Archives of “Financial ratios” tag

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The big names have now reported earnings, but what is expected for the May4/8 week

  
Analysis, US Market
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Key earnings for the week of May 4 to May 8

This week we had the likes of Alphabet, Facebook, Microsoft, Tesla, Visa, Starbucks, Apple all release.  That takes a lot of fire power out of next weeks potential.
Nevertheless, there are some interesting companies reporting. Disney, Paypal, T-Moibile, GM are some of the bigger, more notable names on the list.. Below is a list of those earnings:
Monday, May 4th
  • Cirrus Logic
  • Pitney Bowles

Tuesday May 5th

  • Allegan
  • Electronic Arts
  • Beyond Meat
  • Disney
  • Sprint
  • Cheesecake Factory
  • Planet Fitness
Wednesday, May 6
  • Marathon oil Corporation
  • Hyatt hotels
  • Wendy’s
  • General Motors
  • T mobile
  • PayPal holdings
  • Lyft
  • Square
  • Peloton
Thursday, May 7
  • Bristol-Myers Squibb
  • Raytheon technologies

Book Review :Risk Management in Trading -by Davis Edwards

  
  Education
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It is a commonplace that risk management is critical to trading success. What constitutes good risk management, however, is anything but commonplace knowledge. Was VaR the number that killed us, as Pablo Triana claimed, or is it a useful, perhaps even indispensable, tool? Should risk management teams have their separate turf or should they be integrated with the trading desks? And what do you have to know to be a risk manager?
Davis W. Edwards addresses all of these questions, with particular emphasis on the third, in Risk Management in Trading: Techniques to Drive Profitability of Hedge Funds and Trading Desks (Wiley, 2014). The book is a useful self-study guide for those who aspire to become risk managers; each chapter ends with a set of questions to test the reader’s knowledge, and there is an answer key at the back of the book. It also goes a long way toward satisfying the curiosity of those who want to know just what it is that risk managers really do. It does not, however, directly address the concerns of the individual trader who wants to incorporate sound risk management principles into his business model.
After three preliminary chapters (on trading and hedge funds, financial markets, and financial mathematics) Edwards gets to the heart of the matter. He discusses backtesting and trade forensics; mark-to-market accounting; value-at-risk; hedging; options, Greeks, and non-linear risks; and credit value adjustments (CVA).
To give you a better sense of the level of the book—and so you can test your own skills—here are a few questions from the quizzes.

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Stupid Things Finance People Say

  
  Education
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Here are a few stupid things I hear a lot.

“They don’t have any debt except for a mortgage and student loans.”

OK. And I’m vegan except for bacon-wrapped steak.

“Earnings were positive before one-time charges.”

This is Wall Street’s equivalent of, “Other than that Mrs. Lincoln, how was the play?”

“Earnings missed estimates.”

No. Earnings don’t miss estimates; estimates miss earnings. No one ever says “the weather missed estimates.” They blame the weatherman for getting it wrong. Finance is the only industry where people blame their poor forecasting skills on reality.  (more…)

A common trait you'll see among the world's best investors

  
  Education
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In 1968, a self-described “gun-slinging nitwit,” fresh out of Harvard Business School, Grantham played the go-go market at its peak. By 1970, he had lost all of his money. “I like to say I got wiped out before anyone else knew the bear market started,” Grantham recalled years later.

Think about that. The man who today relentlessly warns of risk began his investing career by losing all of his money and then sitting through a 12-year bear market.

What lasting impact did this have on his outlook? How did this experience influence his opinion of markets today?

Likely, a lot.

People like to assume they can think objectively. But you and I are just a product of the experiences we’ve had in life. And most of those experiences were random and out of our control. Would Grantham hold his bearish stance if, by luck, he began his investing career at the start of a bull market? Or doubled his money his first year out of college, rather than losing it all?

There’s evidence to suggest the answer is “no.” (more…)

Joseph Belmonte, Buffett and Beyond, 2d ed.-Book Review

  
  Education
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buffett

In Buffett and Beyond: Uncovering the Secret Ratio for Superior Stock Selection (Wiley, 2015) Joseph Belmonte offers investors a metric he believes is pretty close to the Holy Grail: return on equity (ROE) as configured by Clean Surplus Accounting.

The companies that investors choose for their portfolios should have a ROE that is high and consistent over time. The problem is that practically all investors calculate ROE in a way that is both inefficient and unreliable. Traditional ROE is not a useful ratio for comparing the operating efficiency of one company to that of another because, for most companies, it is inconsistent from year to year. Worse, there is almost no correlation between book value (equity) and stock returns.

Traditional ROE uses earnings to calculate the return portion of ROE. But earnings include both non-recurring items, which are not predictable, and future liabilities. As Belmonte argues, “[i]n no way do these events show how efficiently you’ve been running your operation. And we’re concerned with operating efficiency in our ROE ratio and not branches falling out of the sky because of a hurricane passing by.” (p. 59) So, for the return portion of the ROE ratio one should use net income, not earnings.

What about the equity portion of ROE? Owners’ equity (or book value) equals the common stock issuance plus all retained earnings, where these retained earnings can come only from net income minus dividends.

