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(Marketwatch)   S&P predicted to reach 3000   (blogs.marketwatch.com) divider line 35
    More: Obvious, Morgan Stanley, price-to-earnings ratios, business cycles  
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244 clicks; posted to Business » on 03 Sep 2014 at 7:31 AM (11 days ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2014-09-03 07:34:06 AM
Crap!
 
2014-09-03 07:59:47 AM
How can anyone look at the market as nothing other than a gambling arena for big money. The market is clearly overpriced in many areas. How does the 10-20 times earnings justifications make sense for actual stock value? You buy into a stock at 20 times earnings, that means the company will grow by 20 times in the future?

I know the price of a stock is what someone will pay, but the true value of a stock is another question.
 
2014-09-03 08:23:38 AM

johnnyrocket: can anyone look at the market as nothing other than a gambling arena for big money


The smart people know that the S&P, Dow Jones and Nasdaq average indicators are just that: single indicators. The value of any individual component - and those investments that aren't even used to generate those averages - is a completely different thing.

johnnyrocket: The market is clearly overpriced in many areas.


If it's that obvious to you, short them or invest in the areas that are under-priced. The money that moved into those "many areas" didn't just fly out of someone's ass, most of it came out of other investments.

johnnyrocket: How does the 10-20 times earnings justifications make sense for actual stock value? You buy into a stock at 20 times earnings, that means the company will grow by 20 times in the future?


The smart people know that you're not investing based on what you think the stock is worth today, you're investing on what you think the stock will be worth the next time you balance your portfolio or reach some other landmark such as retirement. I don't care what the stock is worth right now, I'm not selling it right now. I care whether or not I think it's going to be worth more - and at a high enough rate to reach my goal for it - LATER when I go to sell it. And this is before we even get into the discussion of things like dividends.
 

johnnyrocket: I know the price of a stock is what someone will pay, but the true value of a stock is another question.



Just like every other thing that can be purchased.

If people on Fark spent a tenth as much time educating themselves on the basics of investing as they do on pretending they're too smart to invest or biatching about how unfair everything is, this site would be full of multi-millionaires by now.
 
2014-09-03 08:47:01 AM

skozlaw: If people on Fark spent a tenth as much time educating themselves on the basics of investing as they do on pretending they're too smart to invest or biatching about how unfair everything is, this site would be full of multi-millionaires by now.


My wife buys and sells stocks, but also buys and sells options on the same stocks.  Somehow, by looking at evaluation, price, and whatever else she looks at, she makes money when her stocks go up, but she makes money when her stocks go down. But when her stocks do nothing, she makes money.  Of course it is all based upon the stocks she picks. She tried to explain it to me once, it wasn't a good use of her time.

Don't get me wrong, sometimes the stock doesn't turn out as she expected and she just makes a little money.
 
2014-09-03 08:47:17 AM

skozlaw: johnnyrocket: can anyone look at the market as nothing other than a gambling arena for big money

The smart people know that the S&P, Dow Jones and Nasdaq average indicators are just that: single indicators. The value of any individual component - and those investments that aren't even used to generate those averages - is a completely different thing.

johnnyrocket: The market is clearly overpriced in many areas.

If it's that obvious to you, short them or invest in the areas that are under-priced. The money that moved into those "many areas" didn't just fly out of someone's ass, most of it came out of other investments.

johnnyrocket: How does the 10-20 times earnings justifications make sense for actual stock value? You buy into a stock at 20 times earnings, that means the company will grow by 20 times in the future?

The smart people know that you're not investing based on what you think the stock is worth today, you're investing on what you think the stock will be worth the next time you balance your portfolio or reach some other landmark such as retirement. I don't care what the stock is worth right now, I'm not selling it right now. I care whether or not I think it's going to be worth more - and at a high enough rate to reach my goal for it - LATER when I go to sell it. And this is before we even get into the discussion of things like dividends.
 johnnyrocket: I know the price of a stock is what someone will pay, but the true value of a stock is another question.


Just like every other thing that can be purchased.

If people on Fark spent a tenth as much time educating themselves on the basics of investing as they do on pretending they're too smart to invest or biatching about how unfair everything is, this site would be full of multi-millionaires by now.


So how many millions are you worth, Mr investment genius?
 
2014-09-03 08:49:37 AM

johnnyrocket: How can anyone look at the market as nothing other than a gambling arena for big money. The market is clearly overpriced in many areas. How does the 10-20 times earnings justifications make sense for actual stock value? You buy into a stock at 20 times earnings, that means the company will grow by 20 times in the future?


