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| Investing 101 - again? | ||
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| gLiTch |
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Anal Assassin
Registered Member #455
Joined: Mon Oct 09 2006, 04:58AMPosts: 3848 |
i kno people that make tons of money on MMORPG stocks. They buy when its in closed beta, and they know there is a lot of hype. They buy lots, at a very low price... Then they sell 4 weeks after launch and quadruple there money. I know someone who did that on Age of Conan. I couldnt believe it. For the record, i read all your posts noskill... Excellent advice. Its put together very well, and i might just use some of it within the next few months. Edited Sun Aug 31 2008, 09:40PM |
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| NoSkill |
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Sir
Registered Member #457
Joined: Tue Oct 10 2006, 01:13PMPosts: 2628 |
I would like to challenge any "investing scheme" as well. There exists many, all of which work over the short term but as long term investments they're practically worthless, worse than that, they're a detrimental investing strategy. Here's the thing, if schemes worked, if there was a "catch" in the market. Some unexploited tactic or trick, it would be discovered rather quickly, once it was discovered and used, it would grow in popularity. Eventually the popularity of the "scheme" would grow to the point where new investors are no longer taking part of the original idea, as much as they're riding it's wave, a wave that will have to break eventually. So yes, it is possible to make money with a scheme (eg. buying stock of companies with MMORPG betas and selling them when the game is released). But unless it's your scheme, that you made up yourself, it's unlikely you'll be the first one in and it's unlikely you'll get in at a price point that offers any significant hope of return on your investment. Odds are, you'll be getting in during the crest of the wave, only to watch it break beneath you and crash (from your price point). What if the game is a flop? What if the game isn't a flop but doesn't produce enough revenue to offset the expense in creating it? What if the rest of the company's business suffers as a result of efforts put into this one game? Even if the game is a success doesn't neccesarily mean the company's stock price will increase significantly. Let's use WoW as an example shall we? WoW is what? The most popular game ever in terms of money spent and users playing and it's growing? I think it might be, I don't have any stats on this but it's a safe guestimate. So you would expect WoW's parent company's stock price (where your money would be going) to grow in lock step with the games popularity, right? WRONG. WoW was created by Blizzard Entertainment, but Blizzard is owned by Vivendi Universal. In other words it is impossible to invest in WoW... you have to buy the whole company. So what has Vivendi done since WoW was released on November 23rd 2004? On November 22nd 2004, VIV.PA was at $22.49 per share. It moved slowly but steadily up to it's high point of $32.37 on May 29th 2007. Today it's trading at $26.44. So if you bought VIV.PA (because of the WoW release) on November 23rd 2004 and sold it at it's highest point (which you would of had no way of knowing) you could have hoped to realize a gain of 31% on your investment over 3 years (PRETTY GOOD!) but likely, you would have held it as it went up... today, 4 years later, your investment will have of grown by 15% annually. Which still isn't bad but wait a minute, once you factor in trading costs, you could easily be looking at a 10% to 12% increase since then. How would that of compared to an investment in an index fund over the same exact amount of time? I dunno but let's check. Let's check both the DJIA and the S&P 500 over the same amount of time. November 22nd 2004: VIV.PA - $22.49 S&P 500 - 1182.65 DJIA - 10,522.23 Today: VIV.PA - $26.44 (+15%) - 5%(?) for fees S&P 500 - 1282.83 (+7.8%) DJIA - 11,543.54 (+8.9%) So yes, by using this scheme you could have beat the market by a few percentage points over a 4 year period. However, you also lose a few major safety nets, such as diversification & investing in domestic stocks (Vivendi is based in Paris and isn't listed on any American board, to be honest I don't even know how you would purchase this stock or what the fee's would be) Also this was using the most successful example I could find. Here's the FUNCOM stock (Developer of Conan). Notice the tail end... that's probably where you would end up.  Their stock is at the lowest point it's ever been lol... yes there was a significant increase after Conan but you would of had to of SOLD into the rising pressure, something people very rarely have the discipline to do. Usually people HOLD rising stocks, hoping they will keep rising. Well look at what would of happened if you held on to FUNCOM's stock lol... FAIL. P.S. This is a type of "Timing Scheme" in which you are predicting that the future share price of a company will increase dramatically from the time you buy it. Timing schemes are best accomplished by individuals with an intimate knowledge of the industry and even the specific company they're investing in. To outsiders however (you) it's the same as gambling, except unlike gambling, you don't know the odds, other than that they're probably bad. Edited Sun Aug 31 2008, 10:37PM |
