We have a huge variety of very intelligent and talented people here, so I figure it's a good place to discuss to the stock market. It's an interesting time in the market right now, as it becomes more and more clear we're headed for a bear run in the near future.
Anyone else here an active investor? What are your thoughts on the economy?
- Warren
En_lizard
Oct25-07, 02:23 AM
stock market investing is a money making job, right?
chroot
Oct25-07, 02:46 AM
It can be a profession in its own right, but most people participate in it as amateurs, as a means of making secondary income.
- Warren
J77
Oct25-07, 08:56 AM
stock market investing is a money making job, right?If you've got the money to invest in the first place...
jimmysnyder
Oct25-07, 09:00 AM
What are your thoughts on the economy?
My wife and were advised by Bear Stearns to buy, but Merrill Lynch said we should sell short and that's what we did. But the stock went up so we had to drop our shorts and go with Bear Stearns.
Astronuc
Oct25-07, 09:12 AM
We have a huge variety of very intelligent and talented people here, so I figure it's a good place to discuss to the stock market. It's an interesting time in the market right now, as it becomes more and more clear we're headed for a bear run in the near future. One can certainly make money as an investor, as opposed to being a broker, but one has to do thorough research on the market, the particular sector, and the particular company.
Back in '98, I told a friend to invest in NSC and CSX. During the following year, the share prices just about doubled. He decided to stay in the tech sector which had about doubled or tripled during the prior year or two. Then the bubble burst, and the NASDAQ and tech sector took a nose dive. He lost 70% of his investment, as opposed to doubling it.
Anyone else here an active investor? What are your thoughts on the economy? I've been in and out. I prefer less risky investments these days.
There is a lot of volatility, and unfortunately, there are those who get access to information that most investors do not.
The market and the economy is highly leveraged, and probably a significant amount of debt will not be repayed. Default rates on mortgages and other loans are at an all time high.
Merrill Lynch just added $8 billion in writedown. Not a good sign.
The NYSE and Dow rebounded yesterday on speculation of more action by the Fed. Also, not a good sign. There is more concern about recession than there was a month ago.
And the Bush administration is still asking for $billions on a war that can't be won.
turbo-1
Oct25-07, 09:15 AM
I'm investing in funds (through a self-directed IRA) that hold a wide variety of domestic and/or international stocks. Some are more volatile than others, but they tend to correct for one another over time. The stock market has increased in value over time, so I tend to just hold tight during downturns.
We certainly seem to be headed for a bear run, except in the energy market, where high oil prices due to ME instability will enable some serious price-gouging and record profits.
Astronuc
Oct25-07, 09:20 AM
Oil and gas leases/trusts are doing well. There are a few companies that specialize in those. The ROI can be quite substantial.
chroot
Oct25-07, 03:55 PM
IMO, there's no question we're in the beginning of a protracted bear run. The Dow transportation index rolled over with a convincing 50- and 200-day moving average "death cross" in mid-September. Those of you who subscribe to any portion of Dow theory know what that means -- fewer goods making it to customers means businesses upstream must be suffering.
The SPX also came very close to its own death cross in early October, but has bounced up and drifted back down, making a very distinct bearish inverted cup-and-handle formation. I'm not really one to believe technical analysis in vacuo, but with all of the other associated signs (dollar value declining, housing market killing banks, oil at record highs), I'm pretty sure it's meaningful.
The market has also been incredibly twitchy lately (just look at what has been happening to companies in relation to their earnings, good or bad), and IMO has only barely survived a couple of massive sell-offs in the past few weeks. The bulls are keeping the roof up with modest buying pressure, but they're getting tired.
I've been short the financial sector since early October (when their volatility all simultaneously tightened) and have, well, so far made a killing on the short side.
I'm not a financial advisor, and my advice is essentially worthless, but.... I would advise anyone who invests in mutual funds to stop investing in mutual funds. I would advise anyone who invests in long large-cap positions to stop investing in long large-cap positions. I would advise anyone who has a significant amount of money in a 401k to reallocate most of it to cash. (Your fund managers cannot short the market, and you're going to get beaten up pretty badly if we have another year of bearish times.)
Good luck to all,
- Warren
chroot
Oct25-07, 04:21 PM
By the way, the futures market is putting the chance of a 0.5% fed cut at 2%, but I'd personally put it at more like 50%. Be careful with any shorts into next week.
- Warren
EnumaElish
Oct25-07, 04:25 PM
Healthcare.
chroot
Oct25-07, 04:31 PM
Healthcare.
What about it?
- Warren
EnumaElish
Oct25-07, 04:35 PM
I think as a sector of the economy it offers excellent long-term value.
chroot
Oct25-07, 05:01 PM
I think as a sector of the economy it offers excellent long-term value.
Is this just sentiment, or have you done some kind of valuation analysis?
- Warren
Greg Bernhardt
Oct25-07, 05:08 PM
I put some money into KMGB and then after earnings it dropped like 40%. Now I am in the dog house big time. :(
Stocks I watch every day are: ATI, TIE, NVDA, AAPL, GOOG, BIDU, RIMM, PTR, DRYS
chroot
Oct25-07, 05:12 PM
I put some money into KMGB and then after earnings it dropped like 40%. Now I am in the dog house big time. :(
Ouch, Greg.. I'm sorry for your loss. Maybe it's about time we had a good thread going here. So you invested all your capital in one position, didn't use a stop, and are now stuck with a dog that don't hunt, eh? :frown:
Don't take any offense, but I'd say you have a lot to learn about capital management, valuation, and... the use of stops. :frown:
- Warren
Greg Bernhardt
Oct25-07, 05:15 PM
Ouch, Greg.. I'm sorry for your loss. Maybe it's about time we had a good thread going here. So you invested all your capital in one position, didn't use a stop, and are now stuck with a dog that don't hunt, eh? :frown:
Don't take any offense, but I'd say you have a lot to learn about capital management, valuation, and... the use of stops. :frown:
- Warren
Yeah, but many times I'll see a stock bounce back. Who can predict a bottom? So it's hard for me to use stops and lock in a loss. Guess I'll have to wait it out and hopefully the stock will creep back up with the new few earnings reports.
