Wednesday, December 26, 2012

After Hours Carnival of Investing, December 26 Edition

Welcome to the December 26, 2012 edition of the After Hours Investing carnival!

This were off to a shaky start this month as we started things off with a number of spam entries that had to be discarded (HINT: Only 1 submission, and make it relevant next time ).

Anyway, without further delay, here are this month's entries.

Arduino Schenato presents PRICE ACTION FOREX | AUD/USD | FOREX TRADING | HereForexInsider posted at HereForexInsider, saying, "As seen in the weekly investigation the Australian dollar went to test 1.0200 area to close the daily candle below this action area. On the regular chart has formed a price action naked signal that has its own trigger points on the bearish break-down of today's low. The most important support level is the parity between the two currencies."

anna.deguzman@nerdwallet.com presents Apple Versus Facebook: How to Use Price Multiples to Figure Out a Company’s Value posted at NerdWallet | Markets, saying, "At today’s stock prices, Apple is a better investment than Facebook. Though each share of Apple has a higher price than Facebook shares, each dollar invested can hypothetically buy more value. After crunching the numbers, the nerds tell you why."
Kerin Gedge presents Kerinthian's: Pimp My Hundred Bucks - Part Five posted at Kerinthian's, saying, "Here's the latest edition in my epic series about how I've turned $20 into much much more..."

Bill Smith presents Gold Futures Prices On The Rise posted at FastSwings, saying, "Men have always been willing to go for broke to get their hands on gold and silver. In many cases it didn't come easy. For others, being in the right place at the right time paid off."

Bryan presents Politics, Fiscal Cliff, QE3 & The Gold Markets posted at Gajizmo, saying, "With the United States presidential election finally having run its course, and President Barack Obama re-elected, people can finally begin to focus on the long-term effects that the election will have on financial markets around the world."

John Schmoll presents 5 Frugal Ways to Start Investing Now posted at Frugal Rules, saying, "Investing in the stock market can be intimidating for many, but it does not have to be. With a little education and setting a plan you can invest in the stock market and not have to spend lots of money doing it."

Dividend presents 100 Most Sold Stocks By Famous Investment Gurus posted at Dividend Yield - Stock, Capital, Investment, saying, "Investment gurus are asset or fund managers with big amounts of cash under management. They became popular by big returns and spectacular investment strategies. I talk about investors like George Soros and Warren Buffett. They all have one thing in common: The average return beats the market and if they invest, the market follows."

That concludes this edition. Submit your blog article to the next edition of after hours carnival of investing using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.
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Tuesday, November 27, 2012

Amazon Kindle Fire HD Giveaway!

Amazon Kindle  Fire HD Giveaways are all the rage these days, and I'm entering one myself. Joe from Simple Debt-Free Finance is celebrating 5 Years of Blogging with a Kindle Fire HD Giveaway!

The rules are simple, just comment on his blog post and you're entered! Tweet it and that's another entry. If you're a blogger, then you get five extra entries for blogging  about it (like I'm doing here :) )

Sexy, isn't it?
If you like the looks of that baby, just head on over and check it out.

Wednesday, October 31, 2012

After Hours Carnival of Investing, Halloween 2012 Edition

Welcome to the October 31st, 2012 edition of After Hours Carnival of Investing. This is a very special edition, being All Hallows' Eve and all.

Most of you are probably reading this after Halloween, so I hope you had a happy one and have since come out of your sugar induced coma. I've got a full roster of posts this time around, so let's get to it!


After Hours Carnival of Investing, No. 2

First up is a basic overview of asset classes and the basic principles of investing, such as risk vs. return and diversification.

This very excellent primer comes to us courtesy of anisha@nerdwallet.com :Investing 101: An Overview of Major Asset Classes and How to Invest in Them posted at NerdWallet | Markets.

Next up, John Schmoll presents Why We All Should Care About High Frequency Trading posted at Frugal Rules.

HFT is all the rage in the trading world these days, yet few know about it. It does have some benefits, but there are also downsides to it. As with anything related to finances, it’s important to be in the know with what’s going on currently in the finance world.


Did you know there is a seasonal cycle in the stock market? There is, but should you invest on those patterns? Alex Peters presents the details and answers that question in: Does the S&P Has a Seasonal Pattern? posted at TradingAcademy.com.

Lastly, Arduino Schenato presents PRICE ACTION DAILY | TRADING SIMPLE posted at HereForexInsider.

Here's an excerpt:
The price of the American "commercial enterprise" index has now tested the key opposition at 13,400 points before falling to a great extent and close the session at 13,340 points. On the regular chart we can see an apparent price action strategy....


