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Understanding the P/E Ratio: A Key to Stock Valuation

The P/E Ratio Explained and Why it matters

Written by R. A. Stewart

The P/E Ratio is a useful tool for calculating a particular share’s performance. P/E stands for Price to Earnings Performance. This tool is a useful guide because it tells us whether a particular share is overvalued or undervalued.

The P/E Ratio is found by dividing the current share price of the company by the dividend per share.

If the company’s share price was $5 and the dividend per share was $1 then the P/E ratio would be 20. 

A company might base its P/E ratio on what it has earned in the past (trailing P/E) or what they expect its earnings to be in the future (forward P/E Ratio).

A higher PE ratio indicates that investors are willing to pay a higher share price today compared to its current earnings.

A lower P/E ratio might be a sign that investors are less willing to pay a higher price for the share compared to its current earnings.

It is important not to get sucked in by a value trap-some companies offer what appear bargains but it is really a sign of financial instability.

A negative P/E ratio means that the company has made a loss. This could be due to expansion-that is when the company sacrifices profits to invest in the company.

However, when a company consistently has a negative P/E ratio it runs the risk of bankruptcy.

Making your investment choices

Which is better, Higher or lower?

Some investors prefer investing in a company with a higher P/E ratio due to its potential for growth while others go for companies with a lower P/E ratio on the grounds that the market has undervalued these companies. A combination of both is often used by investors.

Financial experts say, “You should only compare apples with apples when comparing different companies, P/E ratio.” In other words, only compare it with stocks in similar industries. That being said, if a stock has a higher P/E ratio than its competitors it could indicate that the market believes that it has higher growth prospects than its competitors.

A factor which needs to be considered by investors is that past performance is no guarantee of future performance. There are other factors to consider. A company may have a good year but that may be due to a one off event such as a selling off of assets. The same applies in reverse, a company may have shown a one off loss due to investment into the business.

To Summarise

The P/E ratio is the proportion of a company’s share price in relation to its earnings per share. To work out the earnings per share, divide the stock price by the earnings per share.

About this article

The views expressed in this article are of the writer’s own experience and knowledge and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook.

Check out my other articles on www.robertastewart.com

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Personal Finance: Looking at the Big Picture

Personal Finance: Looking at the Big Picture

Written by R. A. Stewart

Financial planning requires vision. It is looking beyond your current needs and circumstances and making provisions for your future. A person who sets up his finances in a way that he or she knows where there is money is going and what it is being saved for is a mature and responsible person. Someone who spends all of their discretionary savings without any thought to the future is a selfish and immature individual. I say that because if they have not left anything in their estate and expect their family to pick up the tab when they have passed on, then that is selfish of them.

Joining a superannuation scheme in order to make provision for when you stop working is the sensible thing to do. It is also the responsible and mature thing to do. New Zealand, as do other countries have incentives for contributing to a retirement scheme. New Zealand’s scheme is called “Kiwisaver.” Unfortunately, the National government (in New Zealand) has watered down the incentives in order to balance the books, but it does not affect the make provision for your future principle. 

In New Zealand, withdrawals can be made from Kiwisaver for house deposit. There are restrictions on this such as one needs to have been contributing to Kiwisaver for at least three years. 

The benefits of saving money cannot be understated. If you want to purchase a car and you have no money saved whatsoever, you have two options: start saving or borrow. If you choose the second option then you are financially dumb because you are paying more for the car than the sensible saver who pays cash for it.

There are the costs of keeping the car on the road on top of what you have already borrowed for the car so if you were not able to save money before you had a car you will struggle to keep your head above water afterwards.

You may have your retirement scheme all sorted and have no intention of buying a car, but you will need a lot of money at some point, whether that be for getting married, having kids, a medical expense, or other emergency. The sensible thing to do is to be prepared for all of these.

If you enter a relationship with someone and they do not even have a penny to their name then that should serve as a massive red flag. Be aware that if as a couple you apply for a home loan then you will be turned down if one of you has a bad credit rating.