Ronnin
Oct25-07, 05:20 PM
It's nice to see a little financial talk here, I don't feel so lonely now. If anyone is interested in doing some theory testing and are a bit weary of committing real money I use http://www.investopedia.com/. You can play with fake money and they have a lot of good investment and trading info on there. Market is heading for a major correction, but I have been feeling that for about 6 months now and it has yet to roll over like I thought it should have. And oil, I just can't see how the market keeps absorbing these major bumps in and not be trading lower. Does Q4 just look that good?
chroot
Oct25-07, 05:35 PM
Yeah, but many times I'll see a stock bounce back. Who can predict a bottom? So it's hard for me to use stops and lock in a loss. Guess I'll have to wait it out and hopefully the stock will creep back up with the new few earnings reports.
Again, I hate to say it, but this is pretty much a textbook example of what not to do... Many people ignore the signs of a retreat, don't use stops, and end up riding a stock down until it's halved in value. Then, as selling pressure mounts and drives the stock to what they feel are shockingly low prices, they finally succumb to panic and sell quite near the bottom, right before it begins moving back up. All of the people who lost money in the dot-com bubble lost money because they made these kinds of decisions.
You should never end up sitting on a non-performing asset. Ever. If you ever find yourself in a situation where you're "waiting out" a downturn, you have already made some serious mistakes. Unfortunately, once those mistakes have been made, you're screwed. There often is no good escape plan once you've lost a significant amount of your capital in one trade, so you should never permit that to happen. "Waiting it out" means you've effectively lost that capital for the duration of the wait, when it could have been making money somewhere else.
Some basic rules:
1) Never permit any single trade from losing 3% of your capital, or perhaps 5% if you are willing to accept greater risk exposure. Set stops when you buy the stock, and if the stop is executed, accept that you made a (small) mistake and move on. Putting in a properly-priced stop order is an instrumental and necessary component of customizing your risk exposure.
2) Because you generally cannot permit more than 3% capital loss per trade, you almost necessarily need to be in multiple positions at once. (Otherwise your stops will be very tight and you'll probably get stopped out frequently.)
3) Never take only one view of the market. Hedges are a critical part of mitigating risk. The reason mututal funds almost always underperform the market is because they are forced (via regulations and rules) to always take one view of the market.
Again, sorry to hear about your loss, Greg. If your stock rebounds, get out of it and take a break. Don't get back in until you've read more and have a more detailed plan of action.
- Warren
Greg Bernhardt
Oct25-07, 05:45 PM
1) Never permit any single trade from losing 3% of your capital, or perhaps 5% if you are willing to accept greater risk exposure. Set stops when you buy the stock, and if the stop is executed, accept that you made a (small) mistake and move on. Putting in a properly-priced stop order is an instrumental and necessary component of customizing your risk exposure.
Lets take AAPL as an example. End of July it peaked at 146. Mid August 117. Now two months later it's at 182. If I exit at 3%-5% and move on I would have lost on a huge opportunity.
EnumaElish
Oct25-07, 05:46 PM
Is this just sentiment, or have you done some kind of valuation analysis?
- WarrenBased on 401k index growth/valuations over the last few years (not individual stocks).
EnumaElish
Oct25-07, 05:51 PM
I would advise anyone who has a significant amount of money in a 401k to reallocate most of it to cash. (Your fund managers cannot short the market, and you're going to get beaten up pretty badly if we have another year of bearish times.)What is your time horizon here? Most elderly people probably have bulk of their 401k's in the money market. So that leaves the middle aged and younger, and my guess would be the market will have had sufficient time to correct any bearishness by the time they get to retirement.
Plus, why cash, and not, say, bonds?
Greg Bernhardt
Oct25-07, 05:54 PM
Plus, why cash, and not, say, bonds?
would the dropping dollar value factor in?
chroot
Oct25-07, 05:58 PM
Lets take AAPL as an example. End of July it peaked at 146. Mid August 117. Now two months later it's at 182. If I exit at 3%-5% and move on I would have lost on a huge opportunity.
Wrong!
If you bought in July, and promptly got stopped out, you would have taken your money and put it somewhere else that delivered performance through the entire month of August (say, in shorting the craptastic financial market that was causing those low AAPL prices to begin with). You would have made money all through August, rather than just sitting on your thumbs. Finally, after the smoke cleared after the margin call day in mid-August, you could have jumped back on the AAPL freight train and made a small fortune in the month of September, too.
If your entire perspective on the market is a single stock and what that single stock does -- over a week, a month, or a decade -- you are going to make very little money, if you make any at all. Put it this way, Greg: you're now well aware that your "wait it out" strategy is wrong, so stop defending it and learn how to better manage your investments next time around.
