I had promised that I was going to start my own thread regarding stock investments and the markets. So many things have happened since last time I was here and I really do not feel like sharing my knowledge. But a promise is a promise and there have been few people that have emailed me and supported me.

This thread will deal with investing in the stock markets. I will not discuss individual stocks but discuss ETFs like SPY, DIA, IWM and QQQQ. The one good thing about trading ETFs compared to individual stocks is the the ETFs provide instant diversification among similar companies within the same sector.

I will post more as we go along, regarding entry-price, profit-target and stop-losses. I do not think that any ETF is good or bad. It is good only if I'm making money and bad if I'm losig money.

If you have not been in the market so far, please read this as an information piece only rather than my recommendations. There is risk involved and you should know how much risk to take on any position.

Any suggestations, comments and criticisms are welcome as long as it is market related. If this thread gets out of hand and we start discussing off-topics, I'll stop posting.

Have a happy new year!!!! May 2007 bring you and your family lots of joys and riches.

Thank you latoboy for keeping your calm..

Something to watch over the weekend. This show is on HD.

http://www.mojohd.com/video/?sid=8

 

Hey Emini, that is an interesting link....i will be following that.....thank u.

Hey guys,
I was watching wall street  warriors on mojo and found a guy,Tim Sykes, making load of money. Google  gave me this  link:  www.timothysykes.com
Check that out....looks interesting.....

Singing bowl: That guy is a tool with the biggest ego. He has not made any money in the last few years. He sells books now. Don't waste your time. Check out his website but do not take it seriously.

Agreed with the above post.

As they say, those who make money, are making them quietly. Those who aren't are writing books.

I saw a video of his in google and the guy who interviews him looks like the guy who came in posing as a potential investor in the series emini posted the link to. What the heck was that?

Anyways, Google's taking quite a hit. Below 500 and I'm gonna be very glad.

Apple's in bad water's too. simple out of the money call/ puts become very handy during high volatility periods.

and for you math geeks like me, if you've heard of mean reversion, the semiconductors seem like a prime example.

have a good weekend!!!

I haven't posted anything in the last few days because I'm out of all my long-term holdings, still doing some short-term trading. I think we will get to 1440 in S&P before we start selling off. We are in a bear market, there is no use buying anything here. I still like ACH because of its valuation, I still feel now that we can get that at a better price.

Here is something for whoever is interested to read more about psychological biases and what it takes to be successful. He is writing these for traders but the same principles apply to other professions too.

http://www.brettsteenbarger.com/articles.htm

Unless I feel that we are in a bull market I won't be updating much.

 

A few questions for you hardcore stock pickers...

A fundamental investment theory suggests that market prices are in equilibrium at any given moment. In practice though one assumes that markets are inefficient- the anamolies of arbitrage is clearly evident of this. In order to correct this inefficiency you take a position on the mispriced equity, hoping they would become efficient after x amount of duration.

So, my question to you is which equity valuation technique do you use before you decide to take the plunge?      

I am interested in serious evaluations/analysis. Please no cheerleading, or following the herd type of answers.

JB

Emini, you are right about that guy. He is indeed more hype and less substance.

Timetraveller, I agree with u- " Those who make money, are making them quietly. Those who aren't are writing books"

GOOG, AMZN, RIMM, AAPL...all taking hits lately. Decreasing consumer spending and expectations of outperformance are taking toll on them. GOOG hasn't been long in the market so I am excited to see how it does in bear market.

Just wondering.....If rate cuts after 2001 are to be blamed for the housing bubble, where all the money, Mr. Bernanke pouring into the market, will end up? It has a potential to form another bubble. If these recent rate cuts are to be followed by outstanding growths in some sectors, I hope we all find that opportunity to make money.

If you love watching markets in weekdays and football in weekends....then....here u can read a correlation...

http://biz.yahoo.com/cnbc/080129/22883662.html?.v=1

 

JavaBeans: It is the Modern Portfolio Theory that suggests that market prices are in equilibrium at any given moment not fundamental investment theory. Markets are efficient for most of the time but they tend to be inefficient at times, that's why Buffett has been able to get the outsized returns (I heard this from Buffet himself).

Regarding which equity valuation method to use, personally I think it depends on the person's risk tolerance. If you are risk-averse (which most of the people are including myself), you can wait till the time when the market becomes inefficient and buy hoping that eventually market will be efficient and prices will return to their equilibrium, or, you can trade the momentum with a stop. The first type of people that buy when they perceive the market to be inefficient do not have stops, they'll hold on to those stocks through thick and thin. I like to buy/sell momentum with stops. For most of the people that are starting I think the first strategy is good but if you know what you are doing the second strategy is better.

