Author Archive
The Big Short – Inside the Doomsday Machine – You have to see this interview.
Posted by: | CommentsI wanted to share you the interview with Michael Lewis the author of “The Big Short – Inside the Doomsday Machine”, its fascinating. John Stewart the host of the Daily show is hilarious but also has a good grip of current affairs, he also highlights the important aspects of Michael Lewis’ book. This video highlights the exact reason why you should only trust yourself when it comes to your investments. A handful of investors saw what was really happening. A quote from the interview is really compelling, Michal Lewis says;
“they [most of the Wall Street firms including AIG] figured out that there was an awful lot of money to be made from lending money to people who shouldn’t be lent money [sub-prime mortgages]; and when you do that you create lots of risk, the only way you can get that risk out there and get lots of people to take it is to disguise it. So they got really good at disguising the risk, they got so good they disguised it from themselves, they fooled themselves, it’s kinda like if you tell a lie often enough you start to believe it”, “it does not occur to anyone to say this is wrong we have to stop doing this”….”Lehman Brothers was cooking it’s books”
Need I say more. These risky sub prime investments were disguised as Triple A “AAA” rated investments. Unbelievable, but true.
Enjoy the video, skip forward to minute 14 in the video for the interview.
Click on picture to jump to the Daily Show Site.
Chapter 5 – How to find the best stocks
Posted by: | CommentsThis is an excerpt from the Liberated Stock Trader Book and accompanying Training Course. Chapter 5 – Introduction and Section 3 – Finding Defensive Stocks
Stock Screening - Finding the Needles in the Haystack.
Well you made it these far congratulations!
So far we have discussed the key attributes of attractive companies and how to interpret numerous factors to get an overall picture. It is always important to let a number of measures build the picture never rely on just one.
Now we will learn how to screen for stocks that could form your base list of stocks to review in detail. Here is the process I use to find winning stocks.
- Understand what you are looking for. For example (Fundamentals – EPS% Acceleration)
- Use your selection criteria to narrow down the 7000+ stocks on the US Stock Markets. (Stock Screening)
- From your Screened List you can then review in detail further fundamentals.
- Learn a little about the industry of the stocks you are interested in.
- Perform detailed Technical Analysis to assess when to buy; “Charting”
- Work out your Entry and Exit Strategy
- Wait for the right time and buy.
Economics Rap Keynes versus Hayek – Entertainment & Education
Posted by: | CommentsYou have to watch this for the entertainment factor. However there is an underlying lesson of the opposing sides in the economics debate. Interventionist economics with the associated stimulus and demand driven economic thrust which dragged the west out of the depression was led by Keynesian thought, versus Hayek’s prospectus proffered by Margaret Thatcher which dragged Britain out of the 1970’s gloom into the modern world. This video is funny, educational and really cool, at least for us stock market buffs.
One thing is for sure the direction of the market, as highlighted in my forthcoming book and training course, is dictated by the business climate, which is dictated by the economic principles practiced during the era. The modern era of the west is driven by Keynsian economics, which leads to boom and bust. But who is to say the Heyekan prospectus would yield riper fruit. The day when economists agree and find the right path will be the day hell freezes over. One thing is for sure, the power and wealth of nations is dictated by the success of the economies that drive them.
Boom and bust details are highlighted in a previous post. Boom and Bust
Good night.
All credit to the folks at http://econstories.tv for a top video.
p.s. Keynes was British not American and Hayek was Austrian.
Chapter 4 – Is the Company in great shape – P/E Ratio
Posted by: | CommentsThis is an excerpt from the Liberated Stock Trader Book and accompanying Training Course. Chapter 4 – Section 4 – The P/E Ratio
Now that we understand there are different types or stocks or companies out there we can take a look at how to fundamentally evaluate if a business is healthy or not. Having some knowledge that a company will not be declaring bankruptcy anytime soon is the minimum goal, however the more refined investor will be looking for stocks that are reasonably priced, have low amounts of debt or at least the ability to easily repay that debt, strong sales growth or revenue growth, a decent amount of cash in the bank, and solid earnings. Also, if you are familiar with the company’s product and how important that product is to the business can give you an additional insight.
Chapter 2 – Why do Booms and Busts Occur?
Posted by: | CommentsThis is an excerpt from the Liberated Stock Trader Book and Training Course.
Why do Booms and Busts occur?
Take for example the famous DOTCOM boom of 2000. Greed surged into the market place on the misplaced belief that new internet based technology would fundamentally shift the market dynamic and business models of the future. Technology became fashionable and “Bricks and Mortar” businesses were perceived to be outdated and almost worthless. This paradigm shift meant that money poured into technology stocks at an unrepentant rate and money poured out of “Bricks and Mortar” stocks at an equal rate.
A tell tale sign of problems to come was really noticeable when stock analysts would suggest Price Earnings valuations on tech stocks of 200, 300 or more were reasonable even though he companies in question had never made a profit. The Price Earnings Ratio is the ratio of the Stock Price to its actual earnings. If a P/E Ratio is at 30 then it would take the company 30 years to earn back the share price. The higher the P/E ratio the higher the expectation that the stock will perform well in the future. You can also see the P/E ratio as a valuation of the worth of the stock, if the P/E is 200 you are essentially paying 200 times the earnings capacity of the company.
In the Year 2000 the P/E Ratio of the S&P500 reached nearly 45. This was an all time high and essentially indicated that the expectation of the market participants was completely unrealistic. By the time the inevitable correction completed the P/E Ratio for the S&P500 had halved to just over 20. Much of the greed and hype was fueled by professional analysts and so called market gurus. They became greedy and euphoric, a heady mixture. When everyone slowly began to realize that the the huge profit expectations would not be met by the tech industry, the entire sector collapsed bringing with it other other industries, indexes & markets. The Tech Bubble had burst.
How does this affect our investments?
The boom is good for our investments in the short term but only if we move into cash before the bust, which of course only the enlightened few ever manage to achieve.
So who suffers the wrath of the Bust? The private investor, you and I! We lost money in our pensions, our mutual funds, and our stock portfolios; we lost jobs, earning power and our appetite for risk.
It seems that the time interval between economic crisis and the boom bust sequence is happening at shortening time intervals, so it always pays to beware. When every analyst is screaming “Buy Buy Buy” and acting like the best thing in the world is happening, that is the time to be most careful. When all the market reports are reiterating what a depressing time it is, how there is no future in the stock market and when prices have lost 20% or even 50% of their value, that could possibly be one of the best times to buy.