- Warren
turbo-1
Oct25-07, 06:00 PM
would the dropping dollar value factor in?Certainly a factor. If liquid assets (dollars) devalue, it will take more of them to buy a fixed asset, and if the fixed asset appreciates over time, a later bounce in the value of the dollar may present an opportunity for profit-taking before the market corrects for the revaluation.
Astronuc
Oct25-07, 06:01 PM
I think as a sector of the economy it offers excellent long-term value. Perhaps as a sector, but one has to look at individual stocks.
How about Wellcare?
CHICAGO (MarketWatch) -- Shares of WellCare Health Plans were hurting Thursday, losing as much as 70% after scores of federal and state agents raided the health insurer's Florida headquarters.
The acting U.S. Attorney for Middle Florida announced the raid on Wednesday, saying in a statement that agents from the Federal Bureau of Investigation, the U.S. Heath and Human Services Department and the Florida Attorney General's Medicaid fraud-control unit all participated in the execution of a federal search warrant at WellCare's (WCG 42.67, -72.50, -62.9%) offices, in Tampa.
In a brief statement posted to the company's Web site, WellCare Chief Executive Todd Farha said that the company is cooperating with investigators: "We operate in a highly regulated industry and are committed to full compliance."
He added that "all essential services remain operational and uninterrupted."
WellCare was down almost $73, or 62.3%, at $42.41 in midday action after scraping as low as $35 earlier. On Tuesday, it hit its 52-week high of $128.42. Ouch!
chroot
Oct25-07, 06:29 PM
Based on 401k index growth/valuations over the last few years (not individual stocks).
You have to be kidding me. Behold, the S&P healthcare SPDR versus the whole S&P500. It's a total dog! You'd have made 40% more over the past 5 years just by investing in the S&P!
I play around a bit both with real money and at MSN's/Motley Fools CAPs site where you can try to beat the market and the other players. CAPs is a great place for investment ideas as you can look at the individual players' performance rankings and so weight the value of their advice based on their actual performance.
They use the S&P 500 index as a benchmark and the idea is to do better than that which btw 80% of professional fund managers do not!!
They record tips from professional market commentators such as Jim Cramer (he's in the 79th percentile) so you can compare your performance against theirs.
I'm in the 94th percentile myself mainly because I take the advice of the players whom I rate on board, many of which have an 80%+ accuracy rate, before tipping stocks .
Many of the people there actually work in companies they comment on or in the sector and so have far more knowledge than it would be possible for the average investor to glean without an inordinate amount of time and effort.
Some of the analysis are really excellent. As an example there's one guy works in the real estate business who provided a superb detailed piece on the prospects for home builders. Which ones would fail, which will come out of the current mess strongest etc. Definitely an opportunity to make money in that sector in the future though too early to take a long position yet.
At the moment companies feeding the growth of the emerging economies are strong. Some ADRs are definitely overpriced but with a lot of new wealth in places like China chasing relatively few public companies it is likely the bubble will continue to grow in the short term especially for those companies feeding the raw material into China's manufacturing plants. It won't last for ever but as they say 'make hay while the sun shines'.
russ_watters
Oct25-07, 07:00 PM
What is your time horizon here? Most elderly people probably have bulk of their 401k's in the money market. So that leaves the middle aged and younger, and my guess would be the market will have had sufficient time to correct any bearishness by the time they get to retirement.
Plus, why cash, and not, say, bonds? I'd agree with this - and you're around 30, aren't you, warren? A 401k is, by definition, retirement savings and should not be played with in this way. Mutual funds in a 401k for a 30 year old should be bought with the intention of holding them for 20 years or more.
Anyway, I do see the possibility of a bear market, but I think if it were going to happen it would have happened by now. The housing market probably hasn't bottomed out, but the sub-prime mortgage fiasco probably has. And with the fed relatively aggressively cutting interest rates, I think that they may well prevent the bear market that we'd be in right now if they hadn't cut rates after that big drop a couple of months ago. Looking long-term, we're four years removed from the bottom of the previous bear market, but only 15% (in the S&P) above the beginning of that bear in 2001. That implies to me that the stock market is not overvalued and will probably go up for a little while longer.
russ_watters
Oct25-07, 07:13 PM
One can certainly make money as an investor, as opposed to being a broker, but one has to do thorough research on the market, the particular sector, and the particular company.
Before I bought my house, I had a little portfolio of tech stocks that did very well for me. For a while, I was very in-tune with what was going on in the computer industry and made a killing (percentagewise - I didn't actually have much money in) on AMD during the 1ghz race. The computer industry is, I think, a unique opportunity for investors due to the active rumor mill pursued by the fanboy culture of computer geeks. The companies even play to the rumor mill and their press releases gain far greater scrutiny with the geeks than those in other industries. The geeks predicted a good year ahead of time (before the Athlon was even released) that AMD was going to win the 1ghz race and drive Intel into a performance wall that their chips couldn't break through for another year after that.
Riding product release and technology cycles in an industry you know well can be a good way to gain an edge in the market. For short term (to me, anything under 5 years is short term) investing.
turbo-1
Oct25-07, 07:16 PM
I am 55, and I hold mutuals long-term in my self-directed IRA. After rolling several 401Ks into one IRA and choosing a good mix of funds, the value of my IRA grew over 10% in 6 months in a mixed market. I stayed out of bonds because the present administration is hell-bent on spending the country into insolvency and any returns would be indexed to ever-decreasing dollars. I don't need to tap into my IRA for a while, and I can ride out this crap so no worries. Those who try to capitalize on individual stocks, sell in stagnant periods or drops and buy in rises are doomed to lock in losses and overpay for "favorites". That's a good way to throw away money, especially if you are paying trading commissions.
chroot
Oct25-07, 07:52 PM
I'd agree with this - and you're around 30, aren't you, warren? A 401k is, by definition, retirement savings and should not be played with in this way. Mutual funds in a 401k for a 30 year old should be bought with the intention of holding them for 20 years or more.
