Blogs

The Volatility Bubble – Part II

07.25.17

The Stock Market Outsider


A few months ago I communicated that investors are becoming ever more complacent in the market, causing extreme speculation on short volatility.

 

The VIX has fluctuated up and down which has given great trades on both the long and short side. Nevertheless, the VIX has trended even further down and is now flirting with all-time record lows.

 

Investors have a natural inclination to become comfortable with slow, steady upward moves. A year ago many people thought Dow 18k was overvalued. Today you will be hard-pressed to find someone who still thinks that!

 

Nothing much has changed since last year. Earnings have improved somewhat and are now around late-2015 levels.

 

We have a pro-business administration, which is great for the economy, however Co...

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The Volatility Bubble

05.16.17

The Stock Market Outsider


For over a year there has been increasing talks on just how high this market can go.

 

Sound, fundamental investors are nervous for a good reason – nearly all traditional metrics point to this market being extremely overvalued. 

 

However the market keeps chugging along, why is this?

 

The reason is because there is no one particular sector to blame. It is not like the dot-com bubble where technology stocks were the main culprit; it is not like the housing crisis where real estate was bubbling and mortgage defaults were popping.

 

This time, the whole market is overvalued pretty much the same across all sectors. Because there is no perceivable bubble looming, investors are all too comfortable pouring ...

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The Biggest Intraday Drop in Over a Year

04.05.17

The Stock Market Outsider


The financial media was celebrating the “Return of the Bulls” this morning as the market flirted with a 1% intraday gain. It only took two hours for a total reversal, with the marketing closing a half percent down.

 

It was the biggest reversal since February 2016. What happened?

 

The Fed happened.

 

The Federal Reserve’s meeting minutes were released this afternoon and traders were hit with a bit of infamous nostalgia by some Fed members viewing “equity prices quite high relative to standard valuation measures.”

 

This hit a nerve with investors - particularly those that remember the dot-com bubble and subsequent crash in the late 90s.

 

A li...

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The Fed’s Rate Hike Today – Read Between the Lines

03.16.17

The Stock Market Outsider


Many people were surprised today that the market went up on a rate hike increase. News outlets joked about how things have changed nowadays – when in the past a rate hike would send the market falling.

 

The market went up today largely because the Fed didn’t pull any surprises. That’s the easy part.

 

However we must look between the lines at what’s going on.

 

Today Yellen made a familiar comment, as quoted:

 

“Today's decision also reflects our view that waiting too long to scale back some accommodation could potentially require us to raise rates rapidly some time down the road, which in turn could risk disrupting financial markets and pushing the economy into recession.”

 

Yell...

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DOW 21k in 4 weeks! Deja vu anyone?

03.01.17

The Stock Market Outsider


May 3, 1999: 4:48 p.m. ET

Dow's eclipse of 11,000 in a month is fastest move past 1,000-point marker

 

NEW YORK (CNNfn) - It took just five weeks for the Dow Jones industrial average to get from 10,000 to 11,000 -- the fastest assault on a 1,000-point milestone so far by the world's most widely watched stock index. 

 


The 115-year-old index, with a history that spans 20 U.S. presidents, six wars and 21 recessions, has now crossed nine 1,000-point milestones during this decade's bull market stampede and shows few signs of slowing down.

 

After making history by closing above 10,000 on March 29, the Dow raced past 11,000 on Monday. By contrast, it took the Dow a year to climb past...

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Bubble? No... It’s Different This Time

02.14.17

The Stock Market Outsider


The stock market continued its rise to greatness today, with all major indexes hitting all-time records. With each passing day more investors are converted into believers that this is an unstoppable bull market.

 

I mean…

 

Who cares that the Shiller P/E hit 29 today? It’s only the third highest ever, preceded by the Great Depression and Tech Bubble.

 

Who cares that the Federal Funds rate has been flatlined the past 8 years, and cannot be lowered any further to stimulate the economy? Mama Yellen will take care of us.

 

Who cares that the Federal Reserve quintupled its Treasury bond holdings over the past 8 years to $4.4 trillion dollars, which it still holds today and eventually will need to be sold?

&...

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DOW 20,000 – Yay Everyone Put on Your Party Hats!

01.26.17

The Stock Market Outsider


Yes, that title is sarcastic in case you were wondering. Sure I’m a big fan of the stock market and believe it will always rise over the long-term.

 

However long-term is the key word here. Bear markets are real (yeah remember those things?) – and the more overvalued and speculated the stock market is, the longer and worse the bear market will be.

