A friend of mine, a big fan of the Harry Potter series, recently planned to launch an initial coin offering (ICO) to fund a new Quidditch sports league. His new “Quidcoins,” valued at 0.009 bitcoins (BTC), would be exchangeable for discounted admission and food at select National Quidditch games around the country. He hoped to raise a maximum of 2,000 BTC ($11,000,000) over a 28-day offering period.
Unfortunately, before my friend could organize his company and raise money, he discovered that a group in Britain was in the midst of offering their own QuidCoins, named after the slang word for the British pound. While my friend was disappointed to find the name taken, perhaps it was for the best; despite sponsors’ hopes, QuidCoins traded for less than three months in 2014, according to CoinMarketCap.
ICOs promise big profits to investors, but with a failure like QuidCoin’s possible at any time, are they worth the risk? If you’ve been considering participating in an ICO, here’s what you need to know.
What Is an ICO Financing?
Entrepreneurs have historically financed their ideas by offering equity interests — or investment securities — in their ventures to external investors. Due to the abuses and corruption of financiers in the 1920s, Congress passed the Securities Act of 1933 and created the Securities Exchange Commission (SEC) the following year to enforce the Act.
In the decades since, the process of raising money from the public through an initial public offering, or IPO, has become well-established. Regulations dictate how the offering process must proceed, who is eligible to participate, when an offeror must provide information to potential investors, and what information they must provide. Failure to follow regulations can result in severe financial liability for the sponsors of an offering, including civil and criminal penalties.
An ICO is a similar fundraising tool in which an offeror sells futures in a cryptocurrency that does not yet exist. ICOs are designed to avoid the regulations that protect investors when buying or selling traditional investment securities. While an IPO must include an extensive prospectus, there are no regulations outlining what information must be provided to prospective investors in an ICO. Each offeror determines what, if any, details will be delivered and when.
Most ICOs have a website or white paper justifying the benefits of the investment, but they do not have an existing product. Offerers are startup operations, and the funds raised through the ICO will finance the development of the product — in this case, the cryptocurrency.
Finding one’s true love can be increasingly difficult in a modern society. University of California at Santa Barbara professor Bella DePaulo complains, “It [pair-bonding] sounds so simple. You just find the one person, you get married, and your whole life path is figured out.”
If only, it were that simple. A 2016 survey found that “never finding love” was the single biggest fear of 42% of English singles ages 18 to 34. Loneliness is not confined to the United States.
Popular literature offers plenty of reasons that today’s singles have difficulty meeting and bonding with that special someone with whom to spend the rest of their lives:
• Too picky. As Dr. Carolyn Kaufman writes in Psychology Today, “There may well e 8 million people in New York City, but most of them won’t do, and that’s an awful big haystack to sort through.” Others claim that having high standards avoids later divorce.
• Access to the pill. Author Aja Gabel notes that women’s ability to delay or exclude pregnancy led to more women seeking careers and earning more, allowing to greater independence. Also, more people are choosing to be childless – a significant reason to get married in the past – the percentage doubling from 10% in 1979 to close to 20% in 2010.
• Freedom/Career Priority. Marriage is a burden, rather than the “beautiful bond it used to be,” claims Kathy Kaveh in the HuffPost. The 43-year-old divorcee says she “revels in her single-hood” and needs the “freedom to pursue your interests, hobbies, and social engagement that don’t involve your partner.”
• Financial concerns. Pew Research reports that the lack of financial stability accounts for more than 40% of never-married singles choosing to stay single while another 28% consider it an important, though minor reason.
• Fear. Many see the tragedy and turmoil of failed unions, even if they have not experienced a divorce in their lives. They reject the idea of meeting that special someone and living happily ever after as myths perpetrated by fairytales and Walt Disney. Many question their ability or the willingness of a partner to make a full commitment to the union.
• Lack of opportunity. The median age for marriage in 1970 was 23 and 21 years of age respectively. By 2017, the average age for men was 29.5 and 27.4 for women, according to Pew Research. With both sexes heavily involved in the long hours of building careers, there is fewer opportunity to meet eligible mates. With many businesses restricting employee relationships, the pool of choices shrinks further.
Such pessimism fails to consider that the majority of humans find true love in their lives and remain happily together for years. In fact, the ideal age to get married or form a long-term relationship is between the ages of 28 and 32, according to research by Nicholas Wolfinger for the Institute of Family Studies. Stephanie Coontz, director of research at the Council on Contemporary Families, agrees: “Marrying at an older age generally lowers the risk of divorce.”
