Subscribe for free access: 7 Steps to Understanding the Stock Market
≡ Menu

Stock Market Days Up vs. Down Percentage

So I was doing some research on the S&P 500 and came across some interesting data. Basically, I wanted to know what the stock market does on average. I particularly wanted to know the percentage of how many days the stock market is up vs down.

Getting my data was actually simpler than you might think. I went straight to Yahoo Finance and entered S&P 500 as a search for a ticker. From there I selected the “Historical Data” tab and then selected a time period of 20 years: from January 1, 1996 – January 1, 2016.

Unfortunately that data didn’t have the % return for each day, but it wasn’t much trouble to find that out. I exported the 20 years of data into an Excel Spreadsheet. With this option, I was able to make quick judgements and conclusions with a little manipulating.

stock market days

In the Excel Spreadsheet, I created a quick formula in a new column. To make this easier to type and understand, assume x = adjusted close and y = adjusted close the previous day. So my formula was =(x – y) / y. This gave the return % for the day. I simply dragged this formula down the entire column so I had return % data for 20 years.

This is great, but who has time to count each number and tally up the positive and negative dates? I certainly didn’t, so I found this out in a quick and clever shortcut.

I made a new formula in the column next to return %. Assume Hx refers to the cell(s) in the return % column. It was =IF(Hx > 0, 1, 0). Basically this means that if the return % is positive, put a 1 in the cell of the new column. If the return % is negative, put a 0.

Dragging this down the column (which you can do by clicking the bottom right hand corner of the cell and holding it down and moving the mouse down), I had 1s and 0s for every day of the 20 years. Now all I had to do was select every cell in that column, and look at the “Sum” at the bottom of excel. This gave the number 2683.

Next I needed the total number of days. Remember that the stock market is closed on the weekends and holidays, so it wasn’t as easy as 365 * 20. So I made a new column with the first cell having a value of “1”, and dragged it all the way down. The “Sum” of that was 5035. [click to continue…]

It’s no secret. The performance of companies can be measured by numbers. Some numbers are more helpful than others in determining this. Tools like the Value Trap Indicator and Altman Z Score formula are geared toward doing just that.

z score formula

Both tools are extremely efficient in avoiding companies that are about to go bankrupt. One of my readers is a stock analyst and interested in the differences between the two. Here’s his question and my answer.

Hello Andrew,

I am an analyst and investor based in India. I came across your VTI book and website (yet to purchase the book).

While the idea of identifying value traps and differentiating them from value buys is great, what I need to know is whether the VT indicator is a number similar to the Altman Z-score. Indeed, how does your VTI differ from Z-score since the objective is somewhat similar, if not the same.

With warm regards,

The Value Trap Indicator is indeed a number similar to the Altman Z-score. Both aim to warn against a company that is about to go bankrupt. However, there are a few other features of the Value Trap Indicator that the Z score formula doesn’t have that proves to be very useful to the investor.

Let’s examine the Altman Z Score formula first. The Altman Z-score uses 5 business ratios to predict bankruptcy. The NYU Stern Finance Professor Edward Altman created the Z score formula out of a data sample of 66 manufacturing firms. Half of those firms had gone bankrupt, while the other half scored well on the formula.

Altman’s Z Score formula was later tested and proved to be about 72% accurate in predicting bankruptcy within 2 years. From about 1968 to 1999, the Z score was tested to be somewhere around 80 – 90% accurate in predicting bankruptcy.

The Altman Z Score formula itself is quite easy to calculate. It is:

Z = 1.2 * (Working Capital / Total Assets) + 1.4 * (Retained Earnings / Total Assets) + 3.3 * (Earnings before Interest and Tax / Total Assets) + 0.6 * (Market Value of Equity / Total Liabilities) + 1.0 * (Sales / Total Assets)

All of these ratios can be calculated from the financial data in a company’s 10-k annual report filed to the SEC. Using actual terms from the 10-k, the z score formula looks like this:

Z = 1.2 * [(Current Assets – Current Liabilities) / Total Assets] + 1.4 * (Retained Earnings / Total Assets) + 3.3 * [(Net Earnings – Net Earnings from Discontinued Operations + Income Taxes on Continuing Operations + Interest Expense) / Total Assets)] + 0.6 * (Market Capitalization / Total Liabilities) + 1.0 * (Revenue / Total Assets)

…Where Retained Earnings can be found in the balance sheet under the “liabilities and shareholder’s equity” section.