Whether you have any material goals or not, there will always come a time when you need money for something, whether that be for a bond for a flat, house repairs, medical bills, new car, and so on. The willingness to save your discretionary money for unforeseen expenses requires vision. It is the responsible thing to do. A person with no vision will spend everything they have without any thought for the future. 

Having an emergency fund is a good idea. One which is separate from your personal bank account. This will provide some kind of cushion from financial shocks which will occur from time to time.

It is all about looking at the big picture and how being a good manager of your money will make life a little less stressful later on.

About this article

The contents of this article are of the opinion and experience of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook.

Read my other articles on www.robertastewart.com

 

Explore Freely, Spend Wisely: The Ultimate Travel Companion

 

For the ultimate freedom to explore these incredible routes, get a Wise Travel Card. One card holds multiple currencies, letting you pay effortlessly in NZD for fuel, snacks, and accommodation. It automatically converts your money at the mid-market rate, saving you from costly bank fees. Top up and manage your funds instantly via the app, making it the smart, secure, and simple way to travel. Spend like a local and focus on the scenery, not the small print. Get yours and travel with ease.

https://wise.com/invite/dic/roberts10486

 

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Going for Growth Funds

Going for Growth

Written by R., A. Stewart

Are growth funds appropriate for you?

The only person who can answer that question is you and only you because it is your personal circumstances and your goals which are the factors which determine where to invest your money. Your age, health, and commitments are factors which need to be considered.

Time is the one factor which covers all of the others. How long are you going to be investing this money for? 

There are three categories:

Short-term money. (1 year or less)

Medium-term money. (1-5 years)

Long-term money. 5+ years

If you are saving for something and will not need the money for more than 5 years, this is considered long-term and suitable for investing in growth funds. Just understand that the volatility of the markets will mean that your savings, whether it be for a house deposit or retirement will go up and down. That is the nature of the markets.

Saving for a car, an overseas holiday, or house improvements are goals which are normally achieved within five years. These savings are suitable for balanced funds which are a mixture of growth and conservative funds. Your savings will still bounce up and down but not as much as growth funds. 

These days it is easy to save by drip-feeding money into the markets with online platforms such as sharesies in New Zealand and Australia, Angelone in India,  and Robinhood in the US. If you are not from these countries then it is a good idea to do a google search for one which you can find in your country.

It is important to diversify your portfolio and have a goal for your savings even if it is just to build a portfolio on a shoe-string. Don’t just leave your nephew’s inheritance in a bank account that is easily accessible. Invest it in a fixed term account which cannot be easily accessed. 

Don’t invest all of your life savings in an online investing platform, even if you spread your money around several companies. You do not know what misfortune will hit that particular platform.

If you are saving for a house deposit then it is a good idea to invest the money in a fixed term account until you need the money. It helps develop a good reputation as being responsible with your money.

There are added risks with online banking and investing. The main one being scammers. If your email account was hacked then how safe would your money be? Having your money spread around in different places is better. Many sites ask you to sign up using a google account. You should never use the same google account you use for your banking when doing this. Always set rules which you never break and when you read of someone who has been the victim of a banking/email scam then learn the lesson which you can apply to your own life.

In this day and age of tapping as your payment goes there are dangers involved in this with the main one being that you will lose your card. If that happens then someone may pick it up and use it. Having too much money in the account which you use for this purpose is just asking for trouble. It is better to keep larger sums of money on another card which you do not carry around everywhere. Imagine if you had over a grand on the debit card which you lost. 

If you have no plans for your money then put it to work, don’t just leave it in an account paying little or no interest. Learn to be an investor and learn to handle the volatility of the markets. There are three sure ways to lose on the share market during the lows.

  1. Change from growth funds to conservative funds
  2. Sell your shares.
  3. Stop contributing to your retirement fund.

The number 1 person will find that the share prices have risen and they have missed out on the rises which would have recouped their losses.

The number 2 person will have sold their shares at a lower price than they would have received if they had waited until the markets recovered.

