2) (TWO).]

1) NOT REALLY

The next credit card issuer to force someone to use its cards will be the first. Card issuers don’t tell you to buy things you can’t afford, live beyond your means, and then owe them money for the privilege of letting you buy what you couldn’t afford in the first place.

If anything, card users should be happy that banks like First Premier provide a means by which such people can spend recklessly in the first place. If credit cards didn’t exist, or if this were the 1960s and cards were only available to rich people, then anyone who would today use a 79.9% card would have to save money before spending that money. The horror.

Hageman claims his credit is “about average”, but doesn’t quantify it with, say, a credit score.** Hageman’s (and the journalist’s) complaint is essentially the following:
“You can’t trust me not to spend what I haven’t yet earned. First Premier is offering nickel beers, and here’s me, fresh out of my AA meeting.”

You don’t have to apply for the card. If you do, you don’t have to accept it. Nothing is usurious, deceitful or dishonest about First Premier’s offer. In fact, they’re being pretty clear: if you use their card, you have a month to pay off your purchase. That they give you 30 days makes First Premier far more accommodating than merchants you pay with cash, who often expect their money within 30 seconds. First Premier will cover you for the first month.

If you don’t pay off your purchase within a month – which is an eminently reasonable task you ought to be able to complete, assuming you know how to read price tags – then in exchange for their generosity, First Premier will charge you 79.9% interest.

That is perfectly fair. You signed an agreement, with mutual rights and responsibilities. First Premier honored the responsibility part of its side of the agreement, and now they’re entitled to their right: 79.9% interest on your money.

This story came to the attention of Control Your Cash after appearing on Consumerist. That site’s commenters show what happens when personal responsibility goes from being a fundamental precept of life to a vestige from our grandparents’ era. Here’s an example:

The guy who owns First Premier has donated billions to one of the local hospitals for a children’s hospitals (sic) and a research facility. It is going to take much more than that to undo the bad karma he has going on.

Engaging people in bilateral, voluntary commerce now fosters “bad karma”, as defined by the kind of person who a) believes in karma, b) thinks it has a place in an economic discussion, and c) thinks spending “billions” of dollars on “a children’s hospitals” is barely a step in the right direction.

Not that people who comment on web stories are necessarily examples of intellectual titanhood (think about that before you comment on the post you’re reading right now), but here’s another:

Which is why we need a NATIONAL usury law. Problem is these crooks have great lobbies in state governments.

Words mean what they mean, and “crook” has a fairly unambiguous definition. Crooks steal. They take what isn’t theirs. What they don’t do is enter into a voluntary contract, then honor it. Calling an honest business entity a “crook” is like saying “literally” when you mean “figuratively”. Or “black” in lieu of “white”.

Here’s one last commenter, blessed with a gift for both pithiness and renewing our faith in humanity:

Don’t like the terms? DON’T USE THE CARD!!! It’s pretty damn simple people. Where did this entitlement mentality for cheap credit card interest rates with free stuff back come from?

2) NO.

Let’s answer a question (if you forgot, it’s “Is a credit card with a 79.9% interest rate an atrocious deal?”) with a question. What’s the difference between a card with a 7.99% interest rate and a card with a 79.9% interest rate?

If you Control Your Cash, nothing. If you ring up $500 worth of charges, then transfer $500 from your bank account to First Premier within 30 days, it doesn’t matter what they charge. There is no difference between a card that charges 1% interest and one that charges 500,000% interest.

 

So should you accept First Premier’s offer, and happily charge purchases to your 79.9% card? After all that, no. But for completely different reasons.

The least important criterion for what credit card you should get is the interest rate. The most important is the benefits it’ll provide, for the price.

More than most cards, an American Express card can make it easy for you to reverse purchases that go awry (e.g. a brake relining that doesn’t work.) But depending on which particular American Express card you get, you might have to pay an annual fee. The standard Discover card doesn’t have an annual fee, and gives you 1% cash back on everything you buy. But it’s also useless outside the United States.

Most credit cards are free to use. If you can’t find a free one, you probably shouldn’t be using credit. And that’s what makes the First Premier card a bad deal:

The $75 annual fee.

You saw that, right? Of course you did. You read the agreement.

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*Our primary passion at Control Your Cash is the responsible use of money. A close second is our hatred of journalists. In particular, television journalists. In particular, local television journalists who have neither the chops nor the ambition to progress beyond their home market(s). That’s why we don’t mention journalists by name. You can still verify the story by clicking the link, but we won’t do the journalist the courtesy of a mention.

**Why should he? Math is hard! Numbers are intimidating! Words are better than numbers, especially because you can’t prove something with the former as convincingly as you can with the latter.

**This post is featured at the 28th Carnival of Money Stories.**