That concludes this edition. Submit your blog article to the next edition of After Hours Carnival of Investing using our carnival submission form. Past posts and future hosts can be found on our blog
carnival index page
.

The next edition will be on November 28th. Submission will be due by Sunday, November 25th. So get writing and submitting!



Wednesday, September 26, 2012

After Hours Carnival of Investing, September 26, 2012 edition



Welcome to the September 26, 2012 edition of After Hours Carnival of Investing. This is the very first of what I hope to be many such carnivals on Investing. Since I'm still new at this, I'm keeping things simple. Each of the posts today focus on investing in general. In the future, I may be defining additional topics or sub topics, but investing itself is such a broad topic that I think I will be leaving
it with that until the need to add more detailed categories arises. And now without further ado, the submissions!

After Hours Carnival of Investing, No. 1


First up, Jon Rhodes presents a very diverse collection of 50 Inspirational Entrepreneurial Quotes posted at Affiliate Help!, saying,
"This article contains a great collection of quotes
to help inspire you in business and investment."
Next we have an honest admission of costly mistake. Joe Morgan presents I Was Wrong About Gold Coins From Blanchard, Rosland And Lear Capital. posted at Simple Debt-Free Finance, saying,
"A few years ago I panned gold coin investments. I was mostly taking aim at the commercials, but I admit I was wrong about gold in one important respect. This is my public admission."
And lastly, The Archivist presents Rinse and Repeat Recessions posted at The Market Archive,saying,
"Recessions will always be with us, understanding their general causes and how they progress can help us prepare for them. Not enough people understand the economic cycle, but it is an important thing to learn before going into the stock market. That is true even if you go with Index Funds, making understanding this absolutely fundamental."
A big thanks to all those who submitted and took part in this inaugural edition of the After Hours Carnival of Investing! That concludes this edition. Submit your blog article to the next edition of After Hours Carnival of Investing using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page. The next edition will be on All Hallows' Eve. (A.K.A.: Halloween, October 31st). Submission will be due by Sunday, October 28th. So get writing and submitting!

Tuesday, August 28, 2012

Is the Stock Market Broken?


We know the economy is in rough shape, contrary to official proclamations of "recovery", but I think this snapshot of the financial headlines from MSN money this morning pretty much sums it up:





Investors don't know what to do until the Fed speaks.

This is not how capital markets are supposed to work, yet here we are. Rather than investors pooling their money into companies with the best business prospects and providing healthy economic growth, they sit on the sidelines waiting to see how to make the next "play" on the Fed's statements.

Why the stock market is broken


And if you needed any further proof that government meddling in the economy was bad, check out the next headline:

Global stock rally stalls on stimulus doubts

Again, investors are not deploying their capital in constructive and meaningful ways, but rather waiting to see if they'll get more free candy from the central banks.

Investors and the banking cartel are addicted to stimulus, but stimulus isn't free. It will be repaid either through higher taxes, or more likely higher inflation which will make everyone poorer. And the end result is mal-investment of capital. Companies that should be receiving investment capital to actually produce needed services or products are being crowded out by investors looking to cash in on "stimulus."

This is not healthy and will not end nicely.

Saturday, August 11, 2012

Would Warren Buffett Really Buy Chubb (CB)?



I was going through my watch list a few days ago, checking on companies to see which were still worthy and I came across Chubb Corp (CB).

While picking over key ratios and valuation details, I happened to see a link to a CNBC video titled: What Would Warren Buffett Buy?

Curiosity got the better of me, and I clicked the link.


What followed was simply jaw dropping in its vacuousness.

The host and his "team" of Buffett-ologists ran a screen return 25 stocks. For the sake of time, they selected and profiled 4.

Here's their criteria for the screen:

  • US based company
  • Market Cap $16B- 28B
  • Forward P/E < 14
  • Price to Book value < 3.5
They based their list of 4 on the kinds of companies Buffett typically buys. Lo and behold, Chubb is on the list. It's true Warren likes insurance companies, but would he really buy Chubb right now? In short, no. Here's why...