Who's to say how retirement funds should be "played with?" Should I defer all the decisions to some professional money manager who has his hands tied in bear markets, simply because it's a retirement account? Don't be silly.
Anyway, I do see the possibility of a bear market, but I think if it were going to happen it would have happened by now.
Almost every sign you could possibly want has already been delivered. Fundamental signs, technical signs, sentiment signs, you name it.
The housing market probably hasn't bottomed out, but the sub-prime mortgage fiasco probably has.
The sub-prime fiasco has another year or 18 months of teeth. Look at the numbers of REOs being racked up by unsavory lenders like Countrywide:
We've only hit the first wave (out of four) of ARM resets, and Countrywide cannot cope with the tide in incoming REOs even with massive mandatory auctions that materialize stupefying losses. The interest rate cuts didn't do a damn thing to this problem. It's much, much larger than that.
And with the fed relatively aggressively cutting interest rates, I think that they may well prevent the bear market that we'd be in right now if they hadn't cut rates after that big drop a couple of months ago.
Except that cutting rates devalued the dollar (as it will again later this month), and the devalued dollar is what's really eating away at the market as a whole. The fed is getting very close to forcing a bear market in their stop-gap measures in attempt of halting it.
Looking long-term, we're four years removed from the bottom of the previous bear market, but only 15% (in the S&P) above the beginning of that bear in 2001. That implies to me that the stock market is not overvalued and will probably go up for a little while longer.
You're only looking at share price, not market capitalization. The entire stock market was worth $11 trillion at the beginning of the bull market in 2004; it's worth $17 trillion today. For those who are counting, that's a 55% increase in total value over a little under four years.
I'd be of the buy and hold school of thought. If you did your research properly then you own good companies and so should ignore the day to day fluctuations of the market. Once a qtr it is a good idea to review your holdings based on the latest 10Qs just to make sure there has been no drastic change in the fundamentals but if you sell every time your stock dips 3% all you are going to do is raise your blood pressure unnecessarily, enrich your broker through transaction fees and pay the higher rate of tax payable on short term capital gains. Trying to time the market isn't possible. Do your research!!!!! Buy shares in good, well ran companies and wait for them to grow. A far less stressful way of investing than constantly trying to fix your mistakes.
turbo-1
Oct25-07, 08:09 PM
I'd be of the buy and hold school of thought. If you did your research properly then you own good companies and so should ignore the day to day fluctuations of the market. Once a qtr it is a good idea to review your holdings based on the latest 10Qs just to make sure there has been no drastic change in the fundamentals but if you sell every time your stock dips 3% all you are going to do is raise your blood pressure unnecessarily, enrich your broker through transaction fees and pay the higher rate of tax payable on short term capital gains. Trying to time the market isn't possible. Do your research!!!!! Buy shares in good, well ran companies and wait for them to grow. A far less stressful way of investing than constantly trying to fix your mistakes.Oh, another adult!
glondor
Oct25-07, 08:09 PM
I have been a member of this group for many years. These folks are as well versed in stock study as you here are in science. Take some time , Give the club a look.
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EnumaElish
Oct25-07, 08:12 PM
Who's to say how retirement funds should be "played with?" Should I defer all the decisions to some professional money manager who has his hands tied in bear markets, simply because it's a retirement account?That does not address the fundamental issue of time horizon. For all I care, you are welcome to cash out all of your retirement money and put it in a CD account. Over the medium to long term cash cannot beat the stock market, so you'll return to stocks eventually. But, will the income taxes you paid when you cashed out be worth it? (Not to mention commissions & fees.)
EnumaElish
Oct25-07, 08:23 PM
would the dropping dollar value factor in?How is this an argument for cash?
Greg Bernhardt
Oct25-07, 08:27 PM
How is this an argument for cash?
It wasn't
chroot
Oct25-07, 08:36 PM
That does not address the fundamental issue of time horizon. For all I care, you are welcome to cash out all of your retirement money and put it in a CD account. Over the medium to long term cash cannot beat the stock market, so you'll return to stocks eventually. But, will the income taxes you paid when you cashed out be worth it? (Not to mention commissions & fees.)
When did I ever say I was "cashing out?" You misunderstood me. I called T. Rowe Price and told them to reallocate my 401(k) monies into cash, rather than being exposed to the stock market. Money managers are handicapped in bear markets. I didn't withdraw anything, and thus I paid nothing -- no taxes, no commissions, or anything else. I simply reallocated it, since I don't think the next few quarters will be particularly pretty.
- Warren
russ_watters
Oct25-07, 11:19 PM
Who's to say how retirement funds should be "played with?" Should I defer all the decisions to some professional money manager who has his hands tied in bear markets, simply because it's a retirement account? Don't be silly. I'm not even suggesting you use a managed mutual fund. 30 years in an S&P index fund is virtually no risk and will set you up for retirement. The money shouldn't be "played with" at all. That is what the conventional wisdom says. Almost every sign you could possibly want has already been delivered. And yet a bear market hasn't happened yet. Why? The sub-prime fiasco has another year or 18 months of teeth. 18 months of getting worse or 18 months before it recovers? 18 months of continually getting worse would put us into a new Great Depression.