Long-term romantic relationships are built upon mutual attraction, trust, honesty, and realistic expectations. Understanding why you want love, the characteristics you need (not want) in a partner, the most likely places to find those whom you seek, and the process to move from casual dating to a committed, loving relationship are essential for successful pair-bonding.
What is Love?
What is Love? Frank Sinatra opined “It is a many-splendored thing” and a “reason to be living.” The Everly Brothers claimed it “makes the world go round.” Thousands of poets from Shakespeare to Maya Angelou have attempted to convey the emotion with words. Love (and its cruder companion Lust) have been depicted in drawings, paintings, and sculpture for millennia.
Research suggests that being in love makes one think differently, often spurring periods of great creativity and great works of art. Socrates explained the meaning of Plato’s Phaedrus as “love is a madness.” People in love are often characterized as being “lovesick,” so besotted with another person they are unable to behave normally.
Lovesickness hinders logical thinking and leads to questionable actions and often, disastrous results for the lovers and the ones around them:
• War. The Trojan War, immortalized in Greek myth, was fought over the beautiful Helen of Troy, so loved by Troy’s Paris that he kidnapped her from her Sparta husband, King of Sparta.
• Rebellion. Rome’s Mark Antony rebelled against the emperor Octavian for his lover Cleopatra. Their tragic ending is immortalized in Shakespeare’s play, Antony and Cleopatra.
• Abdication. King Edward VIII gave up the throne of the British Empire to marry Wallis Simpson in 1936.
• Crime. Two young Texans, 21-year-old Clyde Barrow and his nineteen-year-old, Bonnie Parker, met in 1930 and became inseparable. Their well-publicized crime spree captured the imagination of the Depression-era and ended in their joint deaths in an ambush on a Louisiana country road by law officials in 1934.
While love has its dark side—obsession, jealousy, and pain—there are countless examples of selflessness, sacrifice, and heroism around us each day. The examples illustrate biologist Jeremy Griffith’s definition of love as “unconditional selflessness” :
• The Gift of the Magi by O. Henry is the story of two people relinquishing their most precious assets for their partner’s happiness.
• Mary Raymond donated one of her kidneys to her ailing husband, Sergeant Lyle Raymond of the Los Angles County Sheriff’s Department, despite his objections. John Rexroad of Killingsworth, Connecticut donated one of his kidneys to his wife, Teri, in 2018.
• Sonny Melton died protecting his wife from bullets fired on the mass shooting at a Las Vegas music concert. Three young men (Jon Blank, Matt McQuinn, and Alex Teves) were killed while shielding their girlfriends during a mass shooting in Aurora, Colorado.
Some scientists argue that love—the need for intimate companionship—is a basic human need whose origins can be traced back to our reptilian brains.
The Science Behind Why We Love
Anthropologist Dr. Helen Fisher, a Senior Research Fellow of The Kinsey Institute and an adviser to the online dating site Match.com, has spent her professional career researching sex, love, and marriage. She claims that romantic love is exceptionally addictive with the same psychological kick as cocaine. Fisher says, “Love is in us. It’s deeply established in the brain, and it’s our challenge to understand each other.”
A 2012 study reported in Psychopharmacology concurred that falling in love and being addicted to a potent drug are similar. Each experience delivers powerful feelings of reward and euphoria that creates an almost insatiable desire for more adventures that, in turn, leads to such behavior as “stress-induced relapse, lack of regard for consequences, being unable to quit, and losing track of time.”
Physical tests indicate that the regions of the brain (the amygdala) and neurochemical systems (adrenaline, dopamine, serotonin, oxytocin, and vasopressin) dealing with reward, attachment, and reinforcement are active in both conditions. Fortunately, the negative aspects of addiction disappear over time as the relationship progresses, according to a 2016 Chinese study.
The Biological Basis for Love
Scientists speculate that the emotion of love in homo sapiens appeared to enable the bigger-brain fetus to pass through the birth canal. The likelihood of the child’s survival was improved when both parents helped with parenting, encouraging monogamy. According to Dr. Robin Dunbar of Oxford University, the intense emotions of passionate love (what some call the “honeymoon”) is associated with sexual desire and lasts about four years after the birth of an infant or the approximate time that the most attention to an infant is needed to survive.