 

Cash flow


Cash is king in Warren's Worlds, that's no secret. In fact, even the "expert" in the video mentions that as a reason Buffett would like Chubb. Here's the relevant quote :
Chubb is generating lots and lots of cash..
Now, after my quick analysis of Chubb, this quote made me spew coffee out of my mouth and I tried (unsuccessfully to stifle a laugh). A brief glance at Chubb's cash flow shows why it's ridiculous to think Buffett would be interested in Chubb right now. Here's the cash from operating activities for the past 5 years:
  • 2007 - 3,191
  • 2008 - $2,544M
  • 2009 - $2,435M
  • 2010 - $2,352M
  • 2011 - $1,878M
See the trend? Free cash flow growth is -10.26% over the past 5 years. Warren is not going to invest in a company that's got negative growth in cash flow! The talking heads in the CNBC video failed to do basic screening on the most important metrics to the Buffett style of investing, and instead shot to the end. Warren Buffett may indeed consider market cap., forward P/E and price to book value when considering stock in a company, but he first considers the company! When investors like Buffett buy stock, they first look for good businesses, then look for sensibly priced stock in those businesses. Chubb would never make it to the second phase, because it fails the good business test.

In fact, Chubb is trending in the wrong direction in Equity, Sales and EPS growth (EPS and sales have actually shown negative growth over the last 5 years).

The lesson here is simple: beware of the talking heads, and do your own homework.

Friday, May 25, 2012

Fundamental vs. Technical Analysis (a Primer).


Some would argue that both Technical Analysis and Fundamental Analysis attempt to predict the future price of a stock, and hence the best time to buy or sell the stock. They would say that these two techniques are complimentary investment tools.

Others argue that Fundamental Analysis is a thing of the past, and that modern computer power puts Technical Analysis in a place of supremacy.


Technical Analysis.


Technical Analysis is a form of prediction used by castle-in-the-air investors. Castle in the Air investing focuses on stocks that have momentum to carry them higher. It relies heavily on charts and psychology.

Practitioners of Technical Analysis are sometimes called "chartists" because of their slave-like devotion to charts to the exclusion of all else. Pure chartists believe that the market is 10% rational and 90% emotional or psychological.

Chartists try to out guess other investors without regard to underlying business of a stock holding. A cynic might say that the Chartist or Castle in the Air Investor is simply hoping to take advantage of the Greater Fool Theory.

Chartists believe that all knowable information is reflected in the stock chart (i.e. past price and current trend of the price). Chart shapes are of supreme importance to Technical Analysis, but a Head And Shoulders Pattern means the same thing regardless of the stock whose price chart makes the formation.


In Technical Analysis, trends might perpetuate themselves for 2 reasons:

  1. Mass psychology and crowd instinct - no one wants to miss out, so investors chase performance. This is often at the heart of stock market bubble.
  2. There may be uneven access to key information. Insiders learn of game changing information and buy shares. Insiders then tell friends who buy shares. Institutional money managers learn of the info and buy massive amounts of shares. Individual investors see price rise and pile on (see #1 above.)

Technical Analysis and Price Chasing Psychology.


Here's an example of how Technical Analysis attempts to explain momentum in terms of price chasing.

Stock xyz currently sells for $50 per share. The price then falls to $40. Next, the price rises again to $50 only to drop back down again as investors who bought at $50 sell their shares in the hopes of breaking even. This $50 point is then considered a level of resistance.

As $50 per share investors sell, other investors see the stock fall to $40. Investors who didn't buy xyz at $40 and see it rise to $50 feel like they missed out, so when the price drops to $40 they get on board and push the price up again. In this example, $40 is considered a support area.

It seems logical and makes common sense, but it doesn't explain every move in a stock price and it doesn't always predict where the price is headed next.

Where Technical Analysis goes wrong.


This kind of approach lends itself well to timing the market, day trading and speculation. Transaction fees and taxes often eat up any profits that may be found.


Fundamental Analysis.


Fundamental Analysis is sometimes called Firm Foundation Theory and it focuses on the underlying company rather than the stock price.

If Chartists believe the market to be 10% rational and 90% irrational, the Fundamental Analyst believes the market is 90% logical, 10% psychological.

Fundamental Analysis seeks to determine the true underlying value of the stock or company, usually called its intrinsic value.

There is perhaps no more prominent investor associated with type of investing than Warren Buffett.

Buffett epitomizes the fundamentalist approach. He tends to ignore the day-to-day "chatter" of the market and only buys a stock when he feels the price is at a discount to the company's intrinsic value.

Which is Better - Technical Analysis or Fundamental Analysis ?


This whole thing is rather like debating whether General Relativity is more accurate than Quantum Mechanics . Both represent different aspects, or slices of the universe - in the case of Technical Analysis and Fundamental Analysis the universe is the stock market.

In my experience and opinion, Technical Analysis can be helpful in explaining - and maybe even predicting - short term fluctuations of a stock price, but Fundamental Analysis proves to be the winner in the long term. Some of this is because the market tends to be more of an efficient market over time where stocks come to reflect the value of the underlying business, and some of it is because short term trading (associated more with Charting than Fundamental Analysis ) leads to higher fees and taxes that eat away at profits.