I realize not all the worst after-effects have been seen (some bad housing sales data came out today, in fact), but with interest rates dropping, I don't see why it wouldn't start back up soon. But with all those unsold houses on the market, yeah, I can see it taking 18 months for prices to start back up as the glut is cleared. We've only hit the first wave (out of four) of ARM resets... Two things about that:
- one, with interest rates going back down, that won't be as much of a hit and
- two, the forclosures are more of an effect of the slowing market than of banks giving money to people they shouldn't have. With homes on the market longer and people overconfidently buying and closing before their last home sells, they are forced to try to handle two mortgages at once. So I don't see a 1 point increase in peoples' interest rates having a big effect. You're only looking at share price, not market capitalization. The entire stock market was worth $11 trillion at the beginning of the bull market in 2004; it's worth $17 trillion today. For those who are counting, that's a 55% increase in total value over a little under four years. You're measuring from the bottom of the bear, I'm measuring from the top of the previous bull. From the bottom of the bear market, share prices are up 90%. I picked an earlier date because measuring inside a single cycle doesn't tell you anything about long term trends. Over its lifespan, the market has averaged something like 12% a year before inflation. The market in 2001 may have still been overvalued, but if the next peak (and resulting bear) comes from the same trend, we're not even close - the market could be double what it is today. That's the point: the long bear and slow recovery has meant that the market has a long way to go before being overvalued and in need of a correction.
[edit] Actually, I was measuring from mid-2001 because that's as far back as Google's graph goes and people sometimes see there being two separate bears there. For the S&P, though, we just now equalling the previous high from the 2000 internet boom (it was a lot worse than for the Dow). Seven years with a net gain of ZERO in the S&P, before inflation. That's a very weak market with a long way to rise to get back on track with long term trends.
Greg Bernhardt
Oct25-07, 11:22 PM
I'm not even suggesting you use a managed mutual fund. 30 years in an S&P index fund is virtually no risk and will set you up for retirement
Personally, I don't see myself making to retirement. I figure I got a good 20 years left! :biggrin:
russ_watters
Oct25-07, 11:33 PM
Personally, I don't see myself making to retirement. I figure I got a good 20 years left! :biggrin: You don't look so good with that grey beard and all those missing teeth! (not to mention the crazy eyes and the gun....) You don't age well...
russ_watters
Oct25-07, 11:48 PM
Separate post for this one because I'm not sure I follow: Except that cutting rates devalued the dollar (as it will again later this month), and the devalued dollar is what's really eating away at the market as a whole. The fed is getting very close to forcing a bear market in their stop-gap measures in attempt of halting it. Why is the devauled dollar eating away at the market? Because it hurts our exports? Our companies are strong and our economy expandinig and that's the bottom line that is the basis for the value of the stock market. Maybe the economy isn't as good as it would be if the dollar was stronger, but it is still quite good - the dollar has been declining for years and yet the economy is still expanding faster than most of our major competition.
Or maybe I'm missing something about your logic...
russ_watters
Oct26-07, 06:13 PM
From today's paper: "In the months ahead, however, resurgent prices for gas and home heating are likely to be accompanied by continued declines in home prices and result in additional declines in confidence," the survey said. "Each downward step raises the probability of recession, which is still below 50% but not comfortably so."http://www.usatoday.com/money/economy/2007-10-26-sentiment_N.htm
EnumaElish
Nov13-07, 04:48 PM
Who's to say how retirement funds should be "played with?" Should I defer all the decisions to some professional money manager who has his hands tied in bear markets, simply because it's a retirement account? Don't be silly.If you are so confident, maybe you should invest in futures.
Greg Bernhardt
Dec5-07, 10:39 PM
Lets get some stock picks. I'll throw out KMGB and SDTH for long term.
Zantra
Dec6-07, 03:06 AM
When did I ever say I was "cashing out?" You misunderstood me. I called T. Rowe Price and told them to reallocate my 401(k) monies into cash, rather than being exposed to the stock market. Money managers are handicapped in bear markets. I didn't withdraw anything, and thus I paid nothing -- no taxes, no commissions, or anything else. I simply reallocated it, since I don't think the next few quarters will be particularly pretty.
- Warren
AFAIK, most company sponsored 401Ks don't offer the option of liquidation unless you pay the penalty. And anyhow, long term gains will wipe out any short term losses.
jim mcnamara
Dec6-07, 12:59 PM
Warren -
Keeping cash is what people when the relative value of a currency is going up.
The US dollar is going down. Plus, in this circumstance, keeping cash is at best a keep-even strategy, assuming interest % matches inflation rate plus effects of US currency devaluation on real purchasing power - the US imports a lot of goods, e.g., cars and electronics.
Greg Bernhardt
Dec6-07, 01:07 PM
Lets get some stock picks. I'll throw out KMGB and SDTH for long term.
I told ya ppl last night. SDTH up 11% today :approve:
aXiom_dt
Dec10-07, 08:07 PM
Is an actuarial science degree the degree most beneficial to an investor? Or is that completely wrong?
Greg Bernhardt
Dec11-07, 04:09 PM
Is an actuarial science degree the degree most beneficial to an investor? Or is that completely wrong?
I would absolutely think it would be helpful, that and/or a general economics degree.
btw, what a terrible day, ouch!! everyone was hoping for a .50 cut on the discount
chroot
Dec11-07, 04:16 PM
Terrible day, unless you were hedged or mostly short (as I was). One of my shorts, DRYS, made me 8.5% today. Overall, my day ended pretty much flat, but if there's a dead cat bounce tomorrow I'll be in great shape.