PEG ratio.
 
2014-09-03 09:04:59 AM

Tyrone Slothrop: So how many millions are you worth, Mr investment genius?


I spend all my time on Fark pretending I'm too smart to invest so my comment doesn't exactly apply to me, now does it?

I do, however, spend a modest amount of time doing research on funds and stocks that I put into my IRA which supplements my 401k. It's doing just fine. I'm never going to be rich from investing, but I make a hell of a lot more money from it than I would if I just sat on Fark whining about the markets instead.
 
2014-09-03 09:05:36 AM

skozlaw: I don't spend all my time on Fark pretending I'm too smart to invest so my comment doesn't exactly apply to me, now does it?


Stupid eyes not finding stupid typos until it's too stupid late.
 
2014-09-03 09:15:20 AM

skozlaw: I'm never going to be rich from investing, but I make a hell of a lot more money from it than I would if I just sat on Fark whining about the markets instead.


Same here. I could leave my money in my savings account and maybe make less than 1% per year. Instead, I take a little time to study the market, ignore short term gains and losses because I'm in it for the long haul, and I invest accordingly.  Which is why I've put together a portfolio of investments that, even with a couple of losers in it (in the short term, mind you -- they'll almost certainly come back up), that has an annualized gain of 12.62%, before taking any dividends into consideration.
 
2014-09-03 09:36:39 AM
When looking through my investment options for my 401k, the S&P 500 index fund still had the best rate of return over the last 10 year and lowest fees, so it was kind of a no brainer to park the bulk of my 401k there for now. When the market drops again, I can always shift my money somewhere more conservative to ride out the really big drops.
 
2014-09-03 09:42:39 AM

Mad_Radhu: When looking through my investment options for my 401k, the S&P 500 index fund still had the best rate of return over the last 10 year and lowest fees, so it was kind of a no brainer to park the bulk of my 401k there for now. When the market drops again, I can always shift my money somewhere more conservative to ride out the really big drops.


S&P 500 index is probably the best stock mutual fund to own. Hell, Warren Buffet even recommends it (and uses it himself).

And don't try to time the market; it's a fools errand because you don't know when it will bottom out.
 
2014-09-03 09:50:38 AM
You want my investing advice?  Buy long dated call options for 6-7 growth companies you like.  Options dated for Jan 2016, for example, perform much like the underlying stocks but with 4-5x the upside potential.  Yes, you can lose most of your money if the stock drops hard, but with a long date you also have a large recovery period.  Buy the option when it has 16 months on it, sell it when it has around 7-8 months left on it, and you're giving yourself a fairly wide time horizon within which to make decisions.
 
2014-09-03 10:04:42 AM

machoprogrammer: S&P 500 index is probably the best stock mutual fund to own.


Most money managers in the know can't be the S&P 500 year in and year out.  The fees charged by those who can beat it makes those funds less attractive.  Invest in the S&P and be happy with your 7% historic returns.
 
2014-09-03 10:29:15 AM

johnnyrocket: How can anyone look at the market as nothing other than a gambling arena for big money. The market is clearly overpriced in many areas. How does the 10-20 times earnings justifications make sense for actual stock value? You buy into a stock at 20 times earnings, that means the company will grow by 20 times in the future?

I know the price of a stock is what someone will pay, but the true value of a stock is another question.


A PE of 20 implies an earnings yield of 5%.  Its hardly unreasonable, particularly in a low interest rate environment.
 
2014-09-03 10:32:13 AM

Colonel_Angus: skozlaw: I'm never going to be rich from investing, but I make a hell of a lot more money from it than I would if I just sat on Fark whining about the markets instead.

Same here. I could leave my money in my savings account and maybe make less than 1% per year. Instead, I take a little time to study the market, ignore short term gains and losses because I'm in it for the long haul, and I invest accordingly.  Which is why I've put together a portfolio of investments that, even with a couple of losers in it (in the short term, mind you -- they'll almost certainly come back up), that has an annualized gain of 12.62%, before taking any dividends into consideration.


That 12.6% growth figure, what's the timeline on that?  Did it grow that much over the last five years or the last thirty?  If it's the last five, don't expect it to last.  If it was more than that, something sounds fishy.
 
2014-09-03 10:32:49 AM
 

johnnyrocket: How can anyone look at the market as nothing other than a gambling arena for big money. The market is clearly overpriced in many areas. How does the 10-20 times earnings justifications make sense for actual stock value? You buy into a stock at 20 times earnings, that means the company will grow by 20 times in the future?