Within this calculation, a z score of 3.0 or higher means a company is relatively safe from bankruptcy, while a z score of 1.8 or lower means a company is in great danger for bankruptcy.

Compare this to the Value Trap Indicator, which uses a combination of 7 categories of financial ratios. A company with a VTI greater than 800 is in great danger of being a value trap and losing much of its share price or heading to bankruptcy. A company with a VTI less than 250 is considered a potential great purchase.

Similar to the z score, the Value Trap Indicator was tested on the 30 biggest companies that went bankrupt from 2001 – 2012. From that data set, the VTI was successful in avoiding 29 of the 30, for a 96% success rate. In other words, only 1 company of the 30 scored a VTI less than 250. Of the 30, 22 had a VTI greater than 800.

Both the Z score formula and the VTI formula are clearly great tools for investors wanting to avoid stocks headed towards bankruptcy.

However, there is a subtle difference in the two formulas. [click to continue…]

A few weeks ago, I discussed why you shouldn’t rely on qualitative analysis for your stock market decisions. On the other side of the coin is the option of quantitative analysis. I’ll explain the philosophy behind it and provide the reasoning behind my support of it.

A quick Google search of quantitative analysis returns the definition as “analysis of a situation or event, especially a financial market, by means of complex mathematical and statistical modeling”.

quantitative analysis

Investopedia extends this definition as “measurement, performance evaluation or valuation of a financial instrument.”

It is the analysis of a financial instrument, not a situation or event that we are most concerned with. A financial instrument is simply an asset that can be traded like a stock or bond.

So what’s the point of being able to find the valuation of a stock? Will quantitative analysis really assist in finding stocks that will increase in value on average more than they decrease?

To answer that question, we must look at the basics behind a security (or stock).

A stock simply represents part equity in a business. Equity means an ownership stake. So, to understand the basics of a stock, we must understand the basics of the business behind it.

The primary goal of a business is to turn a profit. All of the complicated moving parts surrounding the business world and the corporations inside eventually circle back to this chief point.

There are many strategies behind doing this, and some companies delay turning a profit in the present to expand the business quickly, but the final end goal resides with turning a healthy profit.

Other elements of the business, such as assets on the balance sheet (property, buildings, equipment, etc.), are acquired to assist in creating revenue.. Which turns into profit.

I hope you can understand my point. There’s plenty of complicated jargon, industry specific metrics, and accounting details that could possibly involve quantitative analysis. But it always comes back to the most important question, if the company is making a profit. [click to continue…]

Since I run a site geared towards beginners, I hear a lot of the same questions. One of the most common frustrations I get from readers is that they don’t have enough money to invest.

Whether you’d like to believe it or not, this is a powerful obstacle in the way of many of us wanting to make money from the stock market.

money to invest

It’s a catch-22. You can’t invest without money, and a great way to make money is through investing. Now I wish there was some magical way I could snap my fingers and fix your problem.

But there’s not one. Barring fortunate financial circumstances, money must be earned in the same way that it’s always been earned: through the sweat of the brow called hard work.

Fortunately, there’s smarter ways to go about this. Money doesn’t have to be this elusive treasure that everyone except you has access to. People have been successful before you, are successful right now, and many are willing to share why. There’s all kinds of resources like this.

And sometimes the right resources are all you need to kick start your money machine. I’m hoping at least one that I share will be of value to you. If you can combine your intellect with your ambition to work hard, maybe you can come up with some ideas on your own.

For the rest of you, you’re probably lost. I KNOW many of you are.

So here’s 10 proven ideas for getting more money to invest.  [click to continue…]

Why NOT to Use Qualitative Analysis

The theories behind how to analyze a stock can vary greatly depending on who you are talking to. There’s guys who like to focus on the growth of a stock, and those who focus on finding value. There’s those who like to examine the business, and those who like to look at the chart.

In this same regard, there are investors who focus on the qualitative features of a business, and those who focus on the quantitative. Now of course there are upsides and downsides to each one. Let’s talk about qualitative analysis and form an opinion on the matter.

qualitative analysis

Google’s dictionary defines the word qualitative as “measuring the quality of something rather than its quantity”. The term qualitative analysis is defined by Investopedia as security analysis that uses subjective judgment based on unquantifiable information.