During love’s most passionate state, each parent directs their interest to a single partner, reduces their tendencies to pursue other partners, and seeks emotional intimacy and closeness.
Love at First Sight
Does love happen in a single blinding instant or build slowly to a crescendo like the first movement of Beethoven’s 9th Symphony. Science doesn’t have an answer. William Shakespeare said, “Whoever loves, loves at first sight.”
Magazines with relationship advice exploit the concept that love is sudden, fragile, and often one-sided. Female-oriented periodicals include:
Male audiences are not neglected. Men’s Health, GQ, and Esquire are among those counseling men on attracting and satisfying women. Whether such advice is credible or helps one find a partner is unclear.
Psychologists claim that the love-at-first-sight experience is due to the “attractiveness halo”—that which is beautiful is also good —underlies the idea that love occurs at first sight. We generally assume that someone who is pleasing to look at will have similarly charming features inside. If you’re lucky in such an instance, the relationship will be intense initially and grow profound (deepening over time).
Unfortunately, looks are rarely an accurate guide to the person beneath the skin. When the initial attraction fades, there is nothing to sustain the bond. On the other hand, profound love begins slowly, flourishes as each party share mutual interests and their inner-most secrets, and ultimately blossoms into a long-term passionate, trusting affair.
Those interested in getting on the Love Train should be aware that the journey usually involves several stops, according to Dr. Fisher:
Stage 1. Appeal
Lust, the craving for sexual gratification, is driven by the sex hormones testosterone and estrogen. Both sexes have qualities of each, although the former is greater in men and the latter in women. The level of testosterone in men begins to fall around the age of 40, dropping around 1% each year. Women have lower quantities of testosterone that tends to remain level throughout life. Estrogen is present in both sexes, but in higher amounts in women. At menopause or removal of the ovaries, estrogen production slows and may cease for women.
According to WebMD, men think about sex more, seek it more aggressively, and think of it as the connection in a relationship. Esther Perel, a New York City psychotherapist, observes that sex is “the language men use to express their tender loving, vulnerable rise. It is their language of intimacy.” On the other hand, sexual desire in women is more sensitive to environment and context. They are more discriminating than males with relationships more layered. Perel claims, “Women want to talk first, connect first, then have sex.”
The lust stage of a relationship can last days or weeks and may end with its demise or progressing to the next step. Therapist Aimee Hartstein says, “We can have lust and passion at first sight, but it takes longer than that to really get to know someone and figure out who they are and how the two of you connect. Love is definitely something that is longer term.”
2. Attraction (Romantic Love)
According to Dr. Stephanie Cacioppo of the University of Chicago, “Love grows out of desire. You cannot love passionately love someone you never desire.” In this stage, the chemicals oxytocin and dopamine flood the brain while serotonin is depressed. Men and women in this stage are crazy in love, neither evaluating their partners critically nor logically. Some people continually seek the highs of romantic love, changing partners when the infatuation leaves and never finding a life-long mate.
A 2013 study by YouGov for eHarmony reported in Counsel & Heal claimed that men took an average of 88 days from first meeting a woman to tell her, “I love you” for the first time. By contrast, women reportedly took 134 days to say the same words. Claire Jarvis, Director of Communications for Siemens Festival Nights, reinforced the timeline, reporting that a company-sponsored poll found that “it took just ten weeks to know that someone if Mr or Mrs. Right.”
3. Attachment (Companionship)
The third and final stage is much calmer and relaxed; dopamine production is slowed while levels of oxytocin and vasopressin increase. Each chemical plays a significant role in the bonding process. Social psychologists theorize that humans have an evolutionary need to form an attachment to a familiar person who provides comfort and protection.
Romantic love gradually transforms into a reciprocal give-and-take relationship between partners (though not always symmetrical). Attachment is evident when one partner seeks proximity to another when under threat or stress. Drs. Cindy Hazan (Cornell University) and Debra Zeifman (Vassar College) found in a 1999 study that attachment to romantic partner takes about two years to establish, but once created persists, even when the partner is “neglecting, disparaging, or abusive.”
While all relationships have ups and downs over the course of time, the general feelings of security, peace, and happiness characterize most long-term love relationships. In 1992, researchers at the Gottman Institute interviewed 52 married couples and predicted with over 94% accuracy who would separate or be together in three years.
