Friday, April 29, 2011

Which Headphones To Buy? - Part I: Narrowing Down

In continuation of my audio series, I think it's time to cover an important topic for all audiophiles, and in general people seeking good quality gear: Which headphones are right for me and which should I buy?

Headphones and in-ear monitors (IEMs) have come a long way within the past 10 years. We've went from cheap $10 solutions to fully blown out custom in-ear monitors and reference headphones costing in excess of $1K. Selection has increased at least three-fold, with a wide selection of colors, styles (running, casual, full-size for mostly at home, etc.), and purposes. And to top it all off, we're left with endless marketing campaigns and gimmicky advertisements which lure us to a specific headphone or brand (Monster anybody?). But are we actually purchasing the item for its actual purpose, or for the brand recognition?

Impedance and electrical power is an important factor in deciding which headphone/in-ear monitor you will purchase. Many headphones/in-ear montiors require a headphone amplifier to sound their best. Sometimes high impedance headphones require amplifiers more expensive than the headphone itself to sound its best, like the Ray Samuels Audio Emmeline II headphone amplifier pictured above.

Pushing my personal vendetta against certain corporations aside, I would like to establish some basic facts about purchasing a good set of headphones or in-ear monitors. First, we need to know what you will be using these headphones/in-ear monitors for, along with your expectations of the sound quality as well as the primary genre of music you will be listening to with the headphones/in-ear monitors.

Ask yourself the following questions to narrow down your list of possible headphone/in-ear monitor purchases:

1) Are you buying for sound quality, brand appeal, or appearance? Or perhaps one or two from the three? If you are going for pure sound quality, then it is easier to narrow down your selection (contrary to popular belief, the mainstream "audio" companies to do not manufacture audiophile-quality headphones/in-ear monitors--Bose and Skullcandy are good examples).

2) What genre(s) of music will you primarily listen to with the headphones? If you have a mixed collection of music, what genre of music comprises the majority of your library? For example, 40% Classical, 30% Jazz, 20% Pop and 10% Other. This way, you will be able to purchase a headphone better suited to your tastes.

3) Are you going to use these headphones/in-ear monitors only at home or outside as well? Or both?

4) Do you want to purchase noise isolating or noise cancelling headphones? See my post on the difference.

5) Do you have a proper DAP (digital audio player such as an MP3 Player) to support the amount of electricity that the headphone/in-ear monitor needs to work at its best sonic quality? Certain headphones that are full-size (such as the AKG K720) require a headphone amplifier in order to achieve best sound quality due to their high electrical impedence.

6) What is your budget? Keep in mind that you get what you pay for in this hobby, and it is better off to start from something mid-priced before jumping on a really expensive piece of gear that you might not be able to amplify or pair properly with a DAC/DAP.

Sometimes many headphones can be eliminated from simply asking yourself whether you will use your headphones at home, outside, or both. Headphones like the AKG K702 pictured above are open headphones, meaning they leak music out to the environment and do not isolate from external noise, since they are designed to be used at a home/studio.

After asking yourself these questions, I can guarantee that it will be easier to narrow down your possible headphone/in-ear monitor for purchase. For example, if you answered the following:

1) For sound quality, nothing else. --> Eliminates a bunch of brands that are not focused on sound quality.
2) Primarily Pop, R&B, and Jazz. --> Eliminates some headphones not suited for these genres.
3) At home as well as outside. --> Eliminates many full-size open headphones due to their leakage outside.
4) Noise isolating or noise cancelling, it does not matter. --> Opens up more headphones for consideration within the narrowed list.
5) No, I only have an iPod. --> Eliminates high-amplifying-requirement headphones like the AKG K702.
6) Under $200. --> Eliminates headphones above $200.

Avoid jumping the gun and buying expensive headphones from the start. You will not be able to fully appreciate the differences and may have difficulty amplifying the headphone to make it sound its best. The Sennheiser HD800, pictured above, sells for $1499 MSRP but requires a very good amplifier (for its 300Ω impedance as well as sound signature), DAC combination, lossless/near-lossless audio, and to make it sound its best, which can run well over twice that amount. Don't try running these headphones straight out of your iPod.

By simply answering six questions, you have virtually narrowed your headphone/in-ear monitor possible purchase(s) to probably around 10-12 at this point.

To further narrow down to that single headphone/in-ear monitor, we must now focus on something much more crucial than all of these factors: sound signature.

Look forward to my post about sound signatures in headphones to finally determine how to narrow down to that single headphone! (Sorry for the cliffhanger ending!)

Saturday, April 16, 2011

The Basics of Stocks - Part II: Investing In Stocks

There are many ways to make an investment and receive a profit in the world. Some common investments include: trading goods or services for money, purchasing a plot of land to let its value appreciate, and investing in bonds and stocks. But how exactly can stocks be used to produce a profit, and more importantly, what are the steps to go about trading stocks if you are a beginner?

