Investors Flee to Cash

Image by Getty Images via @daylifeAnd there off, no not the thoroughbreds, but the investors running down the track looking for financial security in cash and away from stocks. North American stock markets had one of their worst days in recent history. Even gold was not immune from this stampede away from equities and into cash.  

Volumes were high, for example the NYSE hit 7.5 billion shares, not quite double this year’s average volume of 4.12 billion, so this sell off could not be attributed to low volume. Rather the very real fear of a global financial crisis sparked this panic sell by investors.

It almost seemed as if worried investors were sitting on the back of a bucking bronco and the only way they could see of staying on the horse was to liquidate as quickly as possible. Some banks are actually considering charging customers for holding their cash.


The next few days will be very interesting in deed. Will buyers step in to pick up undervalued stocks? Will Friday’s job numbers spark a buying spree or will they create further turmoil?

Stay tuned and lets see where the finish line is and which investors steer the right course.

Stay on Track,Money Magazine Hoss

Next Hoss Cents Free Financial Money Magazine Post:ul August 2011

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Calculating Return On Equity (ROE)

From The Hoss's Mouth

Financial analysts differ in their opinions of the value of using Return On Equity calculations to evaluate whether or not to buy shares in a company. Before Money Magazine Hoss gives you the pros on cons of this argument, lets examine the equation for calculating Return On Equity (ROE).

ROE= Net Income/Shareholder Equity

Financial analysts in favour of using ROE as an indication of when to buy stock suggest that you track ROE, and when you see a company with a double digit ROE and which is continually increasing it might be wise to consider buying the stock. You can use one of the many free or pay for service financial web sites available on the Internet for tracking ROE. Note: Not all continue to list ROE, but many do.

Other financial analysts consider ROE to be of little or no value to the potential investor. They point out that Net Income is not always a reliable corporate performance measurement. Why? Because companies use varying accounting procedures when calculating items such as capitalization, depreciation and growth rate, to name a few. Therefore, they conclude the formula for calculating ROE is not always reliable to determine a company’s success or corporate value.

The differing opinions are not unlike those of handicappers selecting a horse to bet on. Some use a horse’s total earnings divided by total races to determine the horse’s potential class. Many handicappers frown on this practice, as it does not take into account other factors such as but not limited to age, sex, distance, and surface.

In summary, the use of ROE by investors as a tool for investment purposes is a matter of personal choice.

Stay on Track,

Money Magazine Hoss

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