According to the survey, couples who are unable to confront a hardship together, believing life is hard and there is nothing a person can do about it, are most likely to separate. On the other hand, couples who faced hardship together, recognizing that the struggle is worth it and the bond between the two would survive, are likely to prevail.
Jonah Lehrer, the author of A Book About Love, notes that partners who have sustaining relationships know that getting together is easy; staying together is hard. They understand there will be conflicts in any union, complaints and fights are inevitable. Lehrer writes that in such instances, the committed couples holds nothing back. “You’re fully intimate. You’ve seen where they’ve got hair, you’ve smelled their morning breath. You’re not holding anything back. . . In a sense, you can look at complaining and fighting in an intimate relationship as just ways of showing you care.”
What We Want in Our Mates
Multiple studies indicate that the key attributes that men seek in women and vice versa have not changed over time.
• Peter Todd, a cognitive scientist at Indiana University, found in a 2007 study that modern humans are no different than his Neanderthal ancestors when it comes to choosing a mate: “women trading off their attractiveness for higher quality men and men looking for any attractive woman who will have them.” Todd asserts that the practice, while not politically correct in the modern world, had an evolutionary advantage in higher numbers of successful offspring.
• Concordia professor Gad Saad did a study in 2014 of hundreds of young men and women to learn what attributes were most important in choosing a mate. While kindness and intelligence were desired by both sexes, the top two characteristics for men was an attractive body (1st) and a beautiful face (2nd). For women, a man’s earning potential was most important along with his ambition.
People are most likely to pair off with someone similar to themselves or their parents – similar levels of education, physical attractiveness, height, weight, etc. – according to a study in the journal Nature Human Behaviour. This fact is not a coincidence, but because people actively seek their mates from those most like themselves.
This phenomenon, called assortative mating, has been documented in nature, including brightly colored eastern bluebirds who choose similarly brightly colored mates, while the duller colored birds tend to stick with each other. Similarly, the Japanese common toad is more likely to select a mate of a similar size. This discrimination in choice provides an evolutionary benefit to the species such as a larger size or higher ratios of the population.
The Importance of Shared Values
Children love the stories of Beauty and the Beast or the frog who becomes a prince. While many believe that “opposites attract,” the old wives’ tale may be true for magnets, but not for people. Bad boys or sexy, voluptuous women can fill one’s fantasies, but don’t travel well. When the novelty wears off, trouble is bound to follow.
Despite the few public examples of successfully married opposites (James Carville and Mary Matalin come to mind), Donn Byrne explains that most people have a need for a logical and consistent view of the world. People who agree with us validate out attitudes; “in fact, the greater the attitudinal similarity, the greater the attraction and linking.” Paul Cutright, author and relationship adviser, claims, “”Relationships are about getting our own needs met, often on an unconscious basis. In other words, we try to find someone who is complementary to us and can help us learn, heal, and grow.”
The Myth of a “Single Perfect Mate”
Many people go through life looking for the single person that fulfills their dreams— the perfect mate—even though they realize they are not perfect themselves. A 2011 poll found that 73% of the respondents believe in a soulmate — one person in the world meant exclusively for them. Is it logical to presume that your preferred partner is willing to accept imperfection when you do not?
Dr. John Grey, author of Becoming Soulmates: Keys to Lasting Love, Passion and a Great Relationship, writes, The myth of ‘soulmates’ is about a relationship that is blue sky forever. Always sunny, and that sunshine pours down on us, brightens us up, lifts us. In a real-world relationship, challenges come. The sky occasionally clouds.” Grey believes that “soulmates aren’t something people find, they’re something people become.”
Psychotherapist Perel claims that there is no single person explicitly meant for another. “There is the one you choose and with whom you decide to build something.” In other words, successful couples accept imperfection in their mates and work with each other to make a better fit. My mother, married for over 50 years, frequently advised her children that the rough-and-tumble early years of a marriage smoothed each partners’ rough edges and defects, leaving two unique personalities to become one.
The tragedy of searching for soulmates is turning down prospective matches while waiting for the ideal mate who will never come. If disappointment and heartache discourage your willingness to seek a loving relationship, remember the words of Alford, Lord Tennyson, “Tis better to have loved and lost Than never to have loved at all.”
Obstacles to Love
Traditional Gender Roles
A looming impediment to finding a mate, particularly for young American women, is the disparity of education. While the number of males in the U.S. is slightly higher than females through age 35, the number of girls attending college and receiving degrees exceeds the number of male college graduates. The disparity is most significant for minority women—64% of black graduates and 60% of Hispanic graduates.
