To no one's surprise the Federal Reserve Board (the Fed) hiked interest rates again this week in an effort to cool off the economy.

The last three rate hikes haven't had much effect, but maybe fourth time is charm. The three rate hikes in 1999 were met with increased employment and a stock market that laughed at the increases.

If rising interest rates aren't slowing the economy down, why should you care whether they go up or down?

As a consumer, you will see interest increases in home equity loans, credit cards, auto loans, and other consumer debt. As long as your income keeps going up, the additional interest will probably not change much in your life.

The Fed plays a delicate balancing game between keeping inflation under control and not pushing the economy into a recession.

Their control of key interest rates sets in motion increases or decreases in most interest rates you pay. The danger begins when wages stop increasing as fast or faster than interest rates.

So, beginning investors, what do rising interest rates mean to you?

As a long-term investor, you really don't care that much, unless you are nearing the end of long term investing and can see retirement in the near future.

If the Fed keeps raising rates and is successful in slowing things down, you don't want to take a chance that the market's brakes will lock and your growth investments will go through the windshield.

It is always wise to consider moving out of aggressive growth investments that can be interest rate sensitive and into more balanced and conservative investments when you need to be more concerned with preventing big losses than scoring big gains.

Try to keep your high interest debt under control. Rising interest rates will only make things worse. Re-double your efforts to get that debt paid off. It may be time to consider converting any variable rate mortgages to fixed rate mortgages if you can.

There are no definite signs that inflation is on its way back, but the Fed is troubled by what it sees. Look for more interest rate hikes in the future and be prepared for higher interest rates on your debt.

One of the biggest challenges most beginning investors face is making sense of market news that may or may not signal a time to buy or sell.

The concept is called market timing and if you have visited this site before, you know my thoughts on market timing: it can't be done.

Here is an excerpt from an e-mail I received recently:

Jeff is referring to Federal Reserve Board Chairmen Alan Greespan. The Fed, as it is known, controls key interest rates. Raising interest rates generally has a cooling effect on the stock markets and the economy. Likewise, lowering interest rates generally stimulates the economy and the stock markets.

If you want to speculate in the market, you should indeed pay attention to interest rates and economic reports that may move the market one way or the other.

However, if you are a long-term investor (the most successful strategy for average investors, by the way), then I wouldn't pay much attention to the minutiae.

I'll answer your question Jeff with Little's Golden Rule of investing:
Yesterday was the best day to start investing. Today is second best. Tomorrow is better than nothing.

The sooner you start a habit of investing the sooner you'll be on the road to financial freedom.

Good luck, Jeff

What is a share of stock worth? How long is a piece of string?

The answer to both questions is: "I don't know." How long a piece of string is probably doesn't matter much to you, unless you want to fly a kite.

However, figuring out what a stock is worth is of major importance to investors. Like many questions in investing, there are several answers.

When you buy a stock it is because there is some quality you desire. It could be earnings, dividends, sales, or growth potential. You see an opportunity for stability or growth in these areas and want to relate that to the stock price.

In this article, we are going to look at earnings. Earnings or profits can be related to the stock's price in two ways. The first way relates the stock price to historical earnings and is known as Price/Earnings Ratio or P/E.

The P/E is calculated by taking the stock's current price and dividing it by the trailing 12-month earnings per share. Trailing is a key word since it tells you that we are looking back.

Earnings per share or EPS is calculated by taking the annual earnings and dividing by the number of outstanding shares. For example, if a company had annual profits of $5,000,000 and 10,000,000 shares outstanding the EPS would be: $0.50.

Company ABC is currently is trading for $22 per share. With an EPS of $0.50, the P/E is 44 (22/.5 = 44). A P/E of 44 would be considered high.

What does this tell us? One interpretation is that the market is willing to pay a premium for this stock because investors believe earnings will rise. Another investor looking for a good value stock would pass on ABC. They would look for a stock with a much lower P/E.

Let's dispense with the obvious first: A share of stock is worth what someone is willing to pay for it and the price someone else is willing to accept for it. When those two numbers agree, we have a value.

Of course, there is more to it than that. Both parties have to come to some value that is independent of the other.

Which gets us back to the question. If I am interested in buying ABC stock, how do I know what is a good price or value for the stock?

We are going to look at several ways to value a stock in this series. I don't believe there is any one magic number or ratio that tells the whole story. However, using seveal measures we can build a profile of the stock that will give us a value.

Like there is no one magic number to value a stock, there is no one value of a stock. Two investors with access to the same information will often come to a different value. The important thing is that you come to a price you are willing to pay through an analysis of where the stock is and where you believe it is going.

Investors might conclude the market had a lot of confidence in ABC's ability to increase earnings. Technology stocks, particularly of young companies, almost always have high P/Es.

How do we know when they are too high? To get a handle on that, we need to look into the future at what we might expect from ABC.

This brings us to the second way we relate stock price to earnings: Forward PEG.

The forward PEG tries to look forward at whether there is justification for optimism. You calculate the forward PEG by taking the P/E and dividing it by projected EPS growth. The projected EPS growth comes from analysts who follow the stock.

ABC has a P/E of 44 and analysts feel their EPS will grow by 65% per year. The PEG is then .68. (44/65 = .68)

A PEG of 1 would suggest that the stock's value is on target, since the P/E should approximately equal EPS growth. A PEG under 1 may mean the stock is undervalued.

Based solely on these two calculations, one could conclude that the market is undervaluing ABC's future potential.

Any time you look into the future, you are treading on a slippery slope. If ABC doesn't hit their earnings estimates, the forward PEG is meaningless.

You still don't have enough information to decide whether ABC is a good buy or not, but you know a lot more now than before you started.

How do you put a value on a stock that has no earnings?

This second part of a series on valuing a stock will look at relating growth to stock price. This is especially important when looking at many of the newer high tech and Internet stocks.

Amazon.com has never earned a penny, yet the market somehow comes up with a way to put a price on its stock.

Amazon.com is a growth stock and when you invest in growth you are trying to make a decision about how the stock's growth and growth potential relate to the stock's price.

Although a company may have no positive earnings, many do have sales and we can use sales as they relate to stock price as another measurement.

The sales-price ratio is a way to tie sales and the stock's price in a measurement that can then be used to evaluate how cheap or expensive the market is valuing the companies sales.

The sales-price ratio is calculated by taking the company's market capitalization plus any long-term debt and dividing that number by the last 12 months of sales.

The closer the sales-price ratio is to one the more fairly the market is valuing the company's sales. You can also use this number to compare companies whether they have earnings or not.

The sales-price ratio is another tool you can use to evaluate stocks. It does not tell the complete picture, but is one more piece of information that will help you make your decision.