The number 3 person would have missed out on purchasing shares at a lower price and when the markets recovered they would have seen the value of their shares increase by a fair bit.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook. Read my other articles on www.robertastewart.com

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Over caution can be costly when investin

Written by R. A. Stewart

“Never invest in the share market which you cannot afford to lose” is a saying that you may have heard a few times but is it good advice?

It all depends on what you are going to use the money for and how soon you need the money.

If the money is in your retirement fund and you are in your twenties or thirties then you will not need the money for another thirty or forty years and even then you may live another thirty or so years so the money won’t be needed for decades. A share market tumble will not make any difference to your current lifestyle. 

You have time on your side to recover from the lows of the markets.

If however, you are saving for a house deposit and require the money in less than five years then being a little more conservative with your money may be the way to go.

The worst thing which can happen is for you to withdraw your money for a house deposit just when  the markets are down and then a month or two later the share markets have rebounded.

It is all about taking a balanced approach.

There is no doubt that many investors are afraid to lose their money so they invest their retirement funds conservatively. The end result will be that they are left short-changed when they reach 65. 

Worst still, they react emotionally when the markets take a dive and shift their funds from balanced to conservative, then when the markets rebound they miss out on the rises which would have seen their retirement fund recover.

It is time not timing which is the key to creating wealth in the share market. Young people have an abundance of time on their side and the young astute investor can use this to their advantage to create their wealth.

Inflation reduces the spending power of your money and just leaving your money in the bank will erode the value of whatever is sitting in that account. If money sitting in the bank is for everyday expenses or an emergency fund then that is fine, but to get ahead one needs to become a long-term investor.

Your risk-profile is the factor which should determine how much risk you should take. Your age is one factor. New Zealand financial advisor, Frances Cook, says, “Subtract your age from 100, and the answer is the percentage of your money which should be in shares.”

I do know of people who have a much larger percentage of shares than Frances Cook’s formula suggests they should have. One elderly couple I know invests in the share market for the dividends which they use to pay for their health insurance.

It is for investors to decide what level of risk they are willing to take and to take responsibility for decisions they make. 

Investors must get over their fear of loss in order in order to make the most of the investment opportunities available. Playing it safe in the matter of finances and life in general will leave you feeling short-changed, when with a few more risks you would have achieved more with your money.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook.

Read my other articles on www.robertastewart.com

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Stealth Wealth-What it is

Written by R. A. Stewart

“Some People look rich but are actually poor while others look poor, but are rich.”-Proverbs 13:7

Stealth Wealth is a term which I had come across for the first time recently. I had never even heard of it previously so did a bit of research into what it actually meant.

Stealth Wealth is when people who are rich are living low key lives that no one knows they are rich. They may drive a modest car and live in a modest house. These people are likely to have their money in the financial markets and other investments.

At the other extreme, there are people who display their possessions in a way which gives others the impression that they are doing well for themselves. They drive fancy cars, wear expensive clothes, and attend all of the right parties, but they have nothing to show for all of their labours. 

Those in the “Look rich” category often find that their wages are not enough to pay for their flashy lifestyle so they use their credit card. There is a cost to this and that is called interest.

The people who live in such a way as to give others the impression that they are not rich will invest their money in the share market and other income generating investments.

Notice something?

People in the first category are investing money in something which increases in value and this grows their wealth.

Those in the second category spend their money on stuff which loses value and so never get anywhere financially; they are spenders.

Years ago I was working in the hospitality industry and the head chef had bought a car for 20 grand so a colleague told me. I replied, “If that was me, I would have bought the cheapest car and invested the rest of the money.”

Possessions such as an auto-mobile often go beyond the stage when they are for going from A to B, but serve as status symbols to impress others.

People who display their wealth in order to impress others are insecure. The need to appear wealthy steals the joy from their experiences. 

There are lots of rich people but they got there by being a good steward of their resources. Those who are spenders are never satisfied with what they have so they spend more and more on luxuries in order to satisfy their lust for stuff. In order to build up your assets it is necessary to live within your means and invest your savings. 

If there are just two habits which will enable you to prosper it is the habit of saving and the habit of investing.