A woman’s higher education generally results in a higher income than a man who does not attend or graduate from college. Women who earn more than their mates conflicts with the traditional gender norms, specifically the belief that men should be the primary breadwinner. A University of Chicago study in 2013 linked the income discrepancy too a drop in marriage rates in recent decades and a 50% increase in the likelihood of divorce.
Can relationships survive where income inequality exists, or traditional gender roles are reversed? Yes, if society and people adjust to the new realities. According to the Bureau of Labor Statistics, women in one-third of marriages earned more than their husbands in 2007, and that ratio continues to grow. Nevertheless, those couples who successfully stay together face unique pressures from those in traditional role relationships.
Sex Ratios and Physical Location
Throughout the nation, there are imbalances in the ratio of single men to single women, particularly those with college educations. According to the New York Post, single women are especially disadvantaged in New York City, Houston (TX), Providence (RI), and Raleigh (NC). Conversely, there are more single men than women in Silicon Valley, San Francisco and San Diego in California and Columbus, Ohio.
The New York Times recommends women looking for men with a job move to Clarksville, TN; Silicon Valley (again); and Beloit, WI. For those employed men looking for women, the proportion of women to employed men is highest in Rocky Mount, NC, and Anniston, AL. CNN reported their own list of the 13 best cities for single people looking for love.
While living in those areas with higher ratios of possible mates theoretically improves the likelihood that one would be successful in finding a relationship, there are no guarantees. No one should move to a city solely because of the gender ratio.
A 2017 poll by ReportLinker found that relationships developed through friends had increased to 39% while bars and other public areas had dropped to 12%. Perhaps due to the increased age of the respondents, 15% said they met their lovers at work.
Only 8% reported meeting their partner through an online dating site with over 81% indicated they did not use dating websites or apps. More than one-half of those polled viewed dating sites negatively since misrepresentation is common because answers are rarely verified by the sponsors. In 2016, It’s Just Lunch settled a consumer fraud case for $64.5 million. MoneyCrashers’ Amy Livingston recently posted an article on how to protect oneself from online dating and romance scams.
Those who continue to use dating sites might consider the warning of Lori Gottlieb, a couples therapist and the author of “Marry Him: The Case for Settling for Mr. Good Enough.” Gottlieb claims that the ability to sift through hundreds of profiles reinforces the idea that a perfect mate exists. “It’s a very American idea that choice is freedom, freedom is choice. But it can really cripple you if you have too much choice.”
Relationship experts generally agree that couples who meet in their daily lives are more satisfied with their relationships and less likely to break up than couples meeting other ways. Places of shared interests, hobbies, or values are excellent spots for meeting a compatible friend and mate. These places include churches, schools, gymnasiums, book clubs, museums, art galleries, music venues, and political campaigns.
Tips for Building Real Love Connections
Dating practices change from generation to generation and culture to culture. Few people go through the dating experience without committing a faux pas now and then. A sense of humor is essential as well as remembering that first impressions aren’t always reliable. Few people enjoy an evening if they feel that they are being constantly judged.
To have an enjoyable evening and leave a good impression, follow these tips:
1. Be on time. Being late is likely to viewed as being more important than the person on time. If you are unavoidably delayed, call your date or the meeting place. 2. Focus on your date. Egoists only want to talk about themselves, not about others. If you are spending the most time speaking, you are probably not making a connection. 3. Ask questions. Curiosity is a great attitude to cultivate. Ask about your date’s thoughts, experiences, stories, and opinions. They will enjoy it, and you will have a basis to determine whether you want to pursue a relationship. 4. Be real. Even good fakes can be discovered. No one likes being manipulated or placated. Unpleasantness is rarely appropriate, whether to your date of the people around you. 5. Turn your phone off. Only physicians and emergency personnel are always on call. Multitasking is for work, not social activities. If you must keep your phone available, explain to your date the reasons for its need when meeting. If a call interrupts the evening, handle it as quick as possible with an apology.
Finding a possible partner is just the first step in the process. True love is built upon mutual respect and trust. You will need to invest time and feelings in the relationship. Open communication is a process that Dr. Margaret Clark of Yale University describes as “reciprocal escalating self-disclosure.”