Let's refresh ourselves on what a stock is once more. Quite simply, a share of stock is a partial stake of ownership in the company that you are purchasing stock from. This partial ownership of the company can be used for voting for changes in the company, as well as for making a profit from the company's value. So where can you, the investor, find the stock and how can you purchase it?

The New York Stock Exchange (NYSE) pictured above, is a major stock exchange. However, you don't need to physically be at the exchange in order to trade stocks. Online brokerages allow for trading right from your living room!
Image Source:

First, let's find out where you can find stocks to trade. Stocks are traded on a stock exchange, such as the NASDAQ and NYSE. A stock is traded only on one exchange. For instance, Citigroup (C) is traded on the NYSE--this means that the stock is not traded on the NASDAQ. It can only be found at the NYSE for trading. However, you don't have to physically go to the exchange in order to trade stocks. Since most stocks are traded through an online brokerage firm, you don't even need to leave your living room in order to trade stocks. What is the online brokerage firm? In layman's terms, the brokerage firm acts as the "middleman" between you and the exchange--just as a broker acts as a middleman for any transaction between a buyer and a seller. In return for the brokerage's service, you pay a commission for the transaction (this is called a commission fee and is usually around ~$10 USD for a single stock transaction for most online brokerages). Some popular online brokerage firms are: E*TRADE, Scottrade, and TD Ameritrade to name a few.

Now that we know where to trade stocks, let's take a look at the stock's properties. A stock has many properties--and I mean many properties--that are studied and constantly interpreted to make analysis tools in order to predict the stock's behavior. However, since we are only covering the basics of stocks, we will ignore these more intricate attributes and cover them later.

A stock--any stock--has three basic properties.

A stock symbol (also known as a ticker), is a unique identifier for the company associated with the stock.
Image Source:

Firstly, a stock has a symbol (also called a ticker), which is used to represent the company in the exchange. A stock symbol is usually between one and four characters, but can be longer for certain cases. Some commonly traded stock symbols include: Google (GOOG), Citigroup (C), Amazon (AMZN), Apple (AAPL), International Business Machines (IBM). As you can see, the stock symbol is useful in condensing the name of the company.

Secondly, all stocks have a price. This price is determined by many things, but to put it simply, it is the investors (buyers and sellers) that determine the price of the stock by simply investing. The price of a stock can range from pennies a share (commonly called penny stocks) to hundreds--even thousands--of dollars for a share. The price of the stock is what follows after the stock symbol in nearly all brokerage firms and financial websites. The price that is shown on a ticker however, is usually ten minutes delayed from the actual price of the stock. However, real-time stock prices can be streamed at most brokerage firms. It is safe to say that the price of a stock is the single most important attribute of the stock.

The price of a stock is the most important attribute of a stock. It is important to note that the price of a stock can change over time, and in some cases, very rapidly. The price can be a double-edged sword for investors due to the potential for profit and loss.
Image Source: Google Finance

And finally, all stocks change in their price daily. Even though many may not consider this a property of stocks, I believe it is the single most important property of a stock. Why does the price of a stock change? As I mentioned earlier, the price of a stock is determined by the investors themselves. As the stock is bought and sold amidst investors, the stock price fluctuates accordingly. For example, if there are 100 investors for a single stock (assuming they all own the same amount of shares), and in a single day 60/100 of these traders decide to sell the stock while 40/100 traders decide to buy the stock, the stock price will fall as a net effect of more traders selling the stock than buying it. Not to delve too precisely into this, we just need to understand that the price of the stock is constantly changing due to this reason.

Now that we have understood the basic properties of a stock, how can we make a profit by investing in a stock? There are several ways to do this. The most common stock transactions are Buy, Sell, Short Sell, and Cover Short. For simplicity, I will only cover the Buy/Sell transaction in this post. Suppose that the stock you are looking to make a profit on is a hypothetical technology company. Furthermore, this technology company just released a new device that you believe will be very profitable and popular--a successful product. You predict that this company's value will increase as a consequence of this successful product. For this reason, you decide to buy the stock of this company today in anticipation for the price of the stock to rise in the future. Let's say you purchased 20 shares of stock at $50 a share for a total of $1000 in stock.

Investors can profit from many different trading strategies. In a "going long" strategy, investors can profit from an increase in stock price linked to the success of the underlying company.
Image Source:

Fast forward six months down the road--and just as you predicted, the value of this company skyrocketed due to their product launch. And consequently, the price of the stock also rose in value to $85 a share. Remember those 20 shares of stock you purchased months ago? Right now, they are worth $1700 in total (20 x $85 a share = $1700). Realizing that you purchased the stock for $50 a share for a total of $1000 (20 x $50 a share = $1000), you decide to sell your 20 shares of stock for a profit of $700, since you initially purchased the stock for $1000 and now sold it for $1700.

This type of trading strategy is called "going long" since you are predicting that the price of the stock will rise due to the company's success. It is the most popular trading strategy--however it has its drawbacks. Suppose that instead of the product launch going successfully, the product flops and the company's value decreases. Consequently, the price of the stock dips to $35 a share. In fear of the stock price decreasing further, you decide to sell the stock to prevent further losses. Since the stock is now worth $700 (20 x $35 = $700), you made a net loss of $300 ($1000 - $700 = $300).