No. That is not what that means. Holy shiat.
 
2014-09-03 10:38:23 AM

machoprogrammer: And don't try to time the market; it's a fools errand because you don't know when it will bottom out.


True, but if it looks like a full-on meltdown is in progress, you can move  lot of wealth into a relatively safe harbor and ride out the worst of it. For example, if you bailed when Lehman when bankrupt, then moved your money back into the market sometime in 2010, you would have lost a little at the beginning of the crisis, and you would have missed some gains from the start of the recovery, but by and large you would have avoided the worst of the pain. Even if you can't time it exactly, NOT moving your nest egg somewhere like bonds when you have a crash of the extent where major investment firms going bankrupt and banks are getting bailed out is idiotic. You'll realize some losses, but at least you'll stop the bleeding before you lose half your retirement.
 
2014-09-03 10:47:26 AM

Incontinent_dog_and_monkey_rodeo: You want my investing advice?  Buy long dated call options for 6-7 growth companies you like.  Options dated for Jan 2016, for example, perform much like the underlying stocks but with 4-5x the upside potential.  Yes, you can lose most of your money if the stock drops hard, but with a long date you also have a large recovery period.  Buy the option when it has 16 months on it, sell it when it has around 7-8 months left on it, and you're giving yourself a fairly wide time horizon within which to make decisions.


I did this for the first last year with Tesla. It's obviously doing better than I thought, and I'll do it again with other companies.

Why do you recommend selling at 7-8 months till strike date? (I'm not being specific to my current options; I mean in general.)
 
2014-09-03 10:56:50 AM

Mad_Radhu: machoprogrammer: And don't try to time the market; it's a fools errand because you don't know when it will bottom out.

True, but if it looks like a full-on meltdown is in progress, you can move  lot of wealth into a relatively safe harbor and ride out the worst of it. For example, if you bailed when Lehman when bankrupt, then moved your money back into the market sometime in 2010, you would have lost a little at the beginning of the crisis, and you would have missed some gains from the start of the recovery, but by and large you would have avoided the worst of the pain. Even if you can't time it exactly, NOT moving your nest egg somewhere like bonds when you have a crash of the extent where major investment firms going bankrupt and banks are getting bailed out is idiotic. You'll realize some losses, but at least you'll stop the bleeding before you lose half your retirement.


True, but a crash like 2008 is pretty rare. And even then, it could get better the next day. You don't know when it will get better because a recession isn't a recession until it's over.
 
2014-09-03 11:05:56 AM

Mad_Radhu: machoprogrammer: And don't try to time the market; it's a fools errand because you don't know when it will bottom out.

True, but if it looks like a full-on meltdown is in progress, you can move  lot of wealth into a relatively safe harbor and ride out the worst of it. For example, if you bailed when Lehman when bankrupt, then moved your money back into the market sometime in 2010, you would have lost a little at the beginning of the crisis, and you would have missed some gains from the start of the recovery, but by and large you would have avoided the worst of the pain. Even if you can't time it exactly, NOT moving your nest egg somewhere like bonds when you have a crash of the extent where major investment firms going bankrupt and banks are getting bailed out is idiotic. You'll realize some losses, but at least you'll stop the bleeding before you lose half your retirement.


Okay, looking at the chart, the bounce back was faster than I remembered so mid-late 2009 was a better bet. Even then, you could wait to see several months of continued growth before throwing your money back into the market and still comes out ahead because you missed the BIG pain by pulling the rip cord at the first big sign of trouble.
 
2014-09-03 11:14:26 AM

machoprogrammer: True, but a crash like 2008 is pretty rare. And even then, it could get better the next day. You don't know when it will get better because a recession isn't a recession until it's over.


For a normal recession, it is excellent advice to ride it out and not try to time it because it usually ends in tears if you try to time the market.

In your typical recession, however, you don't see large Wall Street firms go belly up. Lehman was a BIG warning sign to cash out because that was an indication that a lot of bad investments were in the process of unwinding. It's really rare, but there's probably going to be a point in our lives again where the writing is on the wall to move to a safer harbor quickly. Staying in the market at that point would have been like staying in NOLA with Katrina barreling down on you.
 
2014-09-03 11:15:19 AM

johnnyrocket: How can anyone look at the market as nothing other than a gambling arena for big money. The market is clearly overpriced in many areas. How does the 10-20 times earnings justifications make sense for actual stock value? You buy into a stock at 20 times earnings, that means the company will grow by 20 times in the future?