The characteristics that investors who rely on qualitative analysis usually focus on usually revolve around the perception of management, the perception of the market or industry, the perception of a company’s future prospects due to perceived demand or strong R&D, or other such intangibles.

Examining this further, the top comment on defined solid qualitiative analysis as when “you can just tell it has good value to your company”. As you dig more and more into the central thesis of qualitative analysis, you’ll see it centers on the investor’s emotions about a company.

If you’ve been following my blog for any amount of time, you’ll know I argue profusely against letting your emotions dictate your investment decisions. We know the stock market runs off of the collective emotions of all investors involved, constantly varying in degrees of fear or greed.

Many investors’ shortcomings come from being swept up in these emotions.  [click to continue…]

Index vs. Individual Stocks

The general consensus among many professionals in the financial world is that index funds are superior to individual stock picking. I have a contrarian opinion about the whole matter, one that is hotly contested and often adamantly opposed.

However, it’s an approach that works for me. And it’s one that I’ve put a lot of thought and time into defending.

individual stocks

So today I’ll answer a reader’s question about this classic indexing vs. individual stocks debate. I’ll also answer a second email I received regarding foreign stocks and the Value Trap Indicator spreadsheet. Feel free to email me your questions at

Love the money tree podcasts Andrew, and congratulations on beating the S&P 500 with your value stock picks. As you know, value stocks (as a group) have historically done better than the S&P. Why wouldn’t someone just invest in value indexes instead of doing all your research? Thanks, Dan

For those who aren’t inclined to do the research, an ETF index would be better suited. Many of them have done very well in the long term and they are great investment tools.

But there is a potential advantage to picking individual stocks over an index. The biggest advantage I can see is through the power of compounding interest. Picking the right individual stock will give you much more through dividend reinvestment and growth.

When you pick the right dividend growing stock, you’ll see returns compound very quickly. Let’s say a good dividend stock grows its dividend around 10% a year, at an initial 3% yield. Obviously you aren’t getting rich from that 3% dividend the first year, second year or even third year.

However, as the dividend keeps increasing, the yield on your initial investment continues to rise. The first year pays you a 3% yield. The second year pays you a 10% higher yield, making the new yield about 3.3%. This continues throughout the years until the yield can total 20% or more.

If you reinvest the dividends automatically, the money starts to grow exponentially. As these dividends are reinvested, more shares are collected which lead to higher dividend payments. Hopefully you can see how this leads to higher and higher dividends. Combine that with the increasing yield each year and the capital accumulates substantially.

Take the following example. You can make the same calculation with this reinvestment calculator. Take a stock with an initial investment of $10,000 with a 3% dividend, growing 7% a year and growing its dividend by 10% annually.  [click to continue…]

Google Finance: A Beginner’s Guide

Google finance is a great tool to use in your investing arsenal. It’s a great way to get updated ticker information, and I use Google finance particularly to see past ticker information. You can set the exact date range of when to see past price closing prices, as well as 1d, 5d, 1m, 3m, 6m, YTD, 1yr, 5yr, 10yr, and All.

When you first enter Google Finance, there’s a myriad of options to look through. There’s a Market Summary section, a Top stories section, Trends, Sector summary and more. At the very top is a search bar, which is where you’ll want to enter a ticker to see its data.

google finance

Here’s what the top left section looks like.


+0.09 (0.25%)

Real-time:   10:24AM EDT

NYSE real-time data – Disclaimer

Currency in USD

The first number is the stock price. Below that is how much the stock has moved for the day, with the percentage move right next to it. If the market is currently closed, then this set of numbers is telling you how much the stock has moved in the after hours.

The next row tells you at what time this price was looked up. Keep in mind that stock prices can move by the second, and so this feature tells you at what time the stock was at that price. If the market is closed, you’ll see the date and the word “close” replacing the time.

The row below that tells you which stock market index the stock you looked up trades on. Most times you’ll see NYSE or NASDAQ if you’re looking at the bigger U.S. stocks.

Range:  34.76 – 35.66

The range tells you the high and low that the stock has moved for the day. In the case you are looking up the stock after hours, this will show up as nothing.