You asked a very good question, one of the best question that has been asked here!!!

I disagree with your perceived definition of Modern Portfolio Theory (MPT), however.

The notion that market prices are in equilibrium at any given moment is rather hinted toward Efficient Market Hypothesis (EMH), a form fundamental investment theory. MPT, in contrast, focuses on the techniques and implications of efficient diversification, and how an asset should be priced based on the quatitative trade-off between risk and expected return. Please refer to these sources for definitions:

http://www.investopedia.com/terms/e/efficientmarkethypothesis.asp

http://www.investorhome.com/emh.htm

http://en.wikipedia.org/wiki/Modern_portfolio_theory

I am obviously not here to test your knowledge on these theories. I am, however, very much interested in how you make decisions (rational) to purchase a security, perhaps making use of those above theories into practice (if applicable).

Maybe I should introduce my investment philosophy so that the question raised above is more meaningful. I am a long term investor (2-3 yrs horizon)- this means the duration of the term do not change if the fundamental economics of the firm/sector are sound. I conduct a due diligence check every quarter. Also, I do not have a reason to use stop losses. I am not out there to make a quick buck based on market momentum, rumors, day trading, or sheer superstition. This is suitable for trading depts at brokerages where massive liquidity makes a big difference even if a gain is 1/8 of a point, for example. Quite the opposite, I make my decisions to invest in equity based on pure valuation- discounted cash flows (DCF) for publicly traded companies. I use derivatives for hedging on the asset. 

I understand that most of you are not professional investors or have a deep background in finance- whether in academics or industry (if you are the exception though we would especially appreciate your participation).

Neverthelesss, if you use a valuation technique of any sort I would still like to hear from you, being the finance junkie I am.

JB

Java: You're right. I meant EMH but wrote MPT, but rest of the stuff that I said is valid. I personally do not use any valuation technique as DDM or PE or PS. I'm more of a macro trader. Like I said before it is not for everyone but it works for me.

Please feel free to share your knowledge and valuation methods, after all we're here to learn and discuss.

 

Well Java, my theory is, if there's a company I wanna invest in and I need to perform DCF and all sorts of analysis on it to come to a decision as to whether or not I should invest in, I probably will not invest in it. While I'm not a "chartist" or a "technician", the only tools I have are support and resistance (which i think is similar to the mean reversion model, although mean reversion is usually more evident in commodities)

The way I screen for stocks is not based on value or future expected cash flows or any other thing taught in business school. My idea is that given the amount of securities in the market, on can always find a handful at any given moment to invest/ trade in without all that pain. But you can't get free lunch and the hard work comes in the form of constantly monitoring the prices bcause of how sensitive markets are to global events. I think we're gonna see 24/7 trading in our lifetimes very soon (look at the liquidity in premarket hours) and stock trading will reach "perfect competiton", like that of foreign exchange trading very soon.

Having said that however, I always end up checking the balance sheets and income statements of the last 3-5 years just to have that extra confidence. It doest take any more than 5-10 minutes anyway.

By the way, Im working towards my CFA and now I'm beginning to think that it may or may not be that good of an idea spending so much time over three years given how saturated the market is with all these CFAs around...like a CFA bubble...

any advice guys?

And I think this is worth noting! Very interesting but NOT SURPRISING analysis. I really think all these money managers and reporters and analysis need to be taught the basic junior high school idea of Presnt Value/ future Value.

http://ca.youtube.com/watch?v=SjS60TaD_J8

Following the analyst ratings is like driving a car blindfolded. I learned that early enough to avoid big losses..lol.. but amen to TT, that is exactly what I do. I do go a step more and analyze the footnotes to the statements but most of what I do is understand the business model and how it earns its money to make my own theory on why and why not the company would be a better investment for x months. I do look at the technicals but only if the fundamentals are sound to reinforce my original notion. Simple valuation method like PE and Book to Market.. yea of course but not anything more fancy. I can't remember the last time I used a page in Excel to value a security..

gotta love these modern websites with their advanced functionality to search for keywords in sites.

we spoke of tim sykes, and there his book is underneath the forum in the ads section. *sigh*

bookmark !

If I make money w/ eminitrader won't we have to share the money? I'd rather make it on my own...

P.S. Didn't read your posting...

Read this and follow all the links too. This will be a good starting point for someone that wants to buy and hold for 5-10 years.

http://www.businessweek.com/investor/content/feb2008/pi2008024_505818.htm