Learn & understand quality, not memorize & regurgitate quantity.
…this comes on the back of an 8 part video series with respect to the topic of miss-understood exponential growth, by the masses.
The series is presented by a prof, who lays out the simple arithmetic of the impossibility of infinite growth and then presents the corollaries and extrapolations with respect to demographics and energy.
It was nothing new to me, I’m sharing it with you, in case it’s new to you.
I’m younger than most people into stocks, as such, there seems to be a demographic boom of sorts of my friends wondering about getting started. I have brainstormed, regarding 18 valuable concepts. Some are obvious, some are not. All seem simple, most are not.
Stocks anticipate good news, and bad news. So, if you’re buying something, because of some event in the near future, the market may or may not have all the upside/downside calculated into the stock already. This is sometimes referred to as sentiment. It’s the reason a company can release record profits and the stock fall, or the flip side is, if a company doesn’t lose as much money as the street expected it will go up. This applies to all sorts of news.
Stocks are the present value of the cash flows associated with them. If the cash flows change or are expected to change, the stock moves. This means that target prices are dumb, and investors need to decide for themselves, if the current market price, is a fair price to buy or sell at.
If investment A is likely to return 10%, while investment B is just as likely to return 20%, investment A will fall in value, the yield on it will rise as people sell it, and the yield on B will fall as people buy it. This is the main reason stocks movement is correlated. Equilibrium is constantly chased.
Two reasons stocks appreciate in value: 1. People bid up the price, essentially a supply & demand problem for a finite number of a certain stock. 2. Time slips by and the present value of the growing cash flow that the company generates increases as well as produces a yield on equity. Both of these have a reciprocal for why stocks go down.
A good business plan will fail if trends are not on the side of the investor. A bad business plan can succeed if the trends are on its side. Basically, trends are the wind that can either power the sail, or rock the canoe
You own the good times and the bad times associated with a company, after you purchase stock. Deal with it. Become a client if you’re not already. Refer a friend if appropriate. Check in on the company however you can, get creative. You now own parts of that business, a business you want to see do well. This advice, is just so that you get into it, and have fun.
Only thing guaranteed on Wall-Street. Both directions. The market will stay irrational longer than you can stay rational.
Understand the difference, and risk associated with them. Value stocks are generally safer, with lower yields, while growth stocks are riskier and more volatile.
Companies write reports for reasons. Read them all, if possible. 100 times better than internet forums.
Anybody who calls the market a ‘gamble’ couldn’t be more wrong, or stupid. Luck has nothing to do with profits, I suppose with the exception of factors driving you towards the purchase or sale. I’m talking about, people who “hope” their stock will go up, or maybe they will get “lucky” with this one. Luck is to casinos what intelligence is to the capital markets.
There is little incentive for them to do stick their neck out, the majority run with the heard, and do their job so that they can go home when they are done. There are good ones, and bad ones. Dumb ones, and smart ones. Just like any other employee.
Just like everything else, they can be used as an indicator of the future, as well as are available if needed. Investors should understand them, at the least, and use them when appropriate like tools – not toys. Leverage is a double edged sword, and time pushes that sword against your neck if you’re long plain vanilla.
These are the history of the company, the stuff behind the scenes, that most retail doesn’t understand. Learn about them on your own, and use the companies’ numbers if possible, because the quality of free data often reflects the price of the data.
And you’ll go insane with paper draw downs if you hold only one or two stocks. You’ll make less irrational emotion based decisions if you do.
Many dorks all around the world have spent allot of time perfecting some fancy mathematical models to prove that emotions effect wall street. I’m in the camp that believes news and fundamentals will trump technical analysis, and thus, put very little emphasis on using it. While it’s true, the technical analysis seems to work, it’s not smart to scale it’s application as well as time consuming to apply with short term trading strategies.
If you ever find yourself saying “I think it’s going to keep going up/down”, and you have no reason why, you’re being silly. You’re under informed, you should do more homework. I recommend 26 hours per day.
Big things move slower. Realize what the market capitalization of a company is no exception to this rule.
If you see a stock running at all time highs, and upon a 30 - 60 minute inspection you want to buy, do it. Buy a little. Then, read up, learn more, follow the company and add or sell if appropriate.
Put me down on the ‘ambassador’ list. How can we give credible hope to the bottom billion? Alliance of Compassion & Enlightened Self Interest. Watch this until the end, think hard about the Nokia advertisement at the end, and have a good weekend!
…I’m long the flow [of information], have been for a while. What I mean by this, or the state of “being long the flow” is…
I consciously invest my time in reading, sharing, contributing, communicating…etc.
I try to do it in a positive, efficient way, and I hope to earn a return. Like any investment…hence the “get long” part. I use google reader, and try to remember to share what I find interesting. I try to do it in my tweets, I try to do in my blog posts, in my comments I leave, and in generally everything else I do…online and offline…cause anybody you share stuff with, might benefit, and also share something in return. That’s the present value, the impact if you will.
Don’t get me wrong, it’s not just money…tons of reasons to be informed, and to inform others…be it an idea, opinon, or fact. I’ll leave it with you to extrapolate the upside.
While this might seem obvious, especially to bloggers, I’m not sure people actually consciously think about going out of their way to share stuff and communicate value.
ANYWAY I’m rambling….but with good intenstions…because if everybody jumps on the ‘long the flow’ bandwagon - we all win.
SOOooo…I’m glad to be part of the early adopters of @StockTweets, I’m pumped to see what comes out of it. I’m glad to have known Soren, by the way…he’s going to be a new dad soon, and as far as I know, he doesn’t even trade stocks. Talk about generous. No doubt he’s as busy as all of us. Anyway, @StockTweets unknowingly added to my thesis of being long the flow. Yes, this post is just me, trying to spread the word…so go follow, and flag stock symbols with the ‘$’.
Soren, if you need a *.com hosted and some HTML/graphics with directions/syntax for new users/features…I could help you out, let me know.
I specifically watch the advertisements on TED, because the companies sponsoring this stuff, deserve my eyeballs for a few extra seconds. Watch this video.
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