Posted September 6, 2012 at 4:42 pm
by Eddy Elfenbein
Here’s a post for new investors or a helpful reminder for more experienced investors.
When you’re looking at a company, the single-most important number is return-on-equity. Forget head-and-shoulders, forget bear traps and double bottoms, forget volume, forget stochastics. Return-on-equity tells you more than anything else about how well a company is performing. It’s the best measure of efficiency, bar none.
In short, ROE tells us how much we get for how much we got.
ROE can be deconstucted down into three parts (warning, math ahead). Profits margins, asset turnover and leverage.
Think of it this way:
Profit margin is profits divided by sales.
Asset turnover is sales divided by assets.
Leverage is assets (stuff you have) divided by equity (stuff you own).
The beauty of ROE is that it works for every company. You can compare General Electric to a lemonade stand. A company like Wal-Mart may have a teeny profit margin (around 3.5% last year), but incredible asset turnover. Wal-Mart is really just one big inventory control machine. A financial company like JPMorgan has 12 times more assets than equity, but it generates less than a penny of revenue for each dollar of assets.
[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "Why Return-On-Equity Is So Important"]
Posted August 29, 2012 at 12:17 pm
via Casey Research
In this interview, Doug Casey outlines the difference between savings, investing, and speculation.
He justifies why he would rather risk 10% of his portfolio on speculating for big gains than 100% hoping for just 10% gains.
He also explains why, as safe as you might think it is, the money in your bank account may never be given back to you.
Posted May 21, 2012 at 4:29 pm
by Barry Goss & Brad Wajnman, Co-Founders M4 Research
Co-Contributors: Deron Desautels, Membership Manager; Heather Vale Goss, Associate Editor
Under the Education & Ideas folder inside the Vault, we have an article titled: “Why HYIPers Keep Speculating In Pork Bellies.”
In it, Barry outlines the departing wisdom he got, from a grizzled ol’ commodity trading veteran of 30 years, named Richard.
This mentor of his — for 6-months — practically dragged him back into his office by the back of his shirt collar to throw down some departing raw “money-growing secrets” as he called them.
Whether it was out of a sheer desire to instill final lessons of the game of money upon him, or just out of an ‘I owe him this much so he can pass it on’ yearning, we can’t say for sure.
However, what we do know, without question, is this:
Human psychology 301 lets us predict our foibles, one of which is that the embarrassment of our inabilities (represented by our mind fooling itself into seeing instant riches upon our doorstep) can vastly outweigh our thinking and reasoning ability to humbly ask questions.
Questions are powerful. Actually, to be more dramatic, they are cardinal to your existence. To re-quote Jeffrey Gitomer of The Sales Bible fame, with a twist:
“They are to ‘risk-capital’ [sales] as breath is to life. If you fail to ask them, you will die. If you ask them incorrectly, your death won’t be immediate, but it’s inevitable. If you ask them correctly, the answer is… a likely return ON capital [sale].”
One head-scratching question that Richard asked Barry one fine day in the summer of ’94 is:
“So why do so many people lose money trading in the markets while others consistently make hundreds of thousands — even millions — of dollars each year?”
Richard certainly had some answers to his own question. After all, when you have that much experience doing something, and doing it well, you can’t help but notice things.
And, without sounding trite or having you picture us as the proverbial strict ruler-in-the-hand teacher, if you’re spending any amount of your time or money participating in speculative, higher-risk investing vehicles (the kind, ya know, where your return is solely based off the price movement of a tradable asset, and not so much on the sustained long-term value of the asset), you’d better have eyes wide open.
Now, before we continue with our tongue-in-cheek perspective below, you should know that throughout this article, you will find links to articles and reports we’ve written that give insights and lessons learned based on our experience with investments and growing our money (or, in some cases, attempting to do so without success).
We have learned the hard way — just as you may have too — that sometimes our expectations aren’t reached; and, sometimes our worst fears come true.
That being said, you should know that we have a combined 50 years of direct experience in this industry. When you add on the wisdom of mentors long past, it probably nears 100 years’ worth of wisdom (er, “caution” is more like the word we were thinking).
