SubscribeTDI Episode 50: The Analysts are Wrong (DUH!)
March 30, 2008
Guests: Adam Warner, Professor Woolridge and Gal Arav. In this episode, we explore three topics of interest. First we get the lowdown on options with Adam Warner. Then we find out from Professor Woolridge that stock analysts usually predict earnings to be higher than they actually are. Finally, Gal Arav introduces his newest technology wonder, Newsflashr.
Guest Info and Bios:
Adam Warner is a proprietary option trader
with Addormar Co, Inc. He traded as a member of the American Stock Exchange from 1988-2001, and in several off-floor locations since then. He co-wrote the options column on Street Insight from spring 2003 to spring 2005, and currently writes a blog - The Daily Options Report - dedicated primarily to education about options. In addition, he is a “Professor” at Minyanville, writing a regular roundup column. Adam graduated Johns Hopkins University with a degree in Economics.
Gal Arav is the founder and creator of InstantBull and Newsflashr. Gal’s developing faster ways to monitor huge amounts of news data. Following a successful run of investing in the stock markets, in 2006, Gal invested in his own startup company to create InstantBull.com, a time-saving stock research and message board aggregator. This came after several years of R&D at an MIT spin-off that develops eye-tracking devices where Gal was Product Manager. In 2008, Gal is once again striving to turbo-charge the Web with his latest news aggregator, newsflashr. Gal holds an Engineering degree from The Technion, Israel and a Master’s degree in Operations Research and Decision Theory from Tel Aviv University, Israel.
Dr. J. Randall Woolridge is a Professor of Finance at the Penn State, Smeal College of Business. He is a Goldman Sachs and Co. and Frank P. Smeal Endowed University Fellow and President of the Nittany Lion Fund, LLC. With expertise in investing and capital markets, he has published numerous books and articles including the popular stock valuation book, The StreetSmart Guide to Valuing a Stock. His research has been highlighted extensively in the financial media. Recently, he published a study: Wall Street Analysts Still Exuberant In Their Earnings Projections that we discuss in this episode.
Stocks Mentioned: (COF) (AAPL) (LEH) (SPY) (GOOG) (BSC) (SAFM) (SKF) (WM) (VM) (CROX)
A Picture Tells a Thousand Points
March 11, 2008
The quick and the dirty of it: The markets (DJIA, S&P500, NASDAQ) are setting up for an ugly fall and investors are sensing it. The growing indigestion is pointing straight toward the support line of 11,635 for the DJIA. This particular point is a problem as there is no support shown during the past 2 years until it reaches 10,683. Also, a simple Fibonacci retracement (blue horizontal lines) shows that the DJIA has stayed close to the retracement points rather consistently.
That said, unless we see intervention that is decisive and convincing by the Fed, a breakdown is inevitable. Earnings, news and recent policy has not done anything to support the averages. This time, we need to see a full-court press that is a unified effort between monetary policy and government initiatives. Anything less that a miraculous plan pulled from Lincoln’s hat will be met with negativity.
TDI Episode 47: Knight to the Rescue
March 10, 2008
Guest: Tim Knight is founder of Prophet.Net, a wholly-owned online software company that was acquired by INVESTools in January 2005; he presently serves as Senior Vice President of Technology for INVESTools. His recently-published book, Chart Your Way to Profits, offers a solid introduction to both technical analysis and the ProphetCharts product.
An active trader and chartist, Tim founded Prophet in 1992 to provide market data to self-directed investors
using stand-alone technical analysis software. With the advent of the Worldwide Web, he envisioned providing the power of these expensive software packages with browser-based convenience - enabling traders to focus on their analysis, instead of worrying about software upgrades and database issues. His online technical analysis suite at Prophet.Net delivers on this vision and more.
In his trading today, Tim relies on technical analysis as the primary basis for his investment decisions, and he has leveraged his passion for the markets to fuel the innovation for which Prophet.Net is known. In fact, Barron’s and Forbes Magazine have consistently named Prophet.Net the “#1 Web Site for Technical Analysis.”
Before starting Prophet, Tim was Vice President of Technology Products at Montgomery Securities in San Francisco, where he led the development of an institutional online-trading platform. Additionally, he has held various positions in marketing management at Technical Tools and Apple Computer, and is the author of 20 computer trade books. Tim is a graduate of the Santa Clara University Honors Program and holds a bachelor’s degree in business management. He lives in beautiful Palo Alto, California with his family.