About this article

This article is of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your website/blog or ebook.

Read my other articles on www.robertastewart.com

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Dividend Reinvestment Plan-what it is

Dividend Reinvestment Plan-what it is

Written by R. A. Stewart

Some companies give their investors the option of accepting a dividend or have the dividend paid out in shares. This is called a DIVIDEND REINVESTMENT PLAN (DRP or DRIP).

This can be cheaper than accepting the dividend and reinvesting the money elsewhere. This kind of arrangement makes it easier for an investor to grow their investment and saves money because investing your dividends elsewhere will attract fees for the new investment

A DRP at work

You have opted into a company’s DRP and it issues a dividend. What happens next?

Those who have opted into the companies DRP receive their dividends in the form of extra shares, while those investors who have not opted into the DRP receive their dividends in the form of cash.

The way a company calculates its share price will determine how many shares you will receive. Its method of calculation is sometimes called the “Strike Price”.

The shares are distributed within the company which means that you as the shareholder saves money on transaction fees. This process occurs each time the company declares a dividend. Sometimes the company will stop the Dividend Reinvestment Plan for one reason or another and when this happens, its shareholders will be informed of this,

Is Dividend Reinvestment Plan Right for you

Only you can answer this question, because it all depends on your personal circumstances and your goals. If you are using the income you receive from shares, in this case dividends to pay for some of your expenses, health insurance, for example, then you will want to receive the dividends into your bank account. If you are a long term investor and do not need your dividends then you may choose to opt in to the Dividend Reinvestment Plan. If you are unsure, then speak to a financial advisor.

The downfall of DRP is that it could reduce your diversification. Your strategy could be to spread your portfolio over a range of shares. Reinvesting your dividends in certain companies can mean your investment becomes unbalanced and weighted toward certain industries.

Always keep in mind that whenever there is the opportunity for a capital gain there is also the opportunity for a capital loss, therefore, it is best to invest according to your risk profile. 

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore, discretion is advised. You may use this article as content for your  website/blog, or ebook.

Read my other articles on www.robertastewart.com

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Active Investor V Passive Investor 

Written by R. A. Stewart

What is the difference?

I was watching a man from Fisher Funds explaining this to a breakfast TV presenter in New Zealand and this is how he explained it.

An active investor is one who picks and chooses stocks which he thinks will out perform the market. 

A passive investor invests in a range of companies; in other words diversifies in order to minimize risk.

He made the point that the tech sector is a growing industry which has taken a greater share of the market which means that diversification is less of a benefit if you want your portfolio in traditional stocks.

There are drawbacks to being an active investor, and they are as I see them:

  1. An active investor makes more transactions and because of this they pay more in transaction fees. That may be an obvious statement, but a factor which is overlooked.
  2. The active investor has to do their research, whereas the passive investor leaves that to their fund manager.
  3. Being an active investors requires constant monitoring of stocks and this all takes time out of your day. Not everyone has that kind of time available to do this.
  4. An active investor must use their own judgement as to what is the right time to sell and this is where some people trip up because emotion often gets in the way of a person’s better judgement. Some people panic when shares drop and sell at a lower price than what they paid for them or hang on to the share for too long in the hope that it will keep rising and the share price starts sliding.

A passive investor buys and holds on to a diversified portfolio, often in ETFs or index funds. These are also called Managed Funds.

These rely on long term growth and usually mirror the market depending on how well the fund is performing.

Passive investing is a lower risk approach to investing because funds are invested in a wide range of industries.

An investor can be both an active investor or a passive investor. He can have a diversified portfolio in his retirement fund which makes him a passive investor and at the same time invest in certain companies on an online investing platform such as Sharesies, Hatch, Robinhood, or Kernel Wealth.

But just because you are investing in individual companies on Sharesies, it does not necessarily mean that you are an active investor. You may have no intention of selling your shares in the foreseeable future so that will make you more of a passive investor than an active one.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook. 

