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What Is A Hedge Fund? A hedge fund is a private pool of money managed by professional managers whose main goal is to maximize returns for investors as quickly as possible in both up and down markets. Hedge funds are similar to mutual funds but have some very different characteristics. For example, hedge funds are generally open only to large institutions or to "accredited" investors who must meet certain high…
What Are Small-Cap Stocks? Small-capitalisation, or small-cap, stocks are generally considered to be those with a market value of between US$300 million and US$2 billion. Market capitalisation is the price of the company's stock multiplied by the number of shares outstanding. Small-caps should not be confused with start-ups. Small-caps have generally "graduated" from the start-up phase and have established themselves enough to sell their shares to the public. Many are…
What Are Private Equity Funds? Private equity (PE) funds are alternative investment vehicles that use a pool of money from investors to make direct investments in companies, usually with the goal of making improvements to sell them later at a much higher price. Although PE funds have some similarities with hedge funds, they are quite different in the way they use their money, their risk levels, and their investment time…
What Are Capital Expenditures? Capital expenditures (CapEx) are long-term investments that a company makes to expand or improve its business. Investors and analysts generally view an increase in CapEx as a positive sign because it indicates that a company's business is growing. Similarly, rising CapEx for the entire economy is a positive macroeconomic indicator and generally a bullish signal for stocks. Capital expenditures include such things as the addition or…
What Is Return On Equity? The return on equity (ROE) is a measure of corporate profitability. It measures how much profit a company generates from shareholders equity, which is the company's total assets minus its total liabilities. ROE is expressed as a percentage, and it can be measured by a fairly simple equation: ROE = net income divided by shareholders equity. For example, if a company had US$1 million of…
What Is Passive Investing? Passive investing is an investment strategy that seeks to track the performance of a market index, such as the stock market indices S&P 500 or the Dow Jones Industrial Average. Passive investing differs from active management, in which professional portfolio managers seek to outperform a specific benchmark by buying and selling specific securities and other strategies. Two of the more popular avenues of this style of…
What Are Blue Chip Stocks? In the stock market, blue chip stocks are shares in large multinational companies with well-known names and long track records of growth and dividend payments. They got their name from poker, where blue chips are often the most valuable chips on the table. Oliver Gingold, an employee of Dow Jones—the publisher of the Wall Street Journal and the creator of the Dow Jones Industrial Average…
What Is Return On Assets (ROA)? Return on assets (ROA) is an important measurement of a company's profitability. Usually stated as a percentage, ROA measures net income divided by the company's total assets. Derived from the company's balance sheet, assets include cash and cash-equivalent items, receivables, inventories, land, and buildings and equipment. They also include intangible assets such as intellectual property, copyrights and patents, the estimated value of brand and…
What Are Real Estate Investment Trusts (REITs)? Real estate investment trusts, or REITs (pronounced "reetz"), are funds that own, develop and manage income-producing properties in a range of real estate sectors, including shopping malls, offices and commercial buildings, residential apartments and health care facilities. Some of these trusts also invest in mortgages and other property loans. Basically, REITs collect rent from the tenants of these properties and distribute the income…
What Is A Cash Flow Statement? A cash flow statement, also known as a statement of cash flow, is one of the main financial statements, along with the income statement and the balance sheet, that companies are required by securities regulators to prepare to demonstrate their financial condition. The cash flow statement is important because it shows investors and creditors how well a company manages its cash and that it…
What Is Value Investing? Value investing is an investment strategy in which the investor seeks to profit by buying stocks they believe are underpriced or undervalued by the market at large. The investor looks to buy stocks when they believe they are "on sale," just as they would buy a box of cereal at the supermarket when it's on sale rather than paying full price. The idea of value investing…
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