 

This speculation goes further than today’s crossing above the 20k psychological threshold. It goes back to fundamental, rational investing principals… something that is being overlooked by today’s traders.

 

It’s not the cool thing to say the market is significantly overvalued – especially the financial media who have a direct interest...

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2017 is Here - Where Will the Market Go

01.04.17

The Stock Market Outsider


Today we kicked off 2017 with a continued bull market.  This has been the 2nd longest bull market in history, only surpassed by the 13-year stretch from 1987 to the dot-com crash of 2000.

 

The bull market is turning 8 years-old soon which has people wondering how much steam is left. Optimists say that the new administration’s policies and looser business regulations will spur more growth, and in-turn continue driving prices higher. Pessimists say that the market has been falsely propped up by low interest rates and will perform a correction in the future.

 

Let’s analyze at both sides of the argument:

 

It is true that looser business regulations will encourage more growth, but the question is exactly how much more growth will...

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The Trump Rally - How High Will It Go?

11.23.16

The Stock Market Outsider


The stock market has been a rollercoaster as of late. Prior to the election, it posted the most consecutive days of losses in decades. Then after the election it posted the most consecutive gains in years.

 

We are now at record highs and people are wondering how long this rally will last.

 

The two opposing factors to consider are the Trump effect vs. interest rate hikes.

 

Lower U.S. regulations, lower taxes, and increased government spending will certainly have a positive impact on U.S. businesses which increases their competitiveness and profits.

 

On the other hand, the Fed has come under increased pressure to begin raising rates back to a normal level. Rates have averaged 4.9% since the 1950’s, however have be...

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Prepare for Hibernation

10.04.16

The Stock Market Outsider


As mentioned in my previous posts, the stock market should continue falling the closer we get to the predicted December interest rate hike.  In fact, it has already turned course over the last few weeks and is expected to continue falling as people cash out their gains made over 2016. 

 

I wouldn’t expect a sudden market crash, but don’t be surprised if the market trended downwards in the intermediate term as interest rates are brought back up to “normal” levels over the next year or two.

 

Currently my portfolio is about 50% invested: out of that 50% about half is bearish positions in overvalued securities (Puts, bearish ETFs, short stocks) and the other half are bullish positions in value ETFs.  Although I’m st...

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Hedge Yourself Before Everyone Else Does

08.17.16

The Stock Market Outsider


It’s no secret that the stock market is basking in its glow of record highs and gleeful bliss. However, many overlook the fact that the reason the stock market has been doing so well is because there’s just no other worthwhile place to invest money.

 

Since the 2008 recession, interest rates have stayed near 0% for the longest time in history – BY FAR.  Interest rates have a direct, negative correlation with stock prices: low rates equal high stock values, and vice-versa.

 

Interest rates also have a direct, negative correlation with inflation.  Usually if the Federal Reserve maintains low interest rates for a period of time, inflation will rise, which in-turn causes the Fed to raise interest rates.

 

Over th...

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S&P Hits Record Highs – Aren’t Post-Brexit Profits Nice?

07.12.16

The Stock Market Outsider


Just two and a half weeks after the Brexit panic, the market has turned 180 degrees and is now lapping up stocks like it never even happened.

 

The market is very emotional and trades on a whim, giving us plenty of opportunities to compound our portfolio by selling peaks and buying dips.

 

So what’s the strategy from here?

 

The Forward P/E is rising and nearing levels where it spent most of 2015 trading at.  More importantly, the Forward P/E as a % of Trailing P/E appears to be rising again for the first time since the December 2015 interest rate increase.

 

These two attributes may lead us to believe that the market has potential to increase a bit further over the short-term, which may very well b...

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Brexit - Prepare for Volatility

06.24.16

The Stock Market Outsider


Wall Street is a very emotional creature and the only thing it hates worse than “bad” news is being surprised by “bad” news.

 

Yesterday the United Kingdom voted to leave the European Union – shocking the expectations of many, including Wall Street.

 

Today the stock market is expected to go through a bloodbath of panic as nervous investors pull out of the market.

 

For those of us who trade according to the Stock Market Outsider strategies, then we are in for a real treat.


We are very well prepared for these moments, our portfolios are hedged with bearish positions, and we have readily investable cash that we had been compounding throughout these bullish years.


Here’s my...

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Buy-and-Hold vs. Compounding Gains

05.25.16

The Stock Market Outsider



The stock market soared on Tuesday, with the S&P 500 surpassing its 2016 opening price.  It is now up 0.7% for the year.