- Warren
Greg Bernhardt
Dec17-07, 03:07 PM
another disgusting market day, blaaaaah
chroot
Dec17-07, 04:42 PM
Yup, today was a pretty wretched day. I was mostly long this time (having inexplicably closed my short position on DRYS a bit too early... blah), and lost some money. On the other hand, I picked up some SSO and some AAPL cheap, so hopefully tomorrow will be a brighter day. Buy into weakness, sell into strength.
- Warren
Greg Bernhardt
May8-08, 11:01 PM
How is everyone doing now? After my main pick SDTH dropped 30%, it had good earnings in in three days bounced back 15%.
Astronuc
Jul10-08, 12:02 PM
Don't you just wish that you had bought Rohm and Haas yesterday.
It jumped ~$29/share after Dow offered to buy it for $15 billion.
Dow Chemical to buy Rohm & Haas for $15 billion (http://www.marketwatch.com/news/story/dow-chemical-buy-rohm-/story.aspx?guid=%7BEF91B668%2D1430%2D42AF%2DB0E3%2D977C6AC21B76%7D)
Some other news
Paulson: Rules governing financial markets are 'outdated'
Bernanke asks for new law to help close troubled brokerages, and says that Treasury dept. should lead in closing troubled brokerages.
Bernanke: Investment firms need stronger federal oversight
Fannie Mae, Freddie Mac shares continue to plunge (http://www.marketwatch.com/news/story/fannie-freddie-shares-plunge-bailout/story.aspx?guid=%7B2B098542%2D507F%2D4F98%2D9250%2D12EC6FED1EEC%7D)
The stocks have been under pressure this week over fears the companies will need to raise capital due to a new accounting rule, even though analysts say that need may not materialize. Fears were further stoked after a St. Louis Fed president said Congress should recognize that the government-sponsored mortgage companies are insolvent after losses.
But a regulator said earlier this week the companies have adequate levels of capital, and the Treasury secretary reiterated that Thursday.
Shares of Fannie Mae skidded more than 13% on Wednesday while Freddie Mac shares plunged more than 23%. Over the past 12 months, shares of Fannie Mae are down about 80%. Shares of Freddie Mac have fallen close to 90% over the past year.
Analysts say the government wouldn't let the companies go under due to their central role in the mortgage market. Between them they own or guarantee about $5 trillion of mortgages, nearly half of all U.S. home-mortgage debt outstanding.
Astronuc
Jul11-08, 02:03 PM
If you like to gamble - consider Lehman Brothers, Fannie Mae and Freddie Mac. If they don't go insolvent or get bought at a discount, their shares should rebound.
Lehman, bank shares caught in mortgage storm (http://www.marketwatch.com/news/story/lehman-brothers-shares-down-20/story.aspx?guid=87B94694-F95C-4B7F-A4BD-C1547F2B0C9E)
Worries over health of government-sponsored mortgage giants swamp sector
Lehman was down 20% this morning, and they have recovered about 5%.
Fannie Mae is off about 22% from yesterday, and Freddie Mac abou 10%. If they survive, perhaps they'll rebound next week, or the week after, or . . . .
Apparently some options expert calls Fannie, Freddie shares 'worthless'
Do you fell lucky?
The DOW 30 industrials his a 2-yr low (http://www.marketwatch.com/news/story/us-stocks-drop-sharply-oil/story.aspx?guid=%7BE1C56925%2D447E%2D4FE4%2DAA3F%2DD549DADB1385%7D)
"Freddie and Fannie are going under the waves and GE got us ready for what we're going to be listening to: in-line number, lackluster guidance. Other than with financials next week, where we get no guidance and have no idea where we're going," said Art Hogan, chief market strategist at Jefferies & Co.
AIG dropped about 7% in the morning and has rebounded a bit down only 4%.
The market still has time to recover today. If not, there may be some bargain hunters jumping in on Monday.
sketchtrack
Jul11-08, 02:48 PM
My broker has me invested in Duke Energy, they are down real low, but expected to make a comeback.
BWV
Jul17-08, 01:04 AM
Given that stockpicking is a zero sum game relative to index returns (before transaction costs - after costs it is negative sum), is it simply the cognitive bias of overconfidence the reason why you all buy individual stocks? Or is it for the entertainment value
Probably a mixture of both for me
Astronuc
Jul17-08, 10:01 AM
If one had bought Fannie Mae or Freddie Mac on Tuesday at their bottom, one would have realized a 50% gain in the last two days. Both gained about 30% yesterday and are up about 20% this morning.
Shares of Fannie Mae (FNM:Fannie Mae - Last: 11.90+2.65+28.65%, 9:52am 07/17/2008) finished at $9.20, up 30%, while Freddie's (FRE:Freddie Mac - Last: 8.33+1.50+21.96%, 9:52am 07/17/2008) shares gained 31% to close at $6.90.
An investment of $70,000 in FNM by the close of Tuesday would have netted one about $45,000 this morning. Nice little return.
BWV
Jul17-08, 10:17 AM
If one had bought Fannie Mae or Freddie Mac on Tuesday at their bottom, one would have realized a 50% gain in the last two days. Both gained about 30% yesterday and are up about 20% this morning.
Shares of Fannie Mae (FNM:Fannie Mae - Last: 11.90+2.65+28.65%, 9:52am 07/17/2008) finished at $9.20, up 30%, while Freddie's (FRE:Freddie Mac - Last: 8.33+1.50+21.96%, 9:52am 07/17/2008) shares gained 31% to close at $6.90.
