Q: Who sets stock prices?
A: A company’s stock price isn’t set by anyone. Rather, once the company sells shares to the public (either via an initial public offering or a secondary offering), they trade fairly freely in the stock market.
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It’s not unlike trading cards, which are valued at what people will pay for them. If demand rises or falls, so do prices. That’s why, if there’s bad news about a company, its stock will usually soon be worth less — and vice versa.
Last week we listed some classic reads for investors. Here are a few more books that can help you be smarter about your investing and grow a fatter portfolio:
• “Your Money and Your Brain” by Jason Zweig. This introduction to behavioral finance explains why smart people do dumb things. It can help you combat your brain’s bad habits that often sabotage your financial performance. It’s out of print, but inexpensive used copies are available online.
• “Money Masters of Our Time” by John Train. (HarperBusiness, $16). This is a great way to familiarize yourself with the best investors. Packed with anecdotes, the book is easy to read and digest. Be sure to check out its appendixes, too.
• “Common Stocks and Uncommon Profits” by Philip Fisher (Wiley, $23). First published in 1958, it is now a classic, particularly for investors interested in fast-growing companies. Fisher advocated buying outstanding companies for the long term, and was an early student of innovation.
• “The Innovator’s Dilemma” by Clayton Christensen (HarperBusiness, $18). This book focuses on businesses and how they can keep their edge. It explains how great companies can become disrupted almost overnight. Christensen, who teaches at Harvard Business School, has developed a framework that allows us to make sense of rapidly changing industries.
• “The Investor’s Anthology: Original Ideas From the Industry’s Greatest Minds,” Charles D. Ellis, editor. Out of print now, this book offers anecdotes and observations from a wealth of economic and business giants such as John Maynard Keynes and P.T. Barnum.
Peter Lynch’s books are also great and easy to read.
There seems to be a Starbucks (Nasdaq: SBUX) on every corner. Does it deserve a location in your portfolio, too?
Along with its flagship coffee brand, Seattle-based Starbucks also owns Tazo teas, Seattle’s Best coffees, Evolution Fresh and VIA instant coffee — and it’s buying Teavana, too.
Starbucks is also challenging popular Keurig K-Cup at-home brewing machines with its Verismo.
Days of heady growth in the United States may be waning, but Starbucks has lots of room to grow abroad.
Consider that Japan and South Korea combined have almost five times more Starbucks locations than China, even though their combined population is less than one-seventh of China’s.
Even without a booming presence in China, Starbucks was able to increase revenue by 14 percent over the past year.
With a price-to-earnings (P/E) ratio near 30, Starbucks isn’t cheap. Give it a look, though, and perhaps add it to your watch list.