As each partner reveals vulnerability to the other, mutual trust and intimacy grow. “Feeling understood, feeling validated is something that people like. And they like it so much, it might even lead to love. “
The late Effie Lederer, better known as the columnist Ann Landers, once paraphrased a poem in her syndicated newspaper column, “Love is friendship that has caught fire. It is quiet understanding, mutual confidence, sharing and forgiving. It is loyalty through good and bad times. It settles for less than perfection and makes allowances for human weaknesses.”
Stock investors are constantly searching for ways to determine whether a stock is under- or over-valued. Logically, they seek to buy securities in companies that are under-valued and sell the securities of companies that are over-valued. The Price Earnings (P/E) Ratio is a common way to quickly assess how investors value a company based upon its future earnings projection.
Calculation of P/E Ratio
The P/E ratio is the result of dividing the common stock market price by its reported or projected earnings per share. For example, the common stock of XYZ Corporation sells for $22 per share. The latest reported annual earnings are $1.75 per share. The P/E ratio of XYZ would be 12.6 ($22 divided by $1.75). Price earnings ratios are used to compare different companies or the same company over different time periods.
Companies with higher P/E ratios are expected to have higher rates of future earnings growth. For example, web-based Amazon (AMZN) had a P/E ratio higher than its brick-and-mortar competitor Walmart (WMT) even though the latter’s earnings per share (EPS) were more than seven times greater than Amazon’s in 2015. Simply stated, investors are willing to pay more today for a dollar of Amazon’s earnings than a dollar of Walmart’s earnings because they believe Amazon’s earnings per share in the future will grow faster than Walmart’s.
P/E ratios can vary substantially based upon the earnings components used to calculate the ratio. Most analysts seek to understand and project operating earnings, rather than total earnings that may include extraordinary events unlikely to recur.
In the example of XYZ, the reported earnings of $1.75 per share included the sale of a division that added the equivalent of $0.30 per share to the final earnings result. Securities analysts typically deduct the financial impact of extraordinary events to arrive at a true operating profit. In this case, reported earnings of $1.75 would be reduced by $0.30 to get operating earnings per share of $1.45 and the newly calculated P/E ratio would be approximately 15 ($22/$1.45).
Price earnings ratios can also vary according to three factors:
Trailing Actual Earnings. Earnings may be for the latest reported calendar year or adjusted as each quarter is reported. For example, a year includes quarters 1, 2, 3, and 4 of the most recent year. When the first quarter of the new year is reported, the analyst would omit quarter 1 of the previous year and add quarter 1 of the current year so the annual earnings would include quarters 2, 3, and 4 of the previous year and quarter 1 of the current year. This approach ensures that the analysts are using an earnings figure for the most recent 12 months.
Projected Earnings. Sometimes referred to as a “Forward P/E,” the earnings figure is based upon an analyst’s estimated earnings per share over the next 12 months. The projected earnings may be the opinion of a single analyst or a consensus of a number of analysts. It is important to know who is making the estimate and that person’s qualifications to ensure that projected earnings are realistic.
Combination of Actual and Projected Earnings. Some analysts may use two quarters of actual earnings and two quarters of projected earnings to arrive at an earnings per share number.
Testing the Validity of the Price Earnings Ratio
Theoretically, companies with higher rates of annual earnings growth have higher P/E ratios. From time to time, investor optimism pushes the price of a security to unrealistic highs with expectations of excessive growth. Using the Price/Earnings Growth (PEG) ratio is a quick and easy way to determine whether the P/E ratio is justified or if a security is over-, under-, or fairly priced based upon your expectation for its average annual growth during the next five years.
The PEG is calculated by dividing the Price Earning ratio by the projected annual five years earnings growth (a three-year period can also be used if desired). For example, Company B’s stock selling at a 13 P/E with an estimated annual growth rate of 25% per year would have a PEG of 0.52 (13/25) while Company A’s stock selling at a 10 P/E with an estimated annual growth rate of 25% would have a PEG of 0.4 (10/25). Analysts consider a ratio less than 1.0 as under-valued, equal to 1.0 fairly valued, and over 1.0 as over-valued. While the shares of both companies are undervalued based upon their projected earnings growth, Company A would be the better purchase due to its lower PEG ratio.
As with all indicators, neither the P/E nor the PEG are completely reliable, especially since stock prices are rarely rational in the short-term. It is this volatility that provides opportunities to buy and sell.