Most of the time, losses boil down to a few simple sins. Simple, we say… but not so much easy to employ. Humans are humans after all, and for every old man in Las Vegas still hitting on seventeen at the BlackJack table, there will be a middle-aged woman driving ten miles out of her way to use a $.50 coupon on milk.
Yup, some people never learn. Sure, we get that at times the problems can be traced to the system, market, or trading approach itself but most of the time, in our experience, it all boils down to our own flawed and reckless human behavior.
More on that shortly…
Posted May 18, 2012 at 1:03 am
by Charles Sizemore
Suds stocks fall into one of two categories:
Megabrews with world-dominating brands — companies like Anheuser-Busch InBev (NYSE:BUD), Molson Coors Brewing Company (NYSE:TAP) and SABMiller (PINK:SBMRY).
Smaller companies that produce mostly craft beers, such as the Boston Beer Company (NYSE:SAM), the maker of the popular Sam Adams, and Craft Brew Alliance (NASDAQ:BREW), which makes smaller brands Kona and Red Hook.
Either option can make a fine investment choice, but you should understand that the rationales for buying are very different.
BUD, TAP and SBMRY essential operate a megabrand beer cartel. Their businesses are safe and relatively stable, though not particularly exciting.
They also tend to be fairly recession-resistant. If anything, consumers often trade down from more expensive craft beers to cheaper mass-market beers when times are hard. For investors just looking for consistent returns, this kind of consistency is attractive.
SAM and BREW, being smaller and nimbler, are better growth stories. SAM in particular has enjoyed fantastic earnings growth in recent years, and its niche placement as a seller of premium beers allows it to generate higher returns on equity.
[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "Beer Stocks: Crack One Open" ]
Posted May 4, 2012 at 1:36 am
by Jack Hough
Facebook’s initial public offering is slated for May 18, the Wall Street Journal reported Thursday. Between now and then, management will go on its “roadshow” to explain its strategy to potential investors, and excitement over the deal is likely to grow.
The IPO details suggest a valuation of $77 billion to $96 billion, and shares could easily open much higher than the offering price. So Facebook may sell for 10 times revenues or more by the time ordinary investors buy in, more than five times as expensive as the average stock.
Then again, the statistics say not to buy scratch-off lottery tickets, but states will nonetheless sell more than $30 billion worth of them this year.
For Facebook fans who care more about the “how” than the “why” or “why not”, here are some guidelines:
[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "The Right Way to Buy Facebook" ]
Posted May 2, 2012 at 3:55 am
by Matt Nesto
Author and financier Stephen Weiss has published his second book, The Big Win, where the singular focus is the investing habits of so-called whales—or the super-rich. The last time he set pen to paper, in The Billion Dollar Mistake, Weiss probed the biggest blunders made by some of the best-known investors in the world and explored how we could learn from them.
This time around Weiss investigates the other side of the whale trade, as he profiles the traits and techniques that have come to define the careers of 10 super-successful investors.
“That’s the most important thing,” says Weiss, in the attached video. “You need a discipline and a strategy.”
He describes all 10 of his subjects as coming from “pretty humble roots,” which only makes their achievements that much more inspirational.
Lee Ainslie, of Maverick Capital, is among those profiled. Ainslie’s tremendously in-depth analysis, Weiss says, revealed very early that a huge opportunity existed in what we would all later come to know as outsourcing.
Weiss also commits at least two chapters to investors he considers to be pioneers: Chuck Royce, in the area of small cap value investing, and Marty Whitman, as a pioneer of stress investing.
[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "To Be a Whale, You Must Invest Like One: Stephen Weiss" ]
Posted May 2, 2012 at 3:01 am
by Micheal Hanson
The current market cycle is a wondrous example: As most folks capitulated and panicked in late 2008, markets recovered in V-shape fashion, with the smaller, deep value, low quality stocks (that got hit hardest) bouncing the most. As this bull matures, the switch seems to be occurring to bigger, high quality, growthy names.
Amid it all, we’ve had US debt fears, PIIGS fears, double-dip fears, housing fears, employment fears—you name it. And it’s not to say these don’t matter, but in the end, there are larger forces at work: The global economy recovering and growing in a world of greater free trade, rising production and consumption in the now collectively large Emerging Markets. Those are the big forces—the ones that matter most!