 

If you had invested $100,000 at the beginning of the year, you’d have earned a fantastic $750 to date.

 

$750…Really?

 

I read an article on Yahoo Finance saying that the most profitable trading strategy was buying and holding.

 

Yeah, sure. Tell that to the person who began investing at the height of the tech bubble in January 2000.

 

If this investor put all of his money in the S&P 500 (a relatively “safe” investment), he would not have made a profit on his investment until 13 years later – January 2013.

 

It’s not as if he had a ...

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Stock Market P/E Nears All-Time Post-2008 Highs

04.13.16

The Stock Market Outsider



Today the stock market soared upwards near its all-time P/E highs since the 2008 crash.

 

The market has reached this level about five times since 2008; all occurring within the last year. And each time afterwards, the market then took a dip for a month or two before recovering back to this level.

 

So the question is, will the market dip back down and cause widespread worry and panic once again?

 

Possibly… however there’s one factor that’s different this time.

 

As I pointed out in my last update, although the current P/E is high, forward P/E is hovering around its average levels, due to a spike in projected forward earnings.

&nbs...

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Can the Stock Market Go Higher?

03.30.16

The Stock Market Outsider



Big news of today was that the stock market reached new highs for 2016.  People are wondering whether the market can go even higher, especially with Janet Yellen “motivational” inference that the interest rate may not be increased as much as originally projected.

 

Yes it is true that Yellen had a lot of influence on the market increases the past couple of days, and this has been one of the quickest rebounds in recent history, and that the overall P/E is close to all-time highs (since the 2008 recession).

 

All signs point to a very overpriced market (as pointed out in my last posting), however there is one remaining sign that actually points to an undervalued and continued...

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Heads-Up

03.08.16

The Stock Market Outsider



The Stock Market Outsider



Keep an eye out for an updated Stock Analysis workbook, with many more interesting graphs and correlations.  This will be finished within the next few days.

 

However, in the meantime I wanted to notify you of a few important red flags.

 

In my last update I described that the market's overall P/E was relatively undervalued compared to recent history and ha...

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Making Money in a Bear Market

02.11.16

The Stock Market Outsider



Just because the stock market is recently down does NOT mean that it is impossible to profit. In fact, some of the best gains have come in the recent weeks due to the high market volatility.

 

 

Simply put, if a company is strong and undervalued, chances are it will eventually rebound – even if it is only for a short period of time.



Intraday market movements are great opportunities to compound your portfolio multiple times per day. For example, recently I have been daytrading FVL, FAB, FTA, and FNK – all ETFs derived from index funds.



ETFs provide natural diversification that reduces the need to carry multiple stocks. This allows one to invest a larger portion of their portfolio in one security, which ...

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Crisis Mode?

01.08.16

The Stock Market Outsider

People are in panic mode, wondering if judgment day has finally arrived… the day that the stock market finally turns bearish.

 

Many “experts” are giving their opinion that the market will fall into a downward spiral the next month or year, reaching all-time lows.

 

As I always say in situations like this… calm down and think this through.

 

As the chart shows above, the stock market is far from a downward spiral. Even considering today’s 3% loss, it is still slightly above its long-term median valuation and is trading at about the same P/E the past year.

 

I always advocate buying when the market is trading below its median P/E, and selling when it rises above. Time and time again this strategy ...

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Market Down But Valuation Up?

12.01.15

The Stock Market Outsider




One of the most common mistakes traders make is investing based on the value of a certain index, whether it be the Dow Jones, Nasdaq, S&P 500, etc.

 

An index’s value has little to do with the overall market valuation. Just because the Nasdaq now trades 51 times higher than it did 40 years ago does not mean stocks trade at a 51 times higher valuation than before.

 

If that would be the case, then if traders paid 5 times free cash flow in the 70’s, they would now pay 1250 times free cash flow today!

 

The overall stock market has, and always will, trade according to basic business fundamentals – an average multiple on top of current and future cash flows. Generally, when the market falls below  this average...

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The Rebound

10.07.15

The Stock Market Outsider




In my last update I recommended keeping a cool head and continue investing in undervalued stocks because this is when the most money is made in the stock market.



Those that followed this logic have made tens or even hundreds of thousands of dollars within a few days. I have come out with a nice gain as well.



As expected, the market has rebounded upwards over the past few days and is now trending closer to its median P/E valuation.