52 week:  27.81 – 45.72

This is the high and low that the stock has moved for the past 52 weeks. These numbers can give you a good sense of the general volatility of the stock for the past year.

Open:  35.47

The open is the price of the stock at the market’s open. If you are looking up the stock when the market is closed, this will show up as nothing.

Vol / Avg:  1.38M/3.69M

Vol refers to volume, which is the number of shares that were bought or sold during the day. When a stock has moved a high percentage either up or down, this is usually accompanied with a high value.

Avg. refers to the average volume this particular stock has seen in the past 30 days. You can compare these two numbers to determine if the volume is particularly high or low for the day.  [click to continue…]

Helping You to Analyze Value Stocks Better

Time to answer more great reader mail. One from someone who is struggling to analyze value stocks, and one from someone who is completely lost at what things to focus on as a beginner.

analyze value stocks

When you say you can help, how much would your book help me? I love the idea of your Value Trap Indicator. I am slowly becoming a more disciplined and patient investor, comfortable with averaging down and paying attention to balance sheets and cash flow, but my 8-5 is a counselor so I have limited time to research and read (with a family of 5 kids).

I have around $50K in my Roth IRA and $20K in my 401K. I would like to pickup some values in the sale that is happening in the market (I sold a large portion of my Vanguard 500 index about 3+ weeks ago in anticipation of the market downturn). Money is tight right now and I just want to make sure your book will help me with the formula to put into a spreadsheet that will. Help me analyze value stocks in a better manner. Thanks for the help, love your content.


The spreadsheet does exactly what you are looking for: a pre-calculated formula which allows you to compare value stocks. However, you have to put in the time and effort with regards to researching the stocks. There is no quick solution.

If you are already comfortable with sifting through balance sheets and cash flow statements, I’d say the book is a perfect next step to translating that data into a concrete numerical comparison. What you’ll have to do with the spreadsheet is manually fill in the common financial data points in each of the major statements (income, balance sheet, and cash flow).

The number of data points isn’t what’s time consuming, but if you are evaluating many stocks or many years the time involved can be quite liberal. I’ll tell you that when I’m evaluating a stock, I figure out if I want to buy it or not within 5-10 minutes of using the spreadsheet and the 10-k. You can easily get to this point after using the spreadsheet a couple of times.

About the reading… The book included with the spreadsheet package breaks down in extensive detail which data points are used to analyze stocks and the reasoning behind it, with historical examples to back it up. You’ll also collect valuable insight on which value stocks became the investor’s worst nightmare of a “falling knife” investment.

As always, remember the importance of dollar cost averaging, diversification, and long term investing. In perilous times such as these, the principles become that much more essential.

My biggest frustration honestly is not knowing where to begin. I have read a decent bit but I still feel like I don’t know so much….I opened my first account on Trade King but I haven’t done anything beyond that. Do I have to watch a ticker all day? Do I have to read articles about hot new companies all day? Do I have to wake up at 6 a.m. and read the paper and be there when the markets open???


First off, congratulations on starting your journey. Opening an account is a common first hurdle that many wanna be investors fail to do. And going with TradeKing will ensure you of lower commission fees which leads to better returns.  [click to continue…]

Financial Investing Rules for Your Money

An obstacle to getting started with investing can be not having a structure to follow. Things become easier to follow when there are guidelines.

Since the world of investing spans such a great space and there are literally endless possibilities and results for your money, it helps to simplify the process with some constraints or rules. Here’s 4.

financial investing

Financial Investing Rule #1: Get your financial priorities in order

This is the first and most important step for successful investing, and it has to do with your personal finances. The phrase “it makes money to make money” is ever so true in the investing world and has proven to be true over and over again.

Reliable returns from the stock market don’t involve a 10x return on your capital, which happens so infrequently. Rather, smaller average returns compounded over many years create reliable returns. But to make substantial money with these conditions, you need a high amount of starting capital.

So when it comes to your finances, you need to have them structured so you have a net profit each month. Spend less than you earn encapsulates this perfectly. Whether that’s through a budget or automatic withdrawals from your checking in month, I don’t really care. At the end of the day, you need to first have excess money to play with.

Once you’ve got the saving portion down, it’s time to look at other aspects. I’d say you at least need an emergency fund of $1,000 locked down. Some personal finance experts tout 3-6 months of expenses as an emergency fund, and I say if you want that then fine. For me, that’s too much and money goes too quickly to build that much when I have other places I want to invest my money. It’s really personal preference and risk profile.