I’ve read mountains (almost literally) of highly rigorous, empirical and complex analysis on every conceivable topic about the markets in the last few years. And few or none effectively identified these big forces—the ones that matter most. They’re all caught up in the ultra-short term or far too small to matter.
Simply, more information and complexity are not key drivers of returns and never have been. And won’t ever be. More information and data is great! Yet, if you can’t use that information to determine the big important trends, well, you can have 5 analysts or 50, 10 million bucks worth of data or 10 bucks, and it’s not going to change your chances for outperformance.
What drives market outperformance? Knowing something others don’t and acting appropriately on that conviction. This is desperately difficult to do in practice, and I continue to be very proud of working for a firm that aims consistently to do this over time. Simplicity is the best—and, at this point, maybe the only—consistent way to achieve such results.
So if you can’t say what your current investing strategy is in one sentence, you may be cooked. In a world where very smart people foolishly create castles out of sand with their ever more complex strategies, you can think simple, big forces and have a tremendous competitive advantage.
[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "Simplicity Is the Next Great Investing Advantage" ]
Posted April 24, 2012 at 2:07 am
Chinese e-commerce, offline retail and social media companies are generating shockingly steep growth curves by catering to the continent’s burgeoning middle class.
With the world’s largest population and its rapid industrialization, China offers a wealth of opportunities for companies catering to its rising middle class. For example, only one-third of China’s population is online, giving e-commerce and other web 2.0 companies plenty of room to grow.
The road is a bit more challenging for private oil, gas, telecom and financial services firms, since those industries are largely state run. But given China’s overall explosive economic growth, there will probably be select opportunities in those sectors as well.
It’s been a rough time for some Chinese companies, which have come under fire for questionable accounting practices. While the problems were largely confined to companies that went public through so-called reverse mergers, the fallout was felt broadly by most Chinese companies, with marked stock declines.
Read on for seven companies already tapping China’s growing marketplace that have demographics in their favor and are beating out their competitors.
[ Details / Source: To see a slideshow of the companies, start here... ]
Posted April 24, 2012 at 12:31 am
by Darrin Donnelly
People enter the trading world eager to multiply the money they’ve earned from their other career. However, the crucial skill (productivity) that helped them earn all that money outside of trading doesn’t translate to success as a trader.
The reasons are obvious. You can’t force a winning trade the way you can force yourself to finish a task. You can’t create more winning trades the way you create more widgets for your company. You can’t fix or improve a trade the way you fix or improve the product or person you were hired to fix.
New traders rarely adapt well to this fundamental difference. The most common response to a dwindling trading account is to change the trading system.
It’s easy to see why this is such a common response. In other careers, where all success hinges on production, if something isn’t working, we continuously make changes until the final product is working the way we want it to.
But in trading, constantly tweaking our strategies is a recipe for disaster because we’re not building a final product. Put another way, we can’t force the market to behave exactly the way we want it to.
Successful trading is about reading and reacting, not changing and creating. It’s about coming to terms with the fact that we have very little control – actually, none whatsoever – over what opportunities the market will give us on any given day.
[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "Why Most People Fail As Traders" ]
Posted April 20, 2012 at 3:00 am
Contrary to popular belief, the potential investment gains of a future event do not become instantly priced into a stock the moment that future event becomes reality. Usually there is an initial pop, followed by a quick pull back, and then the larger move emerges.
So let’s talk about China. The big fear gripping China traders right now is that Chinese growth is slowing and that their economy may experience what is called a hard landing. A hard landing is when economic growth suddenly and swiftly drops. For instance, China GDP is currently on an 8% pace, and a drop to 5% would be considered a hard landing.
So if the Chinese are successful and can pull off a soft landing, it could potentially ignite a powerful rally as the central planners start loosening monetary policy. This will immediately benefit Chinese financial services stocks.
Under this “what if?” scenario, the best play would be through the ETF iShares Trust FTSE China 25 Index (symbol: FXI).
52% of FXI’s exposure is to financial services, 18% is committed to Telecom, and the balance is in Basic Materials and Energy. The bottom line is that if the Chinese are successful in containing inflation, then they will eventually loosen monetary policy and that will unleash massive economic growth.
[ Details / Source: Above is our hand-picked KEY excerpt(s) from this full article: "Here's How To Work Less and Make More" ]