What does this mean? Well, although the market can never be predicted with 100% certainty, in my opinion we are due for a temporary drop in the next few days. Not only because it is trending closer to its median value, but a significant movement in one direction (this time up) usually m...

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Market Update

09.29.15

The Stock Market Outsider


Over the recent weeks we have seen one of the most volatile markets in years.

 

Stocks plummet, correct upwards, only to plummet to even further levels the next day. Speculators are running rampant with opinions whether the market is under or overvalued.

 

As stated in The Stock Market Outsider, this period of correction would eventually come…and it has. And for those of you that have been following the strategy outlined in the book, you have used the recent volatility to flip multiple stocks/Put options for quick gains, and likely still hold some stocks that dipped in August and have not yet recovered.

 

Don’t be tempted to sell just because everyone else is selling.  As long as you are holding positions in strong, undervalued compan...

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What a Great Day to Trade

08.24.15

The Stock Market Outsider


Oh boy - how ridiculous was today's market volatility?

Case in point - When a Large Cap ETF drops 50% in an hour, this is one of the safest and quickest ways to double your portfolio ever.

Today was a prime example of how money funnels from the portfolios of emotional traders to the portfolios of rational traders.

...

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U.S. Stock Market Plunge – What You Need to Know

08.22.15

The Stock Market Outsider


  • The U.S. Market is currently at one of its lowest overall P/E ratios in years
  • The U.S. Market was devalued 6% ($2 trillion) this week
  • Comparatively, its current valuation is at mid-2014 levels (chart below)
  • Manufacturing, Services, and Technology sectors hit hardest
  • Conglomerates and Utilities fared best
  • The bigger they are, the harder they fall – Positive 38% correlation between a stock’s P/E at the start of this week and percentage lost at the end of the week

 

Summary: Don’t let a market dip freak you out; the stock market routinely fluctuates up and down.

 

Strong companies survive and even flourish after dips. Overvalued, hyped companies ...

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U.S. Stock Market Soars and Still Undervalued

08.10.15

The Stock Market Outsider



For those of you that follow my posts or that trade according to the strategy outlined in “The Stock Market Outsider,” you know that the ideal buying time is when the overall market is trading at a low P/E ratio and when a fundamentally strong company has taken an unsubstantiated dip.

 

In my last post, I mentioned that the U.S. markets were trading at a relatively low P/E ratio compared to recent months, and that there was a strong likelihood of a correction.

 

Sure enough, the markets soared up the very next day and made us a lot of money.

 

Well this happened again today – and again a lot of us made money, myself included, as shown in the “Undervalued” Watch List below.<...

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China Market Crashes; U.S. Market Undervalued

07.28.15

The Stock Market Outsider



On Monday the U.S. market was dragged downward from China’s stock market crash. News outlets are speculating that this could be the end of an artificially inflated Chinese stock market, and its effect on the U.S. exchange.

 

Wait. Slow down a bit.

 

Yes it is true that the Chinese government has its hands a bit much in market regulations, but the Chinese stock market is not going anywhere.

 

Crashes are primarily caused by fear of the other guy. No one knows what the other is doing, therefore to get a “jump start” on the competition, they sell before the other guy has a chance to sell. Little do they realize that the other guy has already sold.

 

This cycle continues rep...

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#1 Selling Stock Market Book

06.28.15

Nice! "The Stock Market Outsider" reaches #1 Best Selling Stock Book on Amazon.

The Stock Market Outsider
...

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Stock Market Climbs to New Highs

06.22.15

The Stock Market Outsider


Today the stock market hit new highs with median P/E and P/B soaring to 16.33 and 2.27, respectively, on positive speculation regarding the Greece and China economies.

 

This continual rise has begun exposing more overvalued companies littering the market, and has swallowed up much of the undervalued companies we observed months ago.

 

Take a look at your portfolio; do you have a healthy mix of bearish positions to hedge against a market downturn? If not, you may want to consider some of the stocks below:

 

"Don't Spend Your Life Making Others Rich"

To be successful in the market you need to hold both bullish and bearish positions.  While the market does trend upwards in the long-term, it is riddled with valleys.  Holding only bullish positions means that you will not profit during these valleys.

 

The market is reaching new highs as you read this article.  The Dow has broken 17,000; the S&P 500 is nearly at 2,000; and the NASDAQ is toying with its all-time high of 4,572 made during the Great Speculation of the dot-com boom.

 

The market is booming so now is the time to buy stocks, right? 

 

Wrong.