Read my other articles on www.robertastewart.com

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Build your Wealth with Diversification

The Art of Diversification

Written by R. A. Stewart

“Invest your money in many places because you never know what kind of bad luck you are going to have in this world.”-Ecclesiastes 11:1-2

Diversification means that you invest your money in several companies in order to manage your risk. We all know that from time to time a company will collapse, leaving those who invested in them out of pocket. We sometimes hear of cases where one or two investors had their entire life savings invested in such companies and got severely hurt by their loss.

The big mistake these people made was that they placed all of their eggs in one basket. They have only themselves to blame and no one else.

It is important to ask the question of “How will the loss of this money affect my lifestyle? And invest accordingly.

If you are investing for the long term, ten years+ for example then the share market drops should not worry you. These dips are only temporary and you should not view it as a loss but rather treat share market volatility as a fact of life and just get used to it.

Life has its own concerns without being overly concerned with how your portfolio is doing. If you have invested according to your risk profile then there is nothing to be concerned about.

No investment is entirely risk free but in order to increase your wealth then it is necessary to take risks but that does not mean gambling with your money which is speculating on a certain outcome. Investing means taking calculated and sensible risks. 

What is a sensible risk?

Investing in cryptocurrency for your retirement fund is not a sensible risk, it is a reckless one. However, investing in cryptocurrency as a side interest and with only discretionary spending money is fine as long as you understand the risks involved and the loss of your capital in this way is not going to affect your lifestyle.

The same can be said to investing in individual shares as an interest. I have a sharesies account where I drip feed money into individual shares in the share market. I choose one company to invest in per year and drip feed money into this company throughout the year. The share price will go up and down throughout the year and I will get shares at the lower price when they are down.

Investing your retirement fund in this way is considered to be “Placing all of your eggs in the one basket,” and is not recommended, but investing speculatively with your discretionary spending money can provide an added interest and an extra string to your financial bow.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook. 

Read my other articles on www.robertastewart.com

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The Benefits of the Wise Travel Card: A Smart Choice for Global Travellers

The Benefits of the Wise Travel Card: A Smart Choice for Global Travellers

In an increasingly globalized world, managing money while travelling can be a challenge. Traditional bank cards often come with hidden fees, poor exchange rates, and limited flexibility when used abroad. That’s where the Wise Travel Card—formerly known as the TransferWise card—steps in to offer a smarter, more cost-effective solution for international travellers. With over 16 million users worldwide, Wise is revolutionizing how people spend, send, and receive money across borders.

Here are the key benefits of the Wise Travel Card and why it could be an essential companion for your next trip.

1. Real Exchange Rates with No Hidden Markups

One of the standout features of the Wise Travel Card is its use of the real mid-market exchange rate—the same rate you see on Google. Most banks and currency exchange services offer a marked-up rate to increase their profits, which can cost you extra every time you spend. Wise, however, charges only a small, transparent fee and passes on the actual exchange rate, ensuring you get more value for your money.

Whether you’re buying tapas in Spain or souvenirs in Japan, you can be confident you’re getting the fairest deal.

2. Hold and Spend in Multiple Currencies

The Wise Travel Card supports over 40 currencies, allowing you to hold balances and spend in the local currency without conversion fees. You can convert money ahead of your trip when the rates are favourable and spend like a local once you arrive.

For instance, if you’re travelling to the United States, you can convert British pounds to U.S. dollars before your trip and lock in the best rate. When you use your Wise card in the U.S., it deducts directly from your dollar balance—no surprise fees.

JOIN WISE HERE

3. Low ATM Withdrawal Fees

Wise gives you free ATM withdrawals of up to £200 (or equivalent) per month. After that, there’s a small fee, but it’s often lower than what traditional banks charge for foreign withdrawals. This makes it easy to access local cash without paying a premium.

Plus, because Wise uses the Visa or Mastercard network, your card is accepted in millions of locations worldwide.

4. No Monthly Fees or Minimum Balances

Unlike many travel cards and bank-issued alternatives, the Wise card doesn’t come with monthly maintenance fees or minimum balance requirements. You only pay for what you use, and all fees are clearly outlined upfront.

