Low-graphic news index |
Sunday, August 12, 2012 - Page updated at 08:00 p.m.
The Motley Fool: Every Sunday, useful tips on investing
Ask The Fool
Ups and downs
Q: What makes stock prices go up and down from one day to the next?
A: Over the long run, a stock's changing price should reflect the changing value of the company.
As the company grows and sells more widgets, it's worth more — and vice versa.
But over the short term, lots of serious or silly things can move a stock, such as: strong or weak earnings reports, changes in management, new products or services, big contracts landed or lost and famous investors buying or selling shares.
Also, media coverage, analysts upgrading or downgrading the stock, the overall stock market rising or falling, other stocks in the same industry rising or falling, heightened fear or greed among investors, good or bad news regarding a competitor and lawsuits filed or won or lost.
Also, the prospect of legislation affecting the company's future, changes in supply or demand for the company's offerings, global expansion or retrenchment, people expecting big things because the industry is "hot," or rumors that the company might buy or be bought by another company.
Ignore short-term moves. Focus instead on your company's health and long-term growth prospects.
My Dumbest Investment
Wild yield chase
Dear Fool: In the mid-2000s I chased yields, investing about $17,000 in the Impac Mortgage Holdings real-estate investment trust (REIT).
It was involved in "liar loans" — mortgages requiring no income or asset documentation — among other things.
I compounded my stupidity by making the position a huge percentage of my portfolio. I had my personal financial meltdown in 2007.
The Fool responds: It's too late for you, but Impac recently announced it would no longer offer liar loans.
The stock took shareholders on a wild ride, reaching a split-adjusted level of more than $190 per share back in 2004, and recently trading for close to $2 per share.
Lax lending standards before the mortgage bubble burst caused many investors to lose money — especially those, like you, who had too many eggs in the financial services basket.
The Motley Fool take
Shares of Duke Energy (NYSE: DUK) have been performing well lately, rising more than 20 percent over the past year. It helps that it produces something we use regardless of economic conditions: electricity.
Admittedly, Duke doesn't bring exciting growth to the table, but its portfolio of power generation is basically unsurpassed.
In addition to taking advantage of low-cost natural-gas prices, which are making electricity cheaper and boosting profit margins, Duke has been a leader in moving its production toward renewable energy fuel sources.
Duke recently had 1,630 megawatts' (MW) worth of wind-energy production, 11 solar farms and 3,200 MW of hydroelectric power, making it the second-largest renewables producer in the United States. It's even begun dabbling in biofuel electrical generation.
Duke also enjoys a competitive advantage in the form of a barrier to entry in the utility business that keeps its dominance intact.
With few competitors having the cash to take on Duke, it can instead focus less on marketing its business and more on researching ways to make electrical generation more efficient.
The stock may not be a screaming bargain at recent levels, but it does offer patient shareholders a dividend yield that was recently a hefty 4.6 percent.
Duke has been upping that payout by an annual average of nearly 19 percent over the past five years.
Copyright 2012, The Motley Fool
Low-graphic news index
Graphic-enabled home page