 

While the average investor is irrationally buying stocks to ridiculously high valuations, the insightful investor should be hedging his/her...

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More exciting news!

07.11.14

I was contacted by the Managing Editor of TheStreet.com and given authorization to become a contributing writer to the website! 

 

Hundreds of thousands of investors visit this website on a daily basis; therefore, the opportunity of writing for them is a huge breakthrough in getting “The Stock Market Outsider” recognized by the mainstream investing community.

 

Will keep you posted on any developments.  In the meantime be on the lookout for my upcoming articles – they will be reposted here and to my website.

 

Talk to you soon

In recent days we have seen 3-D printing stocks soar.  Already overvalued prior to the recent surge, now these stocks are hitting “ridiculously overvalued” territory.

 

3-D printing is not a new concept; it was first introduced in 1984 and has been sparsely used since.  Every few years the media shines its spotlight on 3-D printing as a revolutionary concept of the future.  This grabs the attention of market speculators who then buy up the 3-D printing stocks to ridiculous values. 

 

Once the hype dies down, and it certainly will, the unlucky fools who bought at the top are left holding a worthless bag. 

 

This presents a great opportunity for us.  Today I bought a put option in Voxelijet (VJET), a 3-D printing company that has been around (and done practically nothi...

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Top 5 Stock Entries: #1 - Change from Open

06.30.14

And the top decision maker for a stock entry positions is... Change from Open.

 

Not many traders would think that Change from Open is the most important determinate for a stock entry position – of course we’re talking about the average, not rich, trader.  Here’s why it is so important:

 

The core principle for becoming successful in stock trading is to look past the rampant greed and the fear and instead make your investment decisions based on basic business concepts.

 

Most traders cannot control these basic emotions, which results in significant spikes and dips in the market without substantiating news. 

 

Their uncontrollable emotions presents a golden opportunity for us.  We sell when greed is high and we buy when fear is high.  La...

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Top 5 Stock Entry Decisions: #2 - P/Cash

06.23.14

#2 – P/Cash:

 

If someone offered you a $5 bill in exchange for a $1 bill, you wouldn’t hesitate accepting.   The stock market offers this deal to us on a daily basis, yet many traders are unaware that it even exists.

 

The Price-to-Cash ratio (P/Cash) ratio is the ultimate valuation metric. It is calculated by dividing the share price by the total cash per share. 

 

For example, a company may have $10 in cash for every outstanding share, trading at a market price of $6.  In this case the P/Cash ratio is .6.

 

Believe it or not, some companies trade at less than a 1 P/Cash ratio.  This means for every dollar you invest, you are receiving a greater amount of cash back.

 

Cash is the hardest asset for a company to falsify,...

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Top 5 Stock Entry Decisions: #3 - 52-Wk High

06.20.14

Because of people’s greed and fear, the stock market moves up and down in waves.  No stock rises or falls to infinity; each had a soft ceiling that is not impossible, but difficult, to break.

 

This wavelike behavior inherently gives an advantage to the trader that does not fear investing in a dip, and that controls his greed by selling in a spike.  


The 52-week high is a good tool in understanding if the stock is in a dip or spike.  A stock reaching new 52-week highs is generally near the peak of emotional greed and has a high likelihood of correcting downwards, while a stock trading at only 50% of its 52-week high has a high likelihood of correcting upwards.

 

Keep in mind that the 52-week high is an important tool, however it should always be used in conjunction with fundamental factors.  Never invest in an overvalued company, even if it is in a dip.

 

As stated in my book, “Control your ...

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Top 5 Stock Entry Decisions: #4 - P/E

06.16.14

Ever watch Shark Tank? If so, you’ll notice one of the most frequently considered factors by the sharks is the company’s valuation compared to its net income.

Sharks, all successful investors themselves, generally only invest in companies valued at < 10 P/E.  Why is this?

Well, P/E is a good measure of how long it will take to recoup your investment.  Some companies trade at ridiculously high P/Es, some even exceeding 100.  This means that if the company’s net earnings stay consistent, it will take 100 years before you recoup your investment via net income.

When considering P/E from this perspective, you can easily see why it is wise to only invest in companies with very low P/Es.  Many traders ignore P/E and end up throwing their money away on significantly overvalued companies that have a high likelihood to experience a price correction in the near future.

More to come over the next few days….

...

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Top 5 Stock Entry Decisions

06.10.14

5) Return on Equity (ROE).  Who makes more money, you or Amazon.com? In terms of total dollars, the answer may be obvious.  However it terms of return on equity (ROE) percentage, you probably earn more than Amazon in this case.

