A Simple Look At Apple's Cash Flows [View article]
Right -- when people look at Apple they worry about all of these types of problems. But the question investors should ask is whether those risks are going to zap $50 billion out of the next few years' cash flows.
Johnson & Johnson: 3 Things You Need To Know Before Buying At Current Levels [View article]
Love this point.
We all write about these dividend stocks as though they were an academic endeavor. But you're absolutely correct, it's extremely difficult to make these things do what you want them to do with these kinds of yields.
Something to meditate on as we climb all over ourselves for 2 and 3% yields with no regard for principal...
Best Buy's Business Is Worth More Than You Think [View article]
Exactly. Great point. People forget these things are actual businesses. Gigantic machines that generate lots of cash. And just because it's not a company you don't personally like, doesn't mean it's one whose existence isn't justified.
I'm kinda sad I missed the peak of BBY trashing. I just had the stock on /ignore for so long until a colleague of mine dropped it on my desk and I had to figure out what to make of it.
Man, GREAT comment! This is such an important observation that not enough investors give credit to.
In fact, I'd probably agree with you that I have a harder time selling when everyone is enthusiastic than buying when it's scary. It requires every bit as much discipline.
What We Talk About When We Talk About Netflix [View article]
It's trading at 400 times CURRENT earnings. At how many times 2020's earnings is the stock trading?
In the article I went over some of the reasons that really drive the stock's performance over the short-term (momentum and technicals) as well as a few big reasons why customer loyalty may increase in the years ahead.
Ignore Sentiment - Here's Why To Buy [View article]
Great comment! This is good analysis, too.
In my experience, naive quantitative "systems" like this present all sorts of problems when you actually try and trade them. They're easy to model, but making a buy when you get a specific signal and then selling it at a specific point a fixed number of days out isn't how I'd recommend using this as a practical indicator. Few people actually trade the way simple spreadsheets model systems.
The way that I'd use this as a real trader would be to take note of the initial signal, and begin establishing a position with a few protectionary measures in place. I'd look at additional technicals, and set some sort of stop loss. Or I might even give up some upside and buy some disaster puts just in case I'm wrong and both sentiment and the market completely fall apart in the next few weeks. Alternatively, if the market fell apart after I established the trade, I'd might look at adding on the second chunk of the trade block, up until I had as much capital in the position as I was comfortable having.
Then I'd set my out target, but it wouldn't be 100% based on time/date. I might give the trade 6 months to work out, but if the market rallied to my target (a good short term, initial target might be a new high) I'd begin taking the position off. Or I'd take off half the position and continue to let the rest ride.
In all honesty, I don't believe that the AAII is a great indicator to use on its own, especially with a one-input signal generation like this. I absolutely use AAII sentiment in conjunction with other tools.
You raise a great point because this kind of analysis also points out what's wrong with a lot of simple algorithms. There are a lot of signals (or combination of signals) that seem to produce wonderful results over a certain window of time. Most of them are just derived via curve fitting in Excel or Tradestation. That's a dangerous way to trade.
Should You Really Care If Stocks Are Cheap? [View article]
One more comment on the point about the variables that control future value...
Over the short run, there are all sorts of variables and noise that affect the performance of the market. But over the long run -- 10 years may or may not be a sufficient definition of that -- there are only two things that matter to how the market performs:
1) Investor appetite for risk 2) Earnings
No matter how you slice it, today's market prices are still just a discounted stream of future cash flows, and the market assumes an indefinite stream (or at the very least, a really long term stream) of cash flows. This is one of the points Dr. Hussman is always making over and over again.
Trade of the Decade: Energy vs. Financials [View article]
There are some serious investors out there that really feel like they can trust the bank's financials and perform their own analysis. Dick Bove is a good example -- he's always writing about the big banks.
But I'm not smart enough to figure them out and perform a rigorous enough analysis to feel confident.
The energy companies are a different story. Their assets are very easy to value. And the fact that they hold relatively little debt makes an analyst much more comfortable about valuing their business relative to earnings and cash flow. It's a lot harder for a company to manipulate its cash flow than what it reports on its balance sheet. I guess it's a risk management sort of thing when it comes to financial analysis.