An investment of $70,000 in FNM by the close of Tuesday would have netted one about $45,000 this morning. Nice little return.
But what was (and still is) the risk of the equity of either stock being wiped out or significantly diluted in a recapitalization? Both companies are insolvent, with leverage ratios of 80-1 or more
Astronuc
Jul17-08, 11:43 AM
But what was (and still is) the risk of the equity of either stock being wiped out or significantly diluted in a recapitalization? Both companies are insolvent, with leverage ratios of 80-1 or more In 2 days - essentially none. This is an example of get in and get out. Such opportunities do not happen very often.
BWV
Jul17-08, 11:49 AM
It was only an opportunity in hindsight, much like yesterday's lottery draw
One could not have predicted the rally in the stock, nor can you still be certain that the equity is safe from a recapitalization
Astronuc
Jul17-08, 12:55 PM
It was only an opportunity in hindsight, much like yesterday's lottery draw
One could not have predicted the rally in the stock, nor can you still be certain that the equity is safe from a recapitalization I had a wait and see view. I expected flat or drifting a little lower, but I'm not surprised by the increase. Short-term bargain hunters who take advantage of the Fed/Treasury moves.
Astronuc
Sep18-08, 10:24 AM
MidAmerican Energy inks deal to buy Constellation for $4.7B in cash-and-stock agreement
http://biz.yahoo.com/ap/080918/constellation_energy_buyout.html
DES MOINES, Iowa (AP) -- Natural gas and electric company MidAmerican Energy Holdings Co. said Thursday it will buy Constellation Energy Group Inc. for $4.7 billion in a cash-and-stock deal.
Des Moines, Iowa-based MidAmerican will pay $26.50 per share for the Baltimore-based utility. The two companies plan to sign a definitive merger agreement by the end of business Friday.
After the deal is signed, Constellation will issue $1 billion in preferred equity to MidAmerican, the companies said.
CEG's stock was down 60% this week over concerns with liquidity. I imagine stock will recover somewhat. It will be interesting to see what MidAmerica does with the nuclear plants that CEG owns/operates.
mheslep
Nov14-08, 03:36 PM
If one had bought Fannie Mae or Freddie Mac on Tuesday at their bottom, one would have realized a 50% gain in the last two days. Both gained about 30% yesterday and are up about 20% this morning.
Shares of Fannie Mae (FNM:Fannie Mae - Last: 11.90+2.65+28.65%, 9:52am 07/17/2008) finished at $9.20, up 30%, while Freddie's (FRE:Freddie Mac - Last: 8.33+1.50+21.96%, 9:52am 07/17/2008) shares gained 31% to close at $6.90.
An investment of $70,000 in FNM by the close of Tuesday would have netted one about $45,000 this morning. Nice little return.
But what was (and still is) the risk of the equity of either stock being wiped out or significantly diluted in a recapitalization? Both companies are insolvent, with leverage ratios of 80-1 or more
Impressively prescient and wise post BWV. FNM selling today at $0.54.
CPL.Luke
Nov24-08, 06:06 PM
keep in mind that the average investor gets a 4.5% return yeaeer over year, the S&P500 gts 11% averaged over the past 30 years.
when it comes to the dot com bubble people who bought in in the midst of it lost big time, the people who bought 2 years before that did well.
I generally assume that averaged out the entire stock market should perform similarly to GDP and when it isn'tcorrelated that their might be a problem.
BWV
Nov28-08, 08:11 PM
keep in mind that the average investor gets a 4.5% return yeaeer over year, the S&P500 gts 11% averaged over the past 30 years.
when it comes to the dot com bubble people who bought in in the midst of it lost big time, the people who bought 2 years before that did well.
I generally assume that averaged out the entire stock market should perform similarly to GDP and when it isn'tcorrelated that their might be a problem.
the data from the 20th century, using other markets beside just the US, is 4-6% real.
mheslep
Nov30-08, 08:52 PM
keep in mind that the average investor gets a 4.5% return yeaeer over year, the S&P500 gts 11% averaged over the past 30 years.
when it comes to the dot com bubble people who bought in in the midst of it lost big time, the people who bought 2 years before that did well.
I generally assume that averaged out the entire stock market should perform similarly to GDP and when it isn'tcorrelated that their might be a problem.
the data from the 20th century, using other markets beside just the US, is 4-6% real.That's what I see reported, but I can't lay hands quickly on a running average calculation. Does someone have a source?
russ_watters
Dec1-08, 12:21 AM
keep in mind that the average investor gets a 4.5% return yeaeer over year, the S&P500 gts 11% averaged over the past 30 years.
when it comes to the dot com bubble people who bought in in the midst of it lost big time, the people who bought 2 years before that did well.
I generally assume that averaged out the entire stock market should perform similarly to GDP and when it isn'tcorrelated that their might be a problem. Keep in mind that in order to be listed in the NYSE, much less be in an index such as the S&P 500, a company has to be of a certain size and stability. There is an awful lot of failure in small businesses and those failures are never seen in the stock market - only the successful ones ever survive long enough and grow big enough to be listed. So you should expect that the stock market will perform significantly better than the GDP.
BWV
Dec1-08, 01:56 PM
That's what I see reported, but I can't lay hands quickly on a running average calculation. Does someone have a source?