Based on his research, indicating that stocks with a history of high Clean Surplus ROEs outperformed the S&P 500, Belmonte came up with six simple rules for structuring a portfolio.

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Warren Buffett’s Biggest Losses

  
Analysis, Education
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Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” – Warren Buffett

A good starting point to gauge investment performance is to compare your results against a simple buy and hold portfolio.

While there are certainly ways to improve the performance of buy and hold, there are many more ways to make it much worse.  You have to determine if the effort and actions you take with your portfolio strategy are worth it when compared to this simple (but not easy) alternative.

Investors generally fare much worse than buy and hold so this is an important decision for the average investor to consider.

When you hear about the average long-term gains of 9-10% in the stock market you must remember that those returns contain every single type of market environment. That means high valuations, low valuations, high interest rates, low interest rates, high inflation, low inflation, bubbles, recessions, booms, busts and everything in-between.

It’s an all-inclusive number that contains the good and the bad. (more…)

What Best Technical Analyst Do ?

  
  Education
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-Technicians believe that there is wisdom in price. That price has memory. That people who were inclined to buy at a certain price are somewhat likely to buy there again. Unless something’s changed, in which case their failure to re-buy (or buy more) at that formerly significant price level can be interpreted in an entirely new way – what was once an area of support on a chart becomes an area of resistance.

-Technicians believe that trends persist, in both directions, because market participants act on “news” at different speeds and act more boldly (or fearfully) the longer a particular movement in the markets goes on. This is why bull markets often end with a buying crescendo in the riskiest securities. Risk appetites grow as an uptrend persists, the desperation to participate gets stronger, it does not fade gently.

This is also why selling becomes more fierce when the market is at a 20% discount to its previous high than when it is at a 10% discount. “How could it be even more urgent to sell down 20% than it is down 10%?” someone would ask. Going by fundamentals, it isn’t. But investors only pay lip service to fundamentals. What they are more concerned with is owning less of the thing that looks stupid to own – and the lower it goes, the stupider it looks.

Unless you buy into the idea that rational behavior rules the investment markets. In which case, you’re reading the wrong writer 

-Technicians find truth in price, rather than attempting to parse the impossibly conflicted and intentionally obscured opinions of the commentariat. Technicians find meaning in the actual buying and selling activity happening today, not in the dusty old 10Q’s of 90 days ago or in the projected estimates being bandied about among the discounted cash-flow analysis crowd on the sell-side.

But above all, technicians respect the power of sentiment more than their fundamentalist counterparts. And sentiment, after all, is how valuations actually come to be – the P in the PE Ratio or the PEG Ratio or the P/B calculation. In the real equation, the only one that counts, the P is what pays, not the E, not the EG and certainly not the B. Buffett would tell you the B (book value) is what pays over time (the market going from a voting machine to a weighing machine). But Buffett can afford to ride it out, having permanent capital under management and an ocean of insurance premiums sloshing in over the transom every hour of the day. Most market players do not.

Just Avoid These 7 Words -If U Are A Trader

  
  Education
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Be careful how you use the following words and phrases as they become road blocks or worse take you down the wrong path.

Should– Phrases include: “The market should have” and “I should have”. Those phrases are often used to socialize losses. They are a strong signal something is off. They should be used to aid you in correcting your vision not make you feel better.

Must– Phrases include: “The market must…”, “I must make money”, or “I must trade”. The market does not have to do anything and either do you. When you use the word “must” it is hardly ever from a position of strength. The market knows when you are desperate and will take full advantage of you. Keeping your expenses as low as possible will make it easier to not make those statements.

Will– Phrases include: “The market will..” and “I will make money”. Once again the market does not like to be told what to do. It is the bratty kid screaming at the tops of his lungs. The word “will” relaxes your mind, similar to “should”, people use it to be lazy instead of a black background in an otherwise light picture. You can do everything right and still lose money. That is why trading is so effective at diminishing confidence. In most every activity, if you do everything right you are going to get the desired result. Doing the “right” things is bare minimum. Of course, over time you will get paid for doing the right things but it is never when you think it should be and hardly how much you anticipated. (more…)

Atkeson & Houghton, Win By Not Losing-Book Review

  
  Education
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 Nicholas Atkeson and Andrew Houghton, founding partners of Delta Investment Management, have written what, in the words of the lengthy subtitle, is a disciplined approach to building and protecting your wealth in the stock market by managing your risk. Win By Not Losing (McGraw-Hill, 2013) is a mix of stories about some not-so-famous investors (in fact, a few are identified simply by their first names) and an introduction to tactical investing.

The authors contend that “stock prices are influenced by oddities in human behavior that often cause security pricing to be predictable.” (p. 120) They support their contention by sharing some of their observations from the trading floor of an investment bank. Earnings momentum, for instance, can be both predictable and profitable: “the cycle of exceeding analysts’ estimates is often predictable in light of the pressures on analysts to be overly conservative.” (p. 121) And one study found that “over the 60 trading days after an earnings announcement, a long position in stocks with unexpected earnings in the highest decile, combined with a short position in stocks in the lowest decile, yields an annualized ‘abnormal’ return of about 25 percent before transaction costs.” (p. 122) (more…)

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