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| NoSkill |
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Sir
Registered Member #457
Joined: Tue Oct 10 2006, 01:13PM Posts: 2628 |
If you guys would like advice on how to pick individual stocks, I'll be happy to entertain any questions... but it's not easy. Not only is it not easy, the amount of effort and time you would need to spend researching stocks (considering the need to diversify) and the amount of capital required to maintain the investments (in order to dollar cost average) plus the trading fees associated with picking several individual stocks... well it all makes picking individual stocks almost impossible. Hell more than half of the mutual funds in the country (the stats are in that 3rd book The Intelligent Investor) don't even match the market index after fee's. And these are people whose JOB IT IS to pick stocks. If the professionals can't even beat the market more than half the time, why would a novice or amateur even try? However I can tell you how to research and pick stocks intelligently... but it's a long process. I'll tel you what, give me a few companies perhaps that you're interested in, if you're interested, and I'll show you how I would analyze said companies and what criteria it would need to meet in order to be a good value investment. |
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| nostie |
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Registered Member #185
Joined: Thu Mar 30 2006, 10:42PMPosts: 3167 |
Try pepsi for me | ||
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| NoSkill |
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Sir
Registered Member #457
Joined: Tue Oct 10 2006, 01:13PM Posts: 2628 |
A few things automatically strike me as red flags. When you're investing, for the long term (the only way I'll ever advise) you're looking for 5 major factors. Adequate Size - this is to exclude small companies, nowadays you should steer clear of any company with a market cap less than $2 billion. Strong Financial Condition - this just means that the company has more money than it does debt. Otherwise it could look like a cash cow on paper, but in actuality, it owes all that cash back to a lender at some point (plus interest). So the rule here is a 2:1 ratio of assets to liabilities. Earnings Stability - this one is easy, hasn't lost money in the past 10 years. Every year the EPS (earnings per share) was positive. If there was EVER a negative year within the past 10 years, junk it. Dividend Record - the company has paid a dividend (extra money for owning the stock) for 20+ years in a row. Earnings Growth - EPS has increased by at least 50% from 10 years ago. (4% annually) This is just the pre-screening. Once we pre-screen our stocks in this manner we can then look at specifics to determine if the stock is a good "value" (worth more than what it's trading for) I won't advise buying stocks that are trading for more than they're worth. But let's see how Pepsi (PEP) stacks up to the pre-screen. By the way I will be using yahoo.finance and morningstar.com to find most of this information, occassionally I will dig into the 10-K (annual report) or 10-Q (quarterly report) to find some other info, these you can get from the SEC online. Adequate size - min. $2B Market Cap - Pepsi $107.21B Market Cap = Pass Strong Financial Condition - 2:1 assets:liabilities - Here you have to look at the balance sheet. Pepsi - Total Assets 34,628,000 - Total Liabilities 17,394,000 - Ratio 1.99 ... AHHHH close enough. = Pass Earnings Stability - no negative earnings in 10 years - I use morningstar for this, it shows you the past 10 years of key statistics, like EPS. -[link]- = Pass Dividend Record - 20+ years of a dividend? - Morningstar only went back to 03 so I went to Pepsi's investor website and found the history here. -[link]- Pepsi has only been paying a dividend since 2001, only 8 years = FAIL Earnings Growth - EPS today is 50% more than EPS 10 years ago - in 1998 PEP's EPS was 1.31 today is 3.58 or 270% increase = Pass Well she passed 3.9 out of 5... that's not good enough for me to buy it. But let's say she went 5 for 5. Now I'll show you how to determine if it's a good value or not. There's two more terms you need to learn. Price/Earnings Ratio - the PE - this is the current stock price, divided by the earnings per share (EPS). In order to be a good "value" you should rarely (if ever) invest in a company whose PE is greater than 15. Price/Book Ratio - this is what the company is worth on paper... if the company went out of business and liquidated all