In my post Can You Time the Market?, I used a coin that was weighted 60/40 as an analogy for the stock market. I took for granted that any rational person would always choose Heads if the odds were 60/40 in Heads’ favor. I was wrong. In Hersh Shefrin’s book “Beyond Greed and Fear – … Read more
No. It’s random in the short-run. Here’s an analogy I use. Imagine you had a coin. 60% of the time it’ll land heads and 40% of the time it’ll land tails. If every time you predict heads, you’re going to do very well for yourself in the long run. But that isn’t good enough for … Read more
You’ve probably heard that the US GDP grew at 2% last year. That’s the real growth rate. The nominal growth rate would be 2% plus inflation. So in other words, real growth rates are corrected for inflation. So if I say the real GDP growth rate has been 2%, then that is after taking inflation … Read more
Well, this will be a shorter post than usual. All I know about the oil industry is essentially two things: 1) There’s drilling and refining. 2) Oil is a commodity. Number 1 means that every oil company essentially has two segments: the drilling & exploration and then the refining. Every major oil company engages in … Read more
Legacy Positions: AAPL – Slow growth cyclical business that goes on sale during off product cycle years. Huge net cash hoard has historically made this stock cheaper than it screens, but still trading at higher multiples than its growth can justify. DIS – Slow growth business with major headwinds not fully priced in. ESPN —not … Read more
Margin of Safety is a term popularized by Benjamin Graham and Warren Buffett. It means that once you’ve valued a stock, you should take another 20-50% off just to be on the safe side. For example, if you think a stock is worth $100 a share, then you should lower your price target to $50-$80. … Read more
PE Deflator Spreadsheet (Go to ‘File -> Make a copy’ to edit) WARNING: This is just an educational tool. It’s been simplified to ignore share dilution, dividends, and a million other variables. When you’re looking at a growth stock, it’s important to understand what assumptions are built into the stock price. If a company currently … Read more
I should start off by saying that every investor is a mixture of the two. It’s like saying a team is a defensive team vs an offensive team. Every team has to play both. The designation has to do with their speciality. There are a lot of reasons a stock’s price can go up. But … Read more
Utility is an economic term meaning to derive value from. I derive value from this tuna sandwich. Meaning, I enjoy eating it. End-user just means that I’m the person who actually uses the tuna sandwich. As opposed to the person who sold me the sandwich. Stocks have an end-user utility too, although that utility may … Read more
If you’ve ever watched a political debate, then you’ve probably heard someone say “it’s basic Econ 101.” “If you increase the minimum wage, then there’ll be less jobs… It’s basic Econ 101.” “Welfare encourages people not to work… It’s basic Econ 101.” “If you cut taxes, it’ll increase jobs… It’s basic Econ 101.” Those statements … Read more