Listen in to this episode as Tim Knight explains his 3 rules:
- Never Lack a Stop Price
- Never Do an Ad Hoc Close
- Never Act in the First Thirty Minutes
Charts that were discussed in this episode:
INDU Chart1 and INDU Chart2
Stocks Mentioned in this Episode : (AAPL) (QQQQ) (YHOO) (SAFM) (GOOG) (FNM) (FRE) (SPY)
Economic Downturn: Profiting with the 5 Pillars
February 14, 2008
Just listening to investors or analysts talk these days and it is hard to miss the ongoing chatter about an apparent and impending recession. Some analysts say we are already in one, others point to its arrival in the near future. Regardless of what the experts have predicted, no one can deny our country’s economic downturn. Looking at the pathetic housing market, the recent lackluster results in the financial markets, and the absolute horrific price of gas, it is fairly easy to assume we are well into an economic downturn, moving toward a full-blown recession.
So what do you do when it comes to investing in this turbulent time? Do you panic and pull out all your investments, toss the cash in a garbage bag and hide it under the mattress until this is all over? Some might advise such a ridiculous strategy, but the truth is that there is a benefit in being an smart investor during this time.
Investing, like any other business, is all about making good use of whatever advantage you have, and when the masses pullout, it is often a good time to think about going in.
Recession/bear market investing is absolutely different than traditional investment strategies for many reasons. To begin with, the average investor should probably not enter into risky investments like futures trading, option buying, or strategies that utilize leverage at a time like this. When an investment is considered a risky move in a good economy, then in a bad economy it should be considered off limits, unless of course you have a powerful grasp on the art of the advanced trading style that gives you a leg up. For most investors though, it is a good idea to stay away from such a risky endeavors, and focusing on the 5 pillars of investing during economic downturns.
The Five Pillars of Investing During Economic Downturns:
1. Understand The Business Cycle
2. Perform an Internal Audit Before Buying Anything
3. Invest in Evergreen Industries
4. Invest in Long-Term, Proven Winners
5. Look for Deep Value Stocks
The first and most important move any investor can make during an economic downturn is to educate themselves about the business cycle. All businesses, and as a whole our economy, go through a cycle. They have growth periods, followed by stagnant periods, followed by downward periods. This is something that happens to Read more
Preferred Stocks for A Volatile Market
January 8, 2008
Several readers and podcast listeners have recently emailed in questions concerning preferred stocks. It seems that these inquiries were prompted because of the levels of low-yielding cash positions they are amassing within their portfolios. So, here are a few pointers.
Preferred stocks have long been thought of as a safe haven from many of the nasty downturns that occur from time to time within the equity markets. Now seems to be one of those times. During the first few trading days of 2008 the unusually high volatility is adding to an already tense situation on Wall Street. The dreaded “R” word has been appearing in conversations as we see additional data points that are moving us steadily towards a slowing economy.
The alternatives for investors are contracting, particularly when we see many positions hit hard without much logic or notice. A glance at the recent 52-week high/low list for January shows a disproportionate number of names making lows. Unless we see a significant change in the current mindset of investors OR some magic from the housing and credit markets, we should plan on seeing more of the same market conditions for the next few months.
So, what is an investor to do? Cash is definitely king right now and even though it seems a sacrilege to keep money out of what is usually considered productive investments, the daily whipsaw has the potential to make even the most seasoned investor take notice. Even with the ongoing credit concerns and financial stocks in sorry shape, there may be an opportunity in high-grade preferred stocks.
Investopedia has a good working definition for Preferred stocks:
A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.
The precise details as to the structure of preferred stock is specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Also known as “preferred shares”.
The one catch is that many of these stocks seem to come from the financial sector which has not been seeing any hope of moving past their current dilemma in any time soon. Even so, the names on the following list have good ratings and are showing a yields substantially above market. Now may be a time to continue buying some of these as an alternative to the money that will otherwise be temporarily sidelined.
Realize that the current yield will help top protect some downside movement thereby giving a slight cushion if there is a downward movement in share price. Also note that on average, preferred stocks have also seen greater than usual swings recently. Usually, we have seen a maximum of a 5% variation in share price, even in poor market conditions. Recently though, some of these have seen their price range increase to 10%.
Still, there is probably a place for these in longer-term portfolios that need diversification that includes fixed income.
Note: The criteria used in this filter: Current yield above 6.50%, an A+ or better rating and qualification for the 15% dividend tax rate.
(FBP.D)(GS.B) (HBC.A) (HFC.B) (IND) (INZ) (LEH.F) (MER.I) (MET.B)
Disclosure: Horowitz & Company clients may hold positions in some or all of the stocks mentioned.
-
-
GoToMeeting
Links