of it's assets, how much money would be left per share? You should never invest in a company whose Price/Book is greater than 1.5-2.5. Also, there's a blended multiplier tool as well. If you take the Price/Book and multiply in by the PE, you don't ever want to see a number higher than 22.5. These are just good general guideline filters to help you find "value" stocks. (stocks who are worth more than what they're trading for, and should, and usually will be priced higher). So how does Pepsi compare to these last theree measurements? P/E - 19.13 P/B - 6.49 Blended Multiplier - 124.15!!!! HOLY FUCK!! RUN AWAY FROM THIS STOCK!! BURN IT!! BURN IT!!! SELL IT IF YOU OWN IT!!! LoL... so there you go... that's what I would do for any single stock I had any interest in investing in. Fortunately most online finance websites have "stock screeners" that allow you to enter this very data and screen every stock. It will then filter all the stocks into a list that will match your criteria. Very useful. Well I hope that was educational. Please keep the questions coming, I enjoy this so I really don't mind answering them. |
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| yourdroid |
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Registered Member #36
Joined: Thu Dec 01 2005, 06:12PMPosts: 214 |
one reason I like Ken Fisher's book is that he shows god logical reasons why many investing myths are false. One of them is your P/E > 15 belief. I believed it too, until he convinced me that it isn't the greatest metric to use. I don't remember exactly what he argued since it has been a long time since i read the book, but it made a lot of sense and he had statistics to back it up. So i recommend it. The others you posted seem pretty good. Ken Fisher also threw out another metric you might want to consider (even if only minorly). Switch around the P/E ratio and do E/P and it gives you a yield. This can be used to compare stocks on a percentage yield basis and makes them more easily compared to bonds. |
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| NoSkill |
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Sir
Registered Member #457
Joined: Tue Oct 10 2006, 01:13PM Posts: 2628 |
I didn't make this up. This is Benjamin Graham's guidelines, the person who taught Warren Buffet how to invest. I'm sure different people have had different guidelines and strategies but I choose to follow his. And just to clarify, you're looking for a P/E < 15. In conjunction with the P/B and blended multiplier. Also keep in mind the goal of this method, is to find stocks which are UNDERVALUED. It's not neccesarily to find the stocks with the highest profits, or highest dividends, or best overall return or anything else. The method is meant to find stocks which are currently trading for less than what the business itself is worth. (making sure that there's not a significant reason for this "discount") |
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| NoSkill |
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Sir
Registered Member #457
Joined: Tue Oct 10 2006, 01:13PM Posts: 2628 |
Yahoo has a great stock screener that runs in Java here -[link]- You can filter every single stock by the criteria I listed, but incase you forgot I'll recap for you here. Market Cap - >= $2b P/E - <= 15 P/B - Between .1 & 2.5 Quick Ratio - 2 (this is assets/liabilities) Dividends - >= 0.10 (this will just show you which companies pay a dividend you will need to go to morningstar to see if they've been doing so for 20 years) Earnings Growth Past 5 Years - >= 1 (not sure if this is a percentage or what... gonna have to play with it) Is that it? I think it might be, but you can filter by almost anything. P.S. For some reason right now, Yahoo is not showing any book values of stocks, I'm not sure if it always does this after hours, or if they're updating the statistics or what... so you'll have to wait til book values come back (might only be available during trading hours but that doesn't seem right to me) Seriously though people. Go invest your money: F=P(1+i)^n P - Present Value F - Future Value i - Interest Rate n - # of years So $3,000 invested today at 10% annual for 40 years will yield F=$3,000(1.10)^40 F = $135,777 And that's without adding any money & doing nothing. Let's say you add $10,000 over the next 10 years. ($1,000/yr without doing annuity calculations because technically $1000 invested now will be worth more than $1000 invested in 9 years but the difference isnt huge) F = $3000*(1.10)^40 + $10,000*(1.1)^30 F = $310,271 What if you can get just 2% more? F = $3,000(1.12)^40 + $1000(1.12)^30 F = $578,752 And how can you make $1M??? F = $1M i = 15% n = 40 Find P P = F/(1+i)^n = $1M/(1.15)^40 P = $3,734 Seriously... invest $3,734 today... find a 15% return and wait 40 years and you will have 1 million dollars. Invest more & you won't have to wait as long or won't need as high of a return or both. Seriously people... go invest your money. |
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