As a note, there are ways to prevent this type of loss by having a different stock transaction and/or a different trading strategy as well as a hedge against this transaction.

In summary, a stock is traded on a stock exchange and can be purchased via a brokerage firm. This brokerage firm will take a commission fee for the transaction, and you will own the stock. The three basic properties of the stock are its symbol, its price, and its change in price. And finally, a profit can be made by investing in the stock. There are many investment strategies--for a strategy in which you expect the value of the company to appreciate, you are "going long" on the stock. In such a trading strategy, if the price of the stock increases, you can profit by selling the stock and taking the difference between your initial purchase and your proceeds from the sell.


More posts to come on this subject!

Monday, April 11, 2011

The Basics of Stocks - Part I: What Are Stocks And Why Do They Exist?

We've all heard of Stocks. When we hear the word "Stocks", most of us think about those guys in suits on the NYSE (New York Stock Exchange) floor yelling and bartering with other traders. But what exactly are stocks and how do you invest in them? In this part of my mini-series on Stocks, I will discuss why stocks exist and how they are useful to a company and an investor.

To put it simply, a stock is almost like a piece of a company. When you purchase stock, you're buying a portion of that company--so you in turn become a partial owner of the company. But why and how did the stock even get there? Let's step back for a bit and understand why a stock is even in existence.

The NYSE (New York Stock Exchange) is one of the world's major stock exchanges where stocks and other financial instruments are traded.

Let's look at a hypothetical example where you are the owner of a private company and would like to expand to meet your rising demand. To do this, you realize that you would have to purchase an entire plot of land, build a factory on that land, and then purchase equipment and hire employees to work in the new factory. Now all of this requires money, and lots of it. If you don't have the capital to start this new expansion, then what can you do? Presuming that the cost of the new land and building is a large sum, getting a loan would be too pricey and too risky. The next logical step for a private company in this situation would be to issue stock.

When the company issues stock, what it is doing in layman's terms is giving up its private ownership for public ownership. This means that instead of one person (or a few people) owning the private company, the company is now owned by the public in the form of stock shares. What does this mean for the company and its owner? Firstly, the owner no longer has the same power that he or she once had over the company. In fact, a Board of Directors is usually set up by the shareholders to keep the company's boss(es) in check. This means that if you founded the company and start doing sneaky and fraudulent business, and the shareholders find out, you can easily be fired from your position and replaced by a new CEO.

Once a company goes public, shares of stock are purchased by the public. Stock Certificates were once used to show ownership of these shares, but in modern times they are rarely requested for printing.

So what can possibly be the benefit of this public ownership? Remember the plot of land, factory, equipment, and employee costs? All of those can now be covered because of the large influx of money coming in from the shareholders! Since the company is now divided into millions of shares which are then bought by the public--they get partial ownership of your company (along with a potential profit which I will cover in my later post), and in turn your company gets their investment for purchasing this share of your company. So in a way, your company is saved from the daunting interest, payments, and risk of long-term debt and is simply made public to receive that extra cash. Who exactly makes the stock valuation (called an IPO or Initial Public Offering)? It is usually an Investment Banking Firm such as JPMorgan or Goldman Sachs which does the stock valuation and does all of the calculations for a successful stock offering in the market (more on this in future posts).

There are clearly sacrifices made for this switch from a private company to a public one. Since your company is no longer private, you must now answer to the shareholders. This means that if the shareholders aren't satisfied with your company--chances are they will sell your stock and the value of your company will take a dive. This is why we often hear "XYZ Company must answer to the shareholders" when we flip on the news. The company's main priorities change, and they must satisfy their shareholders with progress and innovation, a good earnings report, and dividends (again, more on this in later posts).

Stocks can appreciate over time, increasing the value of the company--and profits to the investors. Above, Google's stock during 2009.
Source: Google Finance

The good news is that your company now gets a tremendous amount of capital to use for investing in future growth (such as the plot of land and equipment), research and development (we see a lot of R&D costs in technology companies), and for simply keeping a good cushion for your company in the case of natural disasters and other problems which may halt progress. There are also changes to the structure of the company as well as the transparency code which the company undertakes which can be a double-edged sword depending on your actions (BP anyone?).

So in short, stocks in layman's terms are used to transform a private company into a public one--the company is then available for purchase via stock shares; the company acquires a large amount of capital through this process, while sacrificing its private ownership for public ownership.


So now that midterms are over and my head has cleared a little bit, I thought "It's time to get back to posting!"

I wanted to write something about finance today (after having gone through two grueling Finance midterm exams last week, why not remind myself more about it?), and so here is your finance article!

Saturday, April 2, 2011

Midterms and More Midterms

I have a bunch of midterms for this coming week, so I apologize for the lack of posts!

Hopefully after this week I will be back to my normal posting routine!