I know the price of a stock is what someone will pay, but the true value of a stock is another question.


Huh? Buying into a stock at 20 times earnings, means if the company continues at that rate in the future, you are earning a 5% return on your initial investment from the dividend payouts (obviously you also have to factor in the risk of the stock losing value during the time you hold it, but that offsets against the chance of it rising while you hold it instead, which historically for profitable firms would tend to be positive on average, but it depends on how much risk you are willing to bear to get that return compared to other forms of investment).
 
2014-09-03 11:17:09 AM

skrame: Incontinent_dog_and_monkey_rodeo: You want my investing advice?  Buy long dated call options for 6-7 growth companies you like.  Options dated for Jan 2016, for example, perform much like the underlying stocks but with 4-5x the upside potential.  Yes, you can lose most of your money if the stock drops hard, but with a long date you also have a large recovery period.  Buy the option when it has 16 months on it, sell it when it has around 7-8 months left on it, and you're giving yourself a fairly wide time horizon within which to make decisions.

I did this for the first last year with Tesla. It's obviously doing better than I thought, and I'll do it again with other companies.

Why do you recommend selling at 7-8 months till strike date? (I'm not being specific to my current options; I mean in general.)


The closer you get to your exercise date, the less reaction/recovery time you have.  By selling the 7-8 month option and rolling it into anther 15-16 month option, you buy safety from short term shocks.  Even a major event that roils the whole market usually dies down after 12 months.  Once you get into that 6-7 month horizon you are much more vulnerable to a catastrophic wipe out.
 
2014-09-03 11:21:57 AM

Mad_Radhu: Mad_Radhu: machoprogrammer: And don't try to time the market; it's a fools errand because you don't know when it will bottom out.

True, but if it looks like a full-on meltdown is in progress, you can move  lot of wealth into a relatively safe harbor and ride out the worst of it. For example, if you bailed when Lehman when bankrupt, then moved your money back into the market sometime in 2010, you would have lost a little at the beginning of the crisis, and you would have missed some gains from the start of the recovery, but by and large you would have avoided the worst of the pain. Even if you can't time it exactly, NOT moving your nest egg somewhere like bonds when you have a crash of the extent where major investment firms going bankrupt and banks are getting bailed out is idiotic. You'll realize some losses, but at least you'll stop the bleeding before you lose half your retirement.

Okay, looking at the chart, the bounce back was faster than I remembered so mid-late 2009 was a better bet. Even then, you could wait to see several months of continued growth before throwing your money back into the market and still comes out ahead because you missed the BIG pain by pulling the rip cord at the first big sign of trouble.


Sometimes the first sign of trouble is not always so bad. A few weeks ago, stocks were sold off quickly due to (reasons) and the S&P 500 lost 2% in a day. It lost a few percentage points each day before that, too. However, August it went up to new record highs. So if you took it out then, you would've missed out.

Or, if you took it out in 2011 when they were going down somewhat quickly, you could've missed the gains of 2012 and 2013.

It's easy to point it out in hindsight, but in the present, it's really difficult. Studies have even shown trying to time the market is a fools' errand. Keeping an asset allocation of a percentage of bonds and percentage in stocks, then re-balancing every few months has been shown to do much better.
 
2014-09-03 11:33:21 AM

johnnyrocket: How does the 10-20 times earnings justifications make sense for actual stock value?


BP has a PE ratio of about 15.

It' pays 4.9% on dividends.

How is that overpriced?
 
2014-09-03 11:44:20 AM
Strangely absent from market discussions is the dwindling volume of the Dow. Even the S&P is at half the volume from its high
 
2014-09-03 11:45:16 AM

machoprogrammer: Sometimes the first sign of trouble is not always so bad. A few weeks ago, stocks were sold off quickly due to (reasons) and the S&P 500 lost 2% in a day. It lost a few percentage points each day before that, too. However, August it went up to new record highs. So if you took it out then, you would've missed out.

Or, if you took it out in 2011 when they were going down somewhat quickly, you could've missed the gains of 2012 and 2013.


And how many major investment firms went bankrupt during those dips? I totally agree with you during normal market corrections, but I think there are some instances where it is obvious that things have nowhere to go but down when I think you should take your money and run for the hills.

