Why study the 1960′s, a period of time that preceