Stock Market

[tw]

Originally Posted by lookout123

they have their own analysts and use a "use a boots on the ground" method. They send their own people to the companies to review processes, products, and prospects.

That is where the problems start. Most stock analysts don't come from where the work gets done. They know all about investing in nuclear power and yet don't even know how a nuclear chain reaction works? That is the problem. Even worse, they take insist they need not understand such things.

One girlfriend as a bank VP heard rumors about a chicken farm disease. So she visited the clients - major chicken producers. All those chickens could have been sick and she would have never known it. She was an expert on this industry only because she could read spreadsheets.

Therein lays so much fear and wild speculation. We don't listen to stock commentators to know what industry is doing. We listen to them to learn how the street is feeling and guessing and rumor mongering.

How to make money on the street. Know the difference between reality and fear so often promoted by stock market bean counters.

The sub-prime fallout has created massive problems in some financial institutions. However, others saw this obvious problem long ago and bet accordingly. Whereas even Goldman Sachs is caught bailing out their bad investments, a few hedge funds are rumored to have made $billions by seeing the obvious.

We discussed here a serious problem in the housing market. An economy in recession if not for low interest rates that were maintaining strong housing sales and strong auto sales. Is that a healthy economy - or curing symptoms by throwing money at it? If other more productive parts of that economy start doing better, then low interest rates were a solution. In the past four years, without low interest rates, then this economy was not doing well. Those low interest rates can create economic activity which is confused with growth. An economy can have massive economic activity and near zero growth. Welcome to the early 1970s. Even with money games from easy money, economic growth had still fallen to about 60%.

Are stock brokers in panic mode? Good. Time to buy. We listen to bean counters because they have little idea what makes companies prosper. When they panic for reasons financial, then this is good time to return to the market. Only rarely do we listen to market analysts to know how productive or stable a company is. By the time the spread sheets finally report it, those realities have existed for years.

Now for caution. Market analysts like to panic in October. October with so many panicked market analysts tends to imply a stock market meltdown.

Did the stock market crash of 1928 create the recession? No. Those problems existed long ago - masked by easy money. If we are in a recession, then market analysts are only just beginning to suspect it - which makes October so dangerous.

How long ago were we talking about the housing market crash? What was known in reality finally appeared in the market how many years later? These are the people with "boots on the ground" who could not see this problem how many years ago?

Why do stock brokers underperform the market? They have 'boots on the ground' but forget to have what is necessary behind the eyes - knowledge of how the work gets done. This liquidity crisis did not just suddenly appear. It has been ongoing for years right in front of those so many 'boots on the ground' who still did not see. Why the panic? Because market analysts did not see for years what should have been obvious to every one of them. Instead they kept pointing to economic indictors (that measure things four and more years ago) to prove everything is just fine.

We listen to market analysts to learn about their emotions – because so many bean counter types have little grasp of what is really happening. But again, stock broker performance tends to underperform the market. Listen to learn their emotions because their emotions determine prices. Some are so foolish as to think they are experts on an industry.

[lookout123]

I'll respond to that in two ways:

1) Who is this "we" you keep referring to? Are the voices getting to you again? (I'm actually just teasing, I'd be disappointed if you had broken form and hadn't posted this)

2) Who says stock brokers, financial advisors, financial planners, shiny shoe whores, (pick your favored term) underperform the market? I challenged you a few years ago to post your portfolio performance against my recommendations in real time, changes made as needed to test your theories. You have never even responded, let alone accept the challenge.

[tw]

Originally Posted by lookout123

1) Who is this "we" you keep referring to?

The we is layman. We watch what so many market analysts say. To say ignore them is it lose a valuable source of information as well as take some of the fun out of it.

For example, important in what each of 'they' say are the reasons why. The 'whys' can quickly identify those who know only by playing numbers games from those who know by acutally understanding the a company is doing.

Same applies to finaniclal markets. Many appear to be taking significant losses verses a smaller number who saw this problem many years ago and hedged appropriately.

Meanwhile, numbers repeatedly reported from various sources noted how stock brokers underperform the market by about 1%. A summation of mutual funds (that are not indexed) also demonstrates the problem. Mutual funds tend to underperform the market by about 1% - sometimes 2%.

Recommending one to ignore the analysts is good if the investor blindly hands his money to others for investment. Becoming a good investor is not hard as long as one limits to industries that he understands. As Peter Lynch noted, the private investor with about 5 stocks can often outperform the market. But that means knowing the company, understanding its industry, and keeping an eye on those market analysts who can subvert or upend the market with their fears.

Applying to current situations - caution is advised. These market analysts have a history of misreading the numbers, promoting things as good (as they usually do) and then suddenly going into panic mode. This tends to occur in October but has lately occured in months earlier.

Having said that and if believing in an industry that is poised to get or stay on track, then one now would be watching some investments that should be very good buys in these next few months. But again, that means watching those market analysts so as to understand their and their peers emotions.

Investors in Google, Goldman Sachs, Toyota, and Citigroup have recently taken a beating. I believe each may have lost their entire profits for the year in but a month. The first three appear to be very solid companies. Could one take advantage of investments at fire sale prices?

Or invest in Cisco that is now at 150% of the price last September even after the sharp downturn? Or Intel that is now at 133% (did you notice how Intel started chewing into AMD)? Or Apple at 185% even after the downturn. Do we invest based upon these numbers? Both reasons are usually offered by those analysts. Neither are, by themselves, significant reasons for making a decision. But listening to those analysts who promote this reasoning should make it apparent whether he makes money on promotion - or actually understands the investement, its industry, and its products.

Listen to those market analysts. Sometimes they can draw attention to a gem. Use their emotion to understand the hype. Don't listen to them for what to do. Listen to them to, instead, understand the whys.

Now is a good time for making a decision if even only talking about 100 shares. I don't waste money on lottery tickets. 100 shares on the stock market is currently is far more fun than any lottery tickets. I don't like buying losers - such as lottery tickets. Second guessing market analysts is also part of the fun.

Right now is when it gets very fun.