Crane Asset Management LLC
Chief Investment Officer
Crane Asset Management LLC is a full-service investment counseling firm providing investment management services to private individuals, retirement plans, endowments, and charitable foundations. All accounts are managed on a discretionary basis. John Frye founded the firm in 2003, with a partner who remains Chief Operating Officer. They work with all of their clients to formulate a long-term investment strategy that will meet their investment objectives while addressing their risk profiles. Understanding their clients in this way enables them to develop unique plans based upon each of their clients’ needs to help them achieve their financial goals.
Before co-founding Crane Asset Management LLC, John served as Executive Vice President and Portfolio Manager at Renberg & Associates in Beverly Hills. He began his career with E. F. Hutton & Company in New York and subsequently worked with Alex. Brown & Sons in Baltimore. He received his Bachelor of Arts in Politics from Princeton University in 1977 and his M.B.A. from Columbia University Graduate School of Business. John holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Los Angeles.
BA, Politics, Princeton University
MBA, Finance, Columbia Graduate School of Business
Assets Under Management:
Crane Asset Management is registered with the State of California. A copy of Crane's Form ADV filing (Parts 2A and 2B) can be accessed here. In addition, Crane's Form ADV (Part 1) can be downloaded from the SEC's website. (Type in Crane's name in the field provided and follow the instructions on the site to download the information required.)
The situation you are describing does give cause for concern. Let's pick apart your question into its parts.
1. Some numbers may be negative and some positive? When you pose a question to us here at Investopedia, I wish you and everyone else would be specific. It really depends on which numbers are negative. For example, a company can have negative earnings in a particular year and still be a great investment.
2. Inconsistent revenue growth. This is not a good sign, unless there is a good explanation. Possible good explanations are (1) the business is seasonal -- for example, retailers make most of their money in December; (2) the company has discontinued certain divisions to concentrate on one business and invest in expansion; (3) their business depends on commodity trends -- for example, an oil company or a copper mine might be a great long term investment but there are bound to be years when the price of oil/copper is down and revenues are down as well.
Only invest in a company if you feel you understand its business and have a good sense of where the company will be in five years. If you don't know its industry or have to guess too much about pricing, margins, expense for foreign currency trends, etc., stay away. But if you like a business and you see one of those trends turn negative and the stock declines, it may create a buying opportunity. "Buy a wonderful company at a fair price rather than a fair company at a wonderful price."
N/A means not applicable, and you would see it under the P/E column if the company had negative or barely-above-zero earnings. If you see it under the "Annual Earnings" column that would be very odd. Earnings can be negative, but they are never N/A, in my opinion. Feel free to show me the reports in question if you would like.
You don't say whether this company was (1) a public company in which you owned publicly-traded shares; or (2) it's a private partnership; (3) a private LLC; or (4) a private C corp. If the latter consult your CPA or tax attorney.
If a public company distributes a lot of cash to its shareholders they usually do it by declaring a special dividend. I hope this isn't the case for your sake because it's taxable to you as dividend income (unless they can structure it as a "return of capital"). Partnership or LLC distributions are generally not taxable, but you will probably be responsible for the tax implications if there is a gain on the sale of those assets. You'll know when you get your 2017 K-1.
If you trade in puts and calls you can make a killing. You can also get killed. If you do this you are not investing, you are gambling.
Options all have an expiration date, and if you buy one (or sell one short) you are gambling that the underlying stock will move by enough to make your investment profitable. They are priced in a way that makes profit a 50-50 proposition, so if you like to gamble and can afford to lose your money if you are wrong, go ahead. Have fun. Just please understand that if you are wrong and the underlying stock moves against you, you have only a limited amount of time before your option expires worthless.
Keep reading about options until you are confident that you understand all the risks. But don't let yourself be deluded into believing that they are "better than stocks." If instead you want to build a nest egg, do it the slow way. Buy and hold stocks for the long term. In 20 years you will be delighted to see how wealthy you have become by earning (say) 7% per year.
A good answer to your question would require a 5,000-word essay. I will be as brief as possible in the hope that you and others will actually read this.
Your first question points out the difference between a company's actual (and unknowable) true value, and its market capitalization. A company's stock price supposedly reflects its true value, but usually doesn't. It's really only the temporary equilibrium between supply of and demand for shares. So a company can increase in value (that is, increase its revenues, earnings, and cash flow) but there might be a long time before its stock price reflected that increase. Stocks only go up when there are buyers. It's my job (and that of your other responders) to find stocks whose price does not accurately reflect the true underlying value of a business. This, as always, is a challenge; a good investor is one who is right about 60% of the time.
You also ask about dividends. They are set by a company's board and the payout varies widely from company to company. All other things equal, a company that pays less in dividends will see its stock price run higher and vice versa. If you own shares in a company you also have a part-ownership interest in the cash on its balance sheet; so a dividend is really the company giving you some of your own cash. (And forcing you to pay tax on it.) As an investor your total return is divided between price appreciation and dividends and in a perfect world it would not matter how much of its earnings a company paid to its shareholders. But our world is not perfect. First of all, dividends are taxable so you might prefer to have price appreciation (which is only taxable when you sell); second, investors usually view a company with a high dividend as unable to reinvest its free cash into its business at an acceptable rate of return -- that is, its business is mature and slow-growing.
Third, penny stocks. This term is broadly applied to a universe of small publicly traded companies. Some "penny stocks" turn into large companies over time and your returns will be spectacular; most will not, and many will go bankrupt. A too-large fraction of penny stocks are manipulated by insiders to suck in unwitting investors who bid up the price as those insiders sell. That's called a "pump and dump" and it's fraudulent. For those reasons I would counsel everyone to avoid speculating -- gambling -- by buying shares of companies they don't know. In all cases, only buy stock in a company you have researched and are confident in its soundness and bright future.
Questions? Click below.
Every stock, every day, trades millions of shares and each trade involves a buyer and a seller who have each made a decision to act based on their perception of a company's future. A company has the value it has in the marketplace because that value represents the temporary equilibrium that (in theory, at least) reflects accurately investors' collective future expectations of the company's business.
That was a mouthful, I know. But you have asked such a broad question and rather than spend hours (and thousands of words) scratching the surface, I would ask that you study events and the price movements they cause. Nothing is ever certain in investing and so many factors go into a stock price (not just two; not even two dozen) that you need to embrace the fact that investing is uncertain and a successful investor only needs to be right about 60% of the time.
In general, if a company is doing well its stock price is likely to reflect its performance. But even that is not certain, and I love trying to find companies who are unloved in the market -- good values -- and are likely to be discovered by other investors soon. That could come after a positive earnings announcement, and we always see dozens of examples every quarter. But a good earnings announcement might cause a selloff in a stock, if future expectations were too high. Isn't investing fun?
My next point is to address "EPS" (earnings per share). It's not really that good a measure of company performance. There are better indicators that point to a company's ability to create shareholder value. Plenty of companies have posted good EPS for years but have mediocre return on invested capital (ROIC) or free cash flow (FCF). A detailed explanation of those concepts is beyond the scope of this answer.
Lastly, "How does an investor collect their EPS?" I really recommend that you take a good course on corporate finance because these concepts are absolutely essential to an understanding of how to invest. Shareholders don't ever "collect EPS." Management can decide to reinvest earnings in the business; in which case shareholders (hopefully) will see the results in an increased share price; or they can decide to issue dividends, in which case the return is tangible but (unfortunately) also taxable.