Look at Dimson's work on SSRN.com
for example:
We address the tendency of many investors to overestimate the rewards and underestimate the risks of investing in stocks over the long term - that is, investors' irrational optimism. In particular, we examine the widely held belief that stocks are a "safe" investment for the long run. The probability of experiencing a real loss on equities depends on the expected real return and standard deviation of stocks. Judgments about the future magnitude of these two parameters typically involve extrapolating from history. We use a global database of real equity returns from 16 countries during the 103-year period from 1900 through 2002 to confront the optimism of investors with the reality of history.
Since 1900, the worldwide real return on equities averaged close to 5 percent a year (before costs, fees, and taxes). This is appreciably lower than is frequently quoted from historical averages, a difference that arises because we use a longer time frame than other studies and adopt a global focus. Prior views on the long-run safety of equities have been overly influenced by the experience of the United States. Furthermore, the US evidence that, over the long haul, stocks have beaten inflation over all 20-year periods is based on relatively few nonoverlapping observations and is hence subject to large sampling error.
To counteract this dependency on projections of the US experience, we examine the histories of other countries. We find only three non-US equity markets (with a fourth on the borderline) that never experienced a shortfall in real returns over a 20-year period. The worst 20-year real returns of 11 countries were negative. Historically, in 6 of the 16 countries, investors would need to have waited more than 50 years to be assured of a positive return.
We also analyze the future shortfall risk of an equity portfolio. The base case for the projections is a worldwide historical volatility level of 20 percent and mean real return of 5 percent, and we also examine a lower return of 4 percent. The projected shortfall risk exceeds the historical risk of shortfall - partly because of the lower assumed real returns, and partly because, even though volatility was projected to be the same as in the past, the shortfall analysis focuses on the full range of possible future returns rather than a single historical outcome. By construction, historical returns converged on long-term realized performance, but the forward-looking analysis shows that there is always risk from investing in volatile securities.
Although the probable rewards from equity investment are attractive, stocks did not and cannot offer a guaranteed superior performance over the investment horizon of most investors. Furthermore, their prospective returns are lower than many investors project, whereas their risk is higher than many investors appreciate. Investors who assume that favorable equity returns can be relied on in the long term or that stocks are safe so long as they are held for 20 years are optimists. Their optimism is irrational.
Keep in mind that in order to be listed in the NYSE, much less be in an index such as the S&P 500, a company has to be of a certain size and stability. There is an awful lot of failure in small businesses and those failures are never seen in the stock market - only the successful ones ever survive long enough and grow big enough to be listed. So you should expect that the stock market will perform significantly better than the GDP.
Actually the stocks in the S&P should grow at a slower rate than GDP, because the faster growth comes from smaller startups and it is impossible for them to grow at a higher rate than GDP over the long run. However stocks are a present value of future earnings, not just the growth. A company that had 0% real earnings growth could in theory still deliver 10% returns to shareholders depending on how the market priced the stock
CRGreathouse
Dec1-08, 10:08 PM
Actually the stocks in the S&P should grow at a slower rate than GDP, because the faster growth comes from smaller startups and it is impossible for them to grow at a higher rate than GDP over the long run. However stocks are a present value of future earnings, not just the growth. A company that had 0% real earnings growth could in theory still deliver 10% returns to shareholders depending on how the market priced the stock
Surviving small companies have high returns, but many small companies don't survive. The historical averages I've seen support the idea that return on small companies (surviving and otherwise) is similar to that at large companies, within a percentage point or so. Admittedly, the last 20 years have seen excellent performance for small-cap stocks, but in the long run that seems the exception.
BWV
Dec2-08, 09:02 AM
Surviving small companies have high returns, but many small companies don't survive. The historical averages I've seen support the idea that return on small companies (surviving and otherwise) is similar to that at large companies, within a percentage point or so. Admittedly, the last 20 years have seen excellent performance for small-cap stocks, but in the long run that seems the exception.
You cannot directly comparison between GDP growth and stock price returns. GDP is equivalent to revenue and there is no valuation mechanism at play. There is value in companies with stagnant or declining earnings or revenue growth, and depending on how they are priced, a stock with declining earnings can outperform a stock with 30% annual earnings growth. The point here is that small companies - not neccessarily public ones - account for the bulk of GDP growth and that the revenue growth rates of larger companies will converge to nominal GDP. Something like over 50% of current GDP comes from small businesses. That many fail does not alter the fact that they account for most of the marginal GDP growth. A startup that goes from $1 to $10 million in sales over a couple of years & then fails makes a positive contribution to GDP growth.
On the separate issue of small-cap publicly traded stocks, a wide array of literature in financial economics has documented the fact that they have delivered abnormally high returns (above that which could be simply accounted for by their higher volatility) - to the point where it is referred to as an "anomaly". The main competing theories on this are A) that it is a mispricing that has now been discovered and therefore less likely to hold going forward or B) there are other risk factors not accounted for in a simple CAPM beta calculation.
mheslep
Dec2-08, 01:04 PM
You cannot directly comparison between GDP growth and stock price returns. GDP is equivalent to revenue and there is no valuation mechanism at play. ...Eh? Econ 101, GDP : The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. In the case of a companies revenue stream, that certainly reflects valuation in the price the consumers are willing the pay.
BWV
Dec2-08, 01:24 PM
Eh? Econ 101, GDP : The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. In the case of a companies revenue stream, that certainly reflects valuation in the price the consumers are willing the pay.
By valuation I mean the discounting mechanism in stock prices. The value of a stock at time t is what the market thinks is the present value of its future cash flows at some discount rate. The price change to t+1 involves some change in expectations of future cash flows and/or the discount rate. GDP is analogous to the company's revenue on its annual income statement, not the change in stock price.