This makes it ideal not just for frequent flyers but also for occasional travellers who want a flexible, low-cost option for spending abroad.

JOIN WISE HERE

5. Secure and Easy to Manage

The Wise app allows you to freeze or unfreeze your card, view your spending in real time, and instantly convert currencies at the tap of a button. You can also receive push notifications every time your card is used, giving you full control and security on the go.

Additionally, you can get local bank details in multiple countries (e.g., UK, US, Eurozone, Australia), making it easier to receive payments from clients or employers abroad.

6. Perfect for Digital Nomads and Freelancers

For those who live or work remotely across countries, the Wise Travel Card offers unparalleled flexibility. Freelancers can get paid in multiple currencies without having to open foreign bank accounts. Digital nomads can manage their income and expenses from anywhere in the world with minimal hassle.

Final Thoughts

Whether you’re a casual holidaymaker, a frequent business traveller, or a global freelancer, the Wise Travel Card is a powerful tool to help you save money, manage currencies, and stay in control of your finances abroad. Its transparent pricing, real exchange rates, and multi-currency capabilities make it one of the best travel cards on the market today.

Before your next trip, consider signing up for a Wise account and ordering your travel card—it could save you more than just money; it could save you from financial stress.

JOIN WISE HERE

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Mistakes People make with their Money

Mistakes with Money 

Written by R. A. Stewart

Poverty does not just happen, it is the result of poor choices. That is barring unforeseen life events which can happen. I understand that others are forced into poverty for one reason or another. This article is aimed at those who have the means to make the most of the money they earn but choose to squander it. Here are their main mistakes.

1 They make poor life choices

The difference between the rich and the poor is because their choices in life are different. There is a stark difference between what a rich person and a poor person does with their discretionary spending money. All of those satellite dishes on council estates tell a tale. A rich person will find ways to invest their discretionary dollar so that it multiplies while a poor person will spend all that they have and more when you consider the consumer debt that they take on. It is also a fact that the poor tend to have more children and having kids does not come cheap, so this further compounds their vulnerable financial position.

2 They do not save 

People in a poor financial state do not save money. They fritter away their money with no thought for the future. Their financial situation is made worse because of their poor lifestyle choices. They borrow for stuff which is not essential to everyday living and spend money on things of no lasting value and this leaves them with nothing to show for their labors.

3 They do not invest

Wealth does not increase when money is not invested. Instead it loses its value due to the effects of inflation. Investing gives you a financial education and this leads to better decision making when it comes to money matters. This in turn leads to better financial outcomes for the future.

4 They do not take risks with their money

Investing involves taking some risks with your money but this does not mean speculating which is really just  gambling on some favourable outcome going in your favour. It is having a strategy of investing which enables you to make the most of what you have

5 They do not get financially literate

Lack of financial literacy is the number one reason why so many people are broke. Lack of ambition to rise above mediocrity is the main reason and there is little hope for the individual who lacks the will to improve their financial situation. I know that you are not one of those people otherwise you would not be reading this.

6 They hang out with the wrong people

People who are financially illiterate tend to spend too much time with like-minded people; those who have the same money mindset. “You are the average of the five people you spend most of your time with”. If you intend to be financially successful then spend more time with financially successful people. Read their books and pick their brains. Ask yourself, “What have I got to lose?”

7 They have a poor attitude

An attitude is something which every one has control over. No one can force you to adopt a certain way of thinking, you choose it and your circumstances have nothing to do with it. Having a good attitude will take you further than a bad one so you had better take responsibility for your own thinking and adopt a good attitude to financial affairs. I have heard all kinds of excuses why people have not joined a retirement scheme or have saved money. The real reason why they come up with excuses is that these people are unwilling to give up whatever it is which they are frittering their money away on. 

If your financial affairs are in a poor state then it is likely that you will have to make some changes. A budget advisor may be needed, but not necessary for if you just paid a visit to your local library then you will find some good books on personal finance which will help you.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook.

Read my other articles on www.robertastewart.com