Nonetheless, it’s important to recognize that companies with very low earnings can provide skewed results. It is much easier for a company earning a million dollars to grow 100% per year for five years to $16 million than a company earning $100 million to grow to $1.6 billion in profit. When establishing a projected earning growth rate, consider your own common sense as well as any public estimates of growth from reliable analysts.
Limitations of the P/E and PEG Ratios in Analysis
Both ratios are simple and easy to calculate, but are best used as general indicators of value due to their superficiality. Their limitations in deterring value include the following:
Calculations of Company Earnings Are Complex and Frequently Managed by Corporate Executives. Accounting and tax rules are complicated and constantly changing, making comparisons between earnings of different periods and companies difficult. Since the market typically rewards higher P/Es to companies with a trend of consistent earnings growth than companies with erratic earnings, corporate executives try to manage reported earnings to meet investor expectations and maintain high stock valuations.
High Growth Rates Cannot Be Extended Indefinitely. Extraordinary earnings growth is difficult to achieve as companies mature. Competitors recruit company employees, leapfrog technologically, and capture market share from industry leaders. Additional suppliers generally reduce product or service prices and profit margins. As companies grow larger and grow staff, reacting to changing market conditions is more difficult, making them more vulnerable to those very market conditions.
P/E Multiples Tend to Fall Over Time. Earnings projections tend to be optimistic. When earnings projections are not met, ratios tend to contract.
Some Companies Are Not Valued Based on Their Earnings. Entrepreneurial companies like Facebook (FB) and Amazon spend heavily in their early years to capture a dominant market share, thereby delaying earnings. Natural resource companies invest heavily in exploration activities to find assets that will be converted to cash in future years. Since those activities are generally expensed in the year they occur, the company produces accounting losses even though assets may grow signficantly.
Financial Leverage Impacts Earnings. P/E ratios consider only the equity of a company, not its entire capital base. Leverage, using debt in the capital structure, increases shareholders’ risk since debt has a multiplier effect when earnings on the borrowed capital exceed the cost of that capital. Conversely, when the rate of earnings is lower than the cost of borrowed capital, shareholder losses are exaggerated. Looking at a P/E ratio without considering the debt owed by the company often leads to invalid results.
P/E Ratios May Be Misleading. While a low P/E ratio may indicate an under-valued, over-looked opportunity for profits, it can also mean that the company’s earnings will decline in the future and astute investors are selling the stock to avoid losses. Relying on P/E ratios alone to buy or sell stock is a risky and foolish practice.
P/E ratios are excellent tools for a superficial analysis such as determining which company in an industry to further investigate or selecting one industry over another. Nevertheless, it is important to ascertain the underlying reasons for a multiple before making an investment decision.
In the short-term, stock prices can be very volatile since they reflect investor hopes and fears. For example, a suspected change in an analyst’s opinion or rumors about the economy, an industry, a company, or its competitors affect stock prices and P/E multiples whether valid or not. P/E and PEG ratios should always be used with other metrics before taking investment action.
More than one-half of Millennials believe there will be no money in the Social Security system by the time they are ready to retire, according to a 2014 Pew Research report. “I don’t think anyone honestly expects to collect a single penny they pay into social security. I think everyone acknowledges that it’s going to go bankrupt or kaput,” says Doug Coupland, author of “Generation X.”
What went wrong? Will Social Security go bankrupt?
A Brief History of Social Security
In 1935, few of the program’s creators could have anticipated the condition of the Social Security program today. The country was in the midst of the Great Depression with a quarter of its labor force – 15 million workers – idle, and those with jobs struggled to make ends meet as their hourly wages dropped more than 50% from 1929 to 1935. Families lost their homes, unable to pay the mortgage or rent. Older workers bore the brunt of the job losses, and few had the means to be self-supporting. One despairing Chicago resident in 1934 claimed, “A man over 40 might as well go out and shoot himself.”
Hundreds of banks failed, erasing years of savings of many Americans in a half-decade. People lived in shanty towns (“Hoovervilles”) or slept outside under “Hoover blankets” (discarded newspapers). Breadlines emerged in cities and towns to feed the hungry. Thousands of young American men hopped passing trains, sneaking into open boxcars in a desperate attempt to find work.
Democrat Franklin D. Roosevelt (FDR), promising a New Deal, defeated former President Herbert Hoover in 1932 with more than 57% of the popular vote and 472 of 531 Electoral College votes. Three years later, FDR signed a bill that would “give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”