I had just started my 401k in late 2007, so I really had nothing to lose by riding out the downturn (hell I even bumped up my contributions during the worst of the crash because it was a great buying opportunity especially with free money from my employer's matching), but the next time there is a full blown crisis very publicly brewing, I really will be looking at parking my gains somewhere relatively safe. But again, this is only for somethings really big, on the order of the last crash or the S&L crisis. Basically, if the financial sector is having bankruptcies and bail outs, it is probably a good time to at least take my big nest egg off the table and only risk my new contributions. Mind, you it makes sense to move it back in again relatively quickly, but only after the DJIA has shed a few thousand points first.
 
2014-09-03 12:03:17 PM

pmdgrwr: Strangely absent from market discussions is the dwindling volume of the Dow. Even the S&P is at half the volume from its high


That's largely due to decreasing returns on HFT and the lack of a financial crisis.  The 2008-2010 time frame had crazy volume, but the factors driving that volume can hardly be described as "good".

chart.finance.yahoo.com
 
2014-09-03 12:09:47 PM

impaler: johnnyrocket: How does the 10-20 times earnings justifications make sense for actual stock value?

BP has a PE ratio of about 15.

It' pays 4.9% on dividends.

How is that overpriced?


It means it is at the top, enjoy the dividends then. Hope real earnings grow, because good luck with the retail investor driving the PE any higher, it will not happen.
 
2014-09-03 12:25:46 PM
skozlaw:

If people on Fark spent a tenth as much time educating themselves on the basics of investing as they do on pretending they're too smart to invest or biatching about how unfair everything is, this site would be full of multi-millionaires by now.

Unpossible. Nobody get's rich quick in the market except by luck.
 
2014-09-03 01:08:13 PM

Incontinent_dog_and_monkey_rodeo: skrame: Incontinent_dog_and_monkey_rodeo: You want my investing advice?  Buy long dated call options for 6-7 growth companies you like.  Options dated for Jan 2016, for example, perform much like the underlying stocks but with 4-5x the upside potential.  Yes, you can lose most of your money if the stock drops hard, but with a long date you also have a large recovery period.  Buy the option when it has 16 months on it, sell it when it has around 7-8 months left on it, and you're giving yourself a fairly wide time horizon within which to make decisions.

I did this for the first last year with Tesla. It's obviously doing better than I thought, and I'll do it again with other companies.

Why do you recommend selling at 7-8 months till strike date? (I'm not being specific to my current options; I mean in general.)

The closer you get to your exercise date, the less reaction/recovery time you have.  By selling the 7-8 month option and rolling it into anther 15-16 month option, you buy safety from short term shocks.  Even a major event that roils the whole market usually dies down after 12 months.  Once you get into that 6-7 month horizon you are much more vulnerable to a catastrophic wipe out.


Thank you. My biggest weakness in terms of investing is paying attention when to sell. I once rode Nintendo from $30 to well over $100, and then down to $13 because I wasn't really paying attention to my investments.
 
2014-09-03 05:48:53 PM

Tricky Chicken: My wife buys and sells stocks, but also buys and sells options on the same stocks. Somehow, by looking at evaluation, price, and whatever else she looks at, she makes money when her stocks go up, but she makes money when her stocks go down.


She sounds like a bookie to me.
 
2014-09-03 09:14:56 PM

pmdgrwr: impaler: johnnyrocket: How does the 10-20 times earnings justifications make sense for actual stock value?

BP has a PE ratio of about 15.

It' pays 4.9% on dividends.

How is that overpriced?

It means it is at the top, enjoy the dividends then. Hope real earnings grow, because good luck with the retail investor driving the PE any higher, it will not happen.


What is at the top? The stock price, the earnings, the yield, or the dividend? They are all distinct things which although related, don't have to go in the same direction in the short run. If the yield goes down, that could happen because the price went up or the dividend went down.
 
2014-09-04 03:06:34 PM

flondrix: Tricky Chicken: My wife buys and sells stocks, but also buys and sells options on the same stocks. Somehow, by looking at evaluation, price, and whatever else she looks at, she makes money when her stocks go up, but she makes money when her stocks go down.

She sounds like a bookie to me.


I sometimes suspect she is in the mob and I am just a really really boring cover.
 
2014-09-04 06:16:38 PM

Tricky Chicken: flondrix: Tricky Chicken: My wife buys and sells stocks, but also buys and sells options on the same stocks. Somehow, by looking at evaluation, price, and whatever else she looks at, she makes money when her stocks go up, but she makes money when her stocks go down.

She sounds like a bookie to me.

I sometimes suspect she is in the mob and I am just a really really boring cover.


In case anyone didn't get it, I was referencing this scene in Trading Places:

driftlessareareview.files.wordpress.com
 
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