Amazon earns a petty 3.9% return on equity, meaning they earn 3.9% of their net worth each year, barely beating inflation. At this low ROE percentage, Amazon may earn more money if they ceased operations and instead invested all its cash in a mutual fund!

This is not likely going to happen, but the point remains the same. Why put your money in a company earning such a low return, when there’s plenty of other companies out there earning more?

More to come over the next few days…

...

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Barnes & Noble, new book announcement, other

06.03.14

Hello fellow investors. I’ve been a busybody over the past few weeks and wanted to fill you in on a few updates.

First of all, leveraging upon all the new readers from my last Amazon promotion – I’ve put together a book submission package to Barnes & Noble. This is the first step into getting “The Stock Market Outsider” into bookstores around the country.

As part of the submission package, Barnes & Noble asks the author to submit a marketing plan and opinion on why the book should be placed on its shelves over any other competition. Like any retailer, they want to ensure that your book is worth their shelf space.

This is the most critical factor that an author will experience. Amazon may own online sales, however Barnes and Noble owns brick-and-mortar sales. Therefore it’s imperative that this package be perfect and impressive upon first glance.

I spent two weeks carefully crafting this package; ...

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Trusting the Financial Planning Department

05.27.14

Traders often spend considerable time trying to predict a company's future earnings.  They will create these complex spreadsheets that analyze a multitude of variables, from the company's competition to the predicted federal interest rates.

These analyses provide a level of comfort to the trader; he believes that his analysis is so thorough and complex that it must be correct. 

Was his analysis worth the time spent creating it?  Probably not.

Most publically traded companies perform this same analysis and communicate it to shareholders.  You can see the results for yourself; take a look at the company's Forward P/E ratio.

Comparing the Trailing P/E ratio to the Forward P/E ratio illustrates how the company predicts its earnings to change in the future.  If Forward P/E is much higher than the Traili...

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Book Promotion Success

05.22.14

My Amazon.com promotion turned into a huge success. Reached #8 for best selling stock book!

Big thanks to all my readers out there!

 

...

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Living in the Moment

05.19.14

We constantly hear that the market is irrational.  Stocks are rarely ever valued according to the company’s actual worth, even considering that mathematical formulas exist to calculate worth.  With all of this information available, why is the market constantly irrational?

It's because traders live in the moment.

The average trader has far too much of his portfolio allocated to a specific stock.  Anytime this stock price moves, the trader becomes anxious- 

It moves up, his dopamine levels increase and he becomes greedy - possibly buying more shares on an upswing.

It moves down, he starts to panic - either buying more shares (thus allocating even more of his portfolio to this stock) or selling for a loss.

The stock market constantly fluctuates up and down in a seemingly random fashion, which means that traders experience an emotional rollercoaster multiple times per day. 

This emotional rollercoaster causes them t...

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Top 10 Mistakes that Traders Make

05.12.14

10. Buying on the upswing

Ever look at a daily stock price chart?  Stock prices generally fluctuate up and down on a short-term basis.  A stock that is up today will likely be down tomorrow.  If you buy on an upswing there's a good chance that you'll go into negative territory soon after.  Buy on the dips instead.

9. Giving too much credence to message boards

People trade stocks for their personal gain, and will do whatever they deem necessary to increase their gains.  This includes trying to stir up greed in the buyers or fear in the sellers.  Next time you read an investment message board, realize that every single post was made by a trader with his or her own interests in mind.

8. Selling for a loss

People are naturally impatient, especially in the stock market; they want quick and large gains.  The longer they hold a non-performing stock, the more eager the...

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Top 10 Mistakes that Traders Make (Part 2)

05.12.14

5. Not hedging the market

While stock prices do move up in the long-term, this movement is not consistent.  The market is riddled with peaks and valleys.  Maintaining only long positions during dips will drastically slow down your compounding gains.  It is wise to hold put options on a few overvalued stocks and exercise them during market corrections.

4. Holding stocks for too long

No one is a fortuneteller.  The position you just entered is not guaranteed to shoot to the moon.  Actually, it is likely to fluctuate up and down over many months.  Holding a stock in hopes for a large gain is a waste of compounded gains.  Sell your stock on a small upswing and buy another one in a dip.

3. Putting all their money into one stock

Traders who fear the market are those who have put most of their money in a single stock.  There is no perfect stock or buy-in opportunity; thi...