The emergency fund is important because it keeps you from dipping into retirement accounts with steep penalties for doing so, or from accumulating high interest debt like credit cards once an emergency arises. Playing without an emergency fund and getting tacked on by these penalties that work like a negative compounding interest keeps you in a place where you’re going 1 step forward and 2 steps back. It doesn’t make sense.

Now let’s establish where to play your excess funds. First of all, I look for the things that will give me the highest return on my capital. Most of the time, this will be an employer match on a 401k. If the employer is matching you dollar for dollar, you are essentially getting a 100% return on your money. I don’t care what secret stock market trade you have under your belt, you aren’t getting 100% guaranteed returns anywhere else. Max out the match first and foremost.

Assuming you have no credit card debt, the next place to put yo money is in an IRA account. These accounts work as tax shelters and let you place investments inside them. These accounts also have contribution limits each year, so again max these out as much as you can.

Finally, you can put any remaining money you might still have into your 401k to get the tax advantages. If there’s any money after that, or you’d just generally prefer the taxable brokerage account, go that direction. The brokerage account is obviously nice because of the flexibility to buy individual stocks. Make sure you are definitely maxed out on the IRA accounts because those have the same flexibility of a brokerage account but without the tax implications.

Financial Investing Rule #2: You must fully understand the importance of long term investing

The reason why investing has become such a lucrative and important aspect of people’s lives is because of its results over the long term. The stock market is a generally volatile place and is not a great fit for the weak stomached casual investor, in theory. But even the most casual investor can make significant gains for himself if he understands this one rule. [click to continue…]

Beginner’s Guide to the Yahoo Finance numbers

This guide will assume you are an absolute beginner when it comes to using ticker systems like Yahoo Finance. The world of stock investments might seem confusing and overwhelming, with plenty of symbols and slang to mull over.

Don’t worry. I’ve broken down the basics to the stock market before, with my beginner’s guide having been viewed over 100,000+ times, and I’ll do the same for the standard Yahoo finance interface.

yahoo finance

I’m going to go through each individual category and explain exactly what each of the abbreviations means.

Some of these categories are complex and hotly debated topics that you can research further at your pleasure. I’ll link some good sources for that within. Others are really straight forward and don’t mean much more than the surface definition. Hopefully those will be easy to comprehend.

Now the first thing you’ll see when you enter Yahoo finance’s main page is a search bar at the top, and then a convolution of charts, ads, video links, article links, broker ads, games ads… the list goes on.

That top search bar is going to be the place where you’ll find the most use and get the most data for stock market investing.

Every stock that is publicly traded will have its own ticker symbol. This symbol holds the key to all of the charts and data behind that stock.

For this how-to guide, we’re going to use the ticker for the biggest stock in the market right now, Apple Inc (AAPL).

When we type AAPL into the search bar, a myriad of data immediately hits our screen. If you are following along, it should look like this:

Right away, there’s a big number in bold. That’s the current price of the stock.


In smaller numbers and in either red or green color is the difference in the stock price for today. You’ll see, in this order, an arrow going up for gain and down for loss, the amount of dollar value ($) gained or lost for the day, and the percentage of that difference compared to the price.

Right below these big numbers are the after hours prices, in a similar format to the above. These numbers represent some of the trading that occurred in brokers outside of normal business hours.


After hours numbers can be used as an indicator for a stock’s future movement. The accuracy of this, however, is suspect even in times when extremely high pressure is forcing the market to a high after hours percent drop or rise.

While the after hours isn’t sufficient to predict the future, you can basically utilize this number as the current price of a stock. Price is, after all, the point at which buyers and sellers meet.

Next, we have the Prev Close. This is pretty straight forward as the previous close value. It means the price of the stock when the market closed yesterday.


Keep in mind throughout this guide that the market hours for US exchanges such as the NYSE are 9:30am EST- 4:00pm EST. Other markets in other countries and time zones operate on their own schedule. As an investor, you can technically put in a trade at any time in the after hours.

The Open is the price of the stock when the market opened on this day.


Now getting technical with the nuts and bolts behind the stock price, we have the bid and the ask. [click to continue…]