A Simple Look At Apple's Cash Flows [View article]
(Thanks for the comment!)
Johnson & Johnson: 3 Things You Need To Know Before Buying At Current Levels [View article]
We all write about these dividend stocks as though they were an academic endeavor. But you're absolutely correct, it's extremely difficult to make these things do what you want them to do with these kinds of yields.
Something to meditate on as we climb all over ourselves for 2 and 3% yields with no regard for principal...
Johnson & Johnson: 3 Things You Need To Know Before Buying At Current Levels [View article]
Johnson & Johnson: 3 Things You Need To Know Before Buying At Current Levels [View article]
(I think that's also part of the reason why the price has been bid up so dramatically in recent months.)
Best Buy's Business Is Worth More Than You Think [View article]
I'm kinda sad I missed the peak of BBY trashing. I just had the stock on /ignore for so long until a colleague of mine dropped it on my desk and I had to figure out what to make of it.
Was January's Rally Bogus? [View article]
In fact, I'd probably agree with you that I have a harder time selling when everyone is enthusiastic than buying when it's scary. It requires every bit as much discipline.
What We Talk About When We Talk About Netflix [View article]
In the article I went over some of the reasons that really drive the stock's performance over the short-term (momentum and technicals) as well as a few big reasons why customer loyalty may increase in the years ahead.
The Only 20 Companies That Matter [View article]
The Only 20 Companies That Matter [View article]
Awesome idea about global GDP though. I'd like to run a similar study using global profits and global GDP.
The Only 20 Companies That Matter [View article]
Ignore Sentiment - Here's Why To Buy [View article]
In my experience, naive quantitative "systems" like this present all sorts of problems when you actually try and trade them. They're easy to model, but making a buy when you get a specific signal and then selling it at a specific point a fixed number of days out isn't how I'd recommend using this as a practical indicator. Few people actually trade the way simple spreadsheets model systems.
The way that I'd use this as a real trader would be to take note of the initial signal, and begin establishing a position with a few protectionary measures in place. I'd look at additional technicals, and set some sort of stop loss. Or I might even give up some upside and buy some disaster puts just in case I'm wrong and both sentiment and the market completely fall apart in the next few weeks. Alternatively, if the market fell apart after I established the trade, I'd might look at adding on the second chunk of the trade block, up until I had as much capital in the position as I was comfortable having.
Then I'd set my out target, but it wouldn't be 100% based on time/date. I might give the trade 6 months to work out, but if the market rallied to my target (a good short term, initial target might be a new high) I'd begin taking the position off. Or I'd take off half the position and continue to let the rest ride.
In all honesty, I don't believe that the AAII is a great indicator to use on its own, especially with a one-input signal generation like this. I absolutely use AAII sentiment in conjunction with other tools.
You raise a great point because this kind of analysis also points out what's wrong with a lot of simple algorithms. There are a lot of signals (or combination of signals) that seem to produce wonderful results over a certain window of time. Most of them are just derived via curve fitting in Excel or Tradestation. That's a dangerous way to trade.
Thanks for the thoughtful comment!
Ignore Sentiment - Here's Why To Buy [View article]
Ignore Sentiment - Here's Why To Buy [View article]
Some investors are cool with scaling into and out of positions. Others aren't. It all depends on your personal style.
Should You Really Care If Stocks Are Cheap? [View article]
Over the short run, there are all sorts of variables and noise that affect the performance of the market. But over the long run -- 10 years may or may not be a sufficient definition of that -- there are only two things that matter to how the market performs:
1) Investor appetite for risk
2) Earnings
No matter how you slice it, today's market prices are still just a discounted stream of future cash flows, and the market assumes an indefinite stream (or at the very least, a really long term stream) of cash flows. This is one of the points Dr. Hussman is always making over and over again.
Trade of the Decade: Energy vs. Financials [View article]
But I'm not smart enough to figure them out and perform a rigorous enough analysis to feel confident.
The energy companies are a different story. Their assets are very easy to value. And the fact that they hold relatively little debt makes an analyst much more comfortable about valuing their business relative to earnings and cash flow. It's a lot harder for a company to manipulate its cash flow than what it reports on its balance sheet. I guess it's a risk management sort of thing when it comes to financial analysis.