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Invest Like a Shark

05.05.14

If you haven't watched ABC's “Shark Tank” show yet, I highly recommend doing so.  Shark Tank is one of the few programs that is both educational and informative, and can be a great way to improve your portfolio gains.

Shark Tank is an unscripted show based on actual venture capital negotiations between investors and entrepreneurs.  Millions of viewers tune in every week to see what new invention/business the entrepreneur will pitch to the "sharks," and if the sharks will deem it worthy enough for an investment.

There is an interesting undertone in each episode - the psychological relationship between The Shark Tank and the stock market.

Nearly all entrepreneurs on the show value their company at ridiculous values; companies with little to no earnings/assets are often priced at millions of dollars.  When questioned on value, the entrepreneurs reference the "great potential" of their company.

Potential...

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The Bull’s Balls

04.29.14

Good morning investors!  I just arrived back from vacationing in New York over the past few days.  There were many sites to see there, however one important visit was Wall Street.

Near Wall Street is a bronze sculpture of a charging bull; a motif of upwards financial prosperity.  Each day thousands of tourists line up to take pictures of themselves rubbing the bull’s nose and gripping its horns and balls, which are actions meant to bring good financial luck to the molester (in the form of controlling the bull by the balls).

While this may make a cute picture, unfortunately it does not bring any financial success to the populace.  I thought to myself, what needs to be added so that the bull could actually bring financial success?

First, if the tourist would stroke the nose and receive a dose of soothing rationality – that’ll be a start.  He or she would no longer purchase overvalued stocks on the rise and sell undervalued s...

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Don't buy the daily upswings

04.23.14

If you ever find yourself in a hostage situation where a captor holds a gun to your head asking if the market will move up or down tomorrow - your best bet is to say the opposite of how the market moved today.

This means if the market was up today - tell him it will be down tomorrow, and vice-versa.

Although the market will move upward over the long-term, in the short-term it moves up and down in waves. The shorter the term, the more "random" the price movement and the more difficult it is to predict.

This concept explains why you should never buy stocks that are on the upswing. No matter how attractive the opportunity looks, chances are a stock that is up today will be down tomorrow. Furthermore, the greater the upswing today, the larger the downturn tomorrow.

99% of stocks are not fairly valued; they're either under or overvalued. This means that while you should only purchase undervalued stocks, it's best not to purchase undervalued s...

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Celebrity Spread-the-Word Twitter Contest

04.22.14

The biggest challenge a new author faces is book promotion.  There's a slew of books published every day which makes distinguishing yourself a difficult challenge.

This is where I need your help, and you'll be rewarded for it.

I'm giving away 5 Audible.com redemption codes to download a free copy of my audiobook, "The Stock Market Outsider: Becoming a Billionaire".

The first 5 people to retweet this tweet to an audience of +500k followers, OR gets another user with +500k followers to retweet it, will win a free copy of the audiobook.

To claim your prize, simply email me the retweeted link at pfanara@predictingsociety.com or direct message it to me on Twitter @SMOutsider

The first 5 individuals to successfully complete the contest will win.  One free audiobook per person, and one retweet per "celebrity" (user with +500k Twitter followers).

...

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What undervalued stocks did the tide bring in

04.21.14

The stock market is similar to the tide on a beach, and traders are similar to the people hunting for rare shells (undervalued stocks) on the shore.  

Every time a strong tide occurs, rare shells are washed up on the beach.  After a while, shell hunters pick up many of the rare shells, and not much is left out there...until the next strong tide.

The market experienced substantial corrections over the past couple of weeks.  Prior to these corrections, there weren't many rare shells left on the beach.  However now there are many shells waiting to be picked up.  Which new undervalued stocks are waiting out there for us?

GURE had been trading at a yearly high, then dropped significantly down where it is now trading below a 1 P/Cash ratio.  Strong, undervalued company.

KGJI was already trading at a moderately low price, then was recently hit by a news article accusing management of misleading business information, pushing the stoc...

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Significant P/E and P/B Movements

04.15.14

Yesterday the market experienced a significant median P/E drop from 15.3 to 14.4 due to stable earnings combined with price dips.   

This is the lowest median P/E level since early February, and one of the lowest levels in months.  Interestingly, median P/B significantly increased from 2.01 to 2.16.  This observation suggests that asset levels are decreasing while earnings are increasing, both compared to price.

I have a preference for investing on P/B rather than P/E.  Earnings are much more volatile than assets, and can inaccurately distort a company's worth for a quarter.  For example, the biotechnology company Anacor (ANAC) maintained a 0 P/E for months because it had no positive net income.  

