How to Think About Stock Prices
Feeling chipper or worried about the markets? Put Mr. Market’s bipolar condition into perspective and change the way you think about stock prices, volatility and the markets.
Where Should I Put My Money These Days?
11/27/2008 | Joe Ponzio | 21 Comments | about: GM
Second only to Do you think we’ve hit a bottom?, the most common question I hear from folks is: Where should I be (or are you) putting money these days? It is usually followed up with some statement about how terrible the stock market is and/or how impossible real estate is right now.
Then, I get hit with the request for affirmation-the old, XYZ company is pretty beat up. What do you think? Most recently, the request has been about General Motors and Ford. Before that, Bank of America, AIG, and Fannie/Freddie.
Why do I call this a “request for affirmation”? Most of the time, the people asking have been decimated in the markets and are feeling the need or desire to make it back quick. They want to take a gamble on a beat down company, not because the business is sound, but because what was a $20 or $50 or $80 stock is now a $2 or $3 stock.
So…coming back from a long (and long overdue) break, let’s get back to the basics. And to do that, we’ll pick on General Motors again.
Where Are We With AEO?
8/21/2008 | Joe Ponzio | 29 Comments | about: AEO
We’ve been having a little discussion over on this post about the original purchase, current state, and future prospects of American Eagle Outfitters. The stock is down roughly 50% from our original purchase which begs the true value investing question: Is it down…or is it cheap?
Patience and Performance
6/4/2008 | Joe Ponzio | 5 Comments | about: GHM / NTRI
When you buy stock in a company, how long do you plan on holding it? Forever. Ideally, yes. But we live in the real world – a world of wildly fluctuating stock prices that often turns otherwise sane investors into panicky, self-doubting lemmings. As stock prices drop…lower…lower…people tend to second-guess their decisions and sell precisely when they should be buying.
[W]hile I realized thoroughly that if I were to make the kinds of profits that are made possible by the process that I have described as zigging when the rest zags, it was vital that I have some sort of quantitative check to be sure that I was right in zigging. With this in mind, I established what I called my three-year rule. – Philip Fisher, Common Stocks and Uncommon Profits
There Is No Tomorrow.
5/27/2008 | Joe Ponzio | 5 Comments | about: WMT
Building on a theme started back in March (How Bad Will This Get), I think it is safe to say that the US economy is weakening. We can choose to ignore the fact that millions of homeowners have zero equity and super-high mortgage payments they can’t afford; we can pretend that $4.20 per gallon gas prices have little effect on people, other than “mild” discomfort and anger.
When it comes to business and investing, it doesn’t pay to be an optimist or a pessimist; the big money is made by realists. If you can take all of the emotion – yours and that of others – out of your investing, you can begin to more clearly predict the future with a degree of confidence and competence. Forget tomorrow. There is no tomorrow.
Here’s your crystal ball question.
Use Price As A Tool, Not A Guide
2/6/2008 | Joe Ponzio | 15 Comments | about: RTSX
In Workouts Work Out In Down Markets – Part 3, I discussed another workout opportunity in the acquisition of Radiation Therapy Services (RTSX) by Vestar Capital Partners in a going-private transaction. The deal was pending shareholder approval and customary closing conditions. Since that post on January 21, 2008, the price fluctuated quite considerably and shook the nerves of a lot of holders.
This is a prime example of why you should use price as a tool, not a guide.
The Markets, The Book and Comments
1/23/2008 | Joe Ponzio | 15 Comments | about: AEO / JNJ / TRB / WMT
I’ll have to finish Workouts Work Out on Friday. Let me get some housekeeping done regarding the book and the markets. I’m not going to give you the standard “stay the course” or “now is the time to buy” garbage – there are plenty of other places to go for noise. Let’s, instead, look at the news of what’s happening.
Continue reading »
Focusing On The Calendar Year and Markets
1/7/2008 | Joe Ponzio | 6 Comments | about: AEO / AMLN / JNJ / TRB / WMT
Welcome to 2008 all. I am going to spend the next day responding to all of the comments from the past two weeks. Let’s get to the heart of the matter: What is going to happen in 2008? It is a question I have been hearing for the past three weeks, and is worth answering.
The Business vs. The Stock
12/17/2007 | Joe Ponzio | 7 Comments
The markets have done some crazy things the past few days weeks months years. In fact, it is enough to make one’s stomach turn. That is, of course, until you remember the key to owning stocks: There is a business under there – and that is what drives the long term price.
As Buffett said:
You go to bed feeling very comfortable just thinking about two and a half billion males with hair growing while you sleep. No one at Gillette has trouble sleeping.
It is easy to get caught up in the stock price. We can buy a company for all the right reasons, and then begin to doubt ourselves when the price starts dropping. Did I make a mistake? What if I overvalued the company or projected too much growth? Does Wall Street know something I don’t? Continue reading »
A Glance At Sharper Image
10/25/2007 | Joe Ponzio | 21 Comments | about: SHRP
In the earlier years of his investing career, Buffett is said to have had more ideas than cash-a situation that has reversed itself as Berkshire’s asset base has swelled. In 1999, Buffett reportedly claimed he could earn 50% a year in the stock market if he had just $1,000,000 to invest.
Where would he look to do that? Pabrai claims that early, or low-asset, Buffett would look to buy $0.50 dollars and sell them when they reached 90% to 100% of their true value. He wouldn’t be a buy-and-hold investor; rather, he’d look to buy quick-hit (read: 1-3 year) investments.
And with that, let’s take an early Buffett look at Sharper Image (SHRP).
Market Multiples: Looking At Beta
10/9/2007 | Joe Ponzio | 7 Comments
If you aren’t familiar with beta, it is the measure of a stock’s volatility in relation to the rest of the market. If a stock has a beta of 1, it tends to move up and down at the same pace as the markets. Stocks with a beta greater than 1 move more quickly (up and down) than the markets as a whole.
Though conventional wisdom and Wall Street say high beta means high risk, well, “F” that. High beta is your friend. Let me explain.
