Lauren Hua

How do you know a stock is expensive? Part 2

Last week we wrote an article about how to determine whether a stock is expensive or not and used the price to earnings (P/E) ratio to explain this. There are, however, issues with this simplistic ratio. This is because it does not take into account the earnings growth as it only looks at historical earnings which may change.  The price earnings ratio also does not take into account the debt the company has. The next step above the P/E ratio …

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How do you know a stock is expensive? Part 1

Often in the financial media, a talking head or analyst will dismiss a stock as being “too expensive”. Yet often these expensive stocks are the ones that produce the best returns over time. So what does it actually mean when someone states that a stock is too expensive? The P/E ratio One of the methods investors use to evaluate a stock price is to calculate its price to earnings (P/E) ratio. This ratio compares the stock price against its per-share …

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Why is the stock market rallying when the economy is heading into recession?

To the average person on the street, it seems illogical when we hear about economic recession and high unemployment levels but the share market is going up. At Fairmont Equities, we have been bullish on the share market since the end of March, buying up stocks that will benefit from an economic rebound. With the Australian market sailing past our short-term target of 6000, it has left many people scratching their heads and wondering why shares have rallied so strongly. …

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Why has the Australian dollar been heading higher?

The Australian dollar has recently been rallying strongly against the US dollar. After plunging to a 17 year low of 57.18 US cents on 19 March, it has since recovered dramatically. At time of writing, one Australian dollar will now buy 70 US cents.  With the Australian dollar generally viewed as a “risk” asset, why has it been strengthening amidst the COVID-19 pandemic? Iron Ore Prices The Australian currency is heavily correlated to the commodity prices.  When commodities do well …

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What is quantitative easing?

When conventional methods of increasing economic growth has not worked, then central banks may resort to quantitative easing. It is a method of encouraging economic growth by increasing the money supply. Definition Central banks increase the supply of money by buying bonds from banks. To raise money to purchase these bonds they print money. When banks sell bonds to the central bank, they increase cash reserves and this should encourage them to lend out money to businesses and individuals. The …

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