After last quarter's earnings announcements it boasted a nice P/E of 9.  Now this influx of "earnings" was not from its operations, but from a one-time lawsuit settlement of $150M+, which without it, would have had...

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Insights

04.13.14

Something came to me while browsing Amazon.com just now.  There is a multitude of investment books out there promoting speculative trading, with titles similar to "How I made $1M in a month" or "The Top Penny Stock Strategies."  

Reading these titles causes me to simply shake my head.  These books are basically a "How to Win At Gambling" wrapped in a stock market cover page.  

Let's humor ourselves and consider that those authors really did become rich through speculative trading, also known as gambling.  Great for them - horrible for their readers.  Gambling success relies on being at the right place, at the right time.  

One cannot write a book after a big speculative trading win.  It's like going to a casino, putting $100 in a slot, luckily winning the jackpot, then going write a book on how to replicate the jackpot winning.

You cannot duplicate luck.

Becoming successful in...

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Autographed book giveaway

04.13.14

Good day all! Wanted to give you a heads-up that there's 1 day left to sign-up for a chance to win a free, autographed copy of "The Stock Market Outsider: Becoming a Billionaire" on Goodreads.

Sign-up at this website: https://www.goodreads.com/giveaway/show/88199

Much success to everyone!

...

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The sky is falling - for the 5,000th time!

04.10.14

Over the past few days the market was hit hard, dropping a few percentage points in only three days.  Much like Earth in the universe, this drop was the size of a grain of sand compared the entire history of the market.  However, to those people living through this drop, it felt as if their life was over.

It was not.

Again and again, this situation repeats itself with the same results.  People panic, sell at ridiculously low prices, then the market recovers and all is tranquil again. 

Consider that if this situation occurs so frequently in the market, then the person able to capitalize on this situation will consistently win.  So what type of person is this?

Easy.  The person that does not chase stock prices upward; instead, purchases strong stocks during dips. 

Now this is easier said than done.  Nearly everyone knows the phrase "Buy low, sell high" - yet nearly no one follows this advice.  They fa...

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What will the markets do this week?

04.07.14

Every day, without fail, hundreds of thousands of investors attempt to speculate on how the markets will move.  Will they be up?  Down?

These speculators combine various factors together in their mind and decide that the market will move a certain direction.  Roughly 40% will say it will move down; 40% say up; 20% say sideways (the exact percentages being dependent on world news).

Speculators allow these factors to drive their investment decisions.  In essence, they are throwing out logical business reasons for investing in a company, and instead letting other people's opinions and actions dictate their own.

The average market participant behaves this way which makes them  slaves to the market; they reactively trade rather than proactively trade.  Needless to say, the average investor is not successful.

To become successful, you need to perform better than the average investor.  This means thinking for yourself - buy str...

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The Stock Market is Rigged? Hell no!

04.06.14

Over the past week there's been a buzz around the investment community.  An author and trading programmer, Michael Lewis, suggested that the stock market is rigged.  The primary support behind this argument is that computer programs have the ability to trade at a much faster frequency than the average investor out there.  Fast trades means quick price spikes and dips.

Oh heavens no - quick spikes and dips?  What will we do?

Give me a break.  The people complaining about computer trading programs are the equivalent of those that complained about the evolution of cassettes to CDs. 

If one wants to survive and prosper in life, he needs to learn to adapt to the changing environment around him.  The same trading strategy he's used for 30 years may not still be the most ideal strategy.

Myself, computer trading programs only HELP my gains.  They help push stock prices to irrational levels - both up and down.  Irra...

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Overpriced stocks

04.04.14

Good morning everyone - hope all is well on this Friday morning. 

For today's blog I'd like to discuss overpriced stocks.  Many investors focus on underpriced, and rightfully so, however it is ideal to take a few bearish positions in overpriced stocks to hedge against a market downturn.

Overpriced stocks are heavily skewed towards the biotechnology industry.  These companies have little tangible assets and earnings, yet are trading at significantly high values for the potential of discovering a revolutionary drug. 

This type of trading is a form of gambling - both when taking bullish and bearish positions.  We should not try to speculate on this industry.

So other than biotechnology stocks - what others are overpriced?  Well, AAMC is the elephant in the room.  It is trading at a 347 P/B ratio, and has not turned a profit yet so has no real P/E ratio.  CHTR is trading at a 86 P/B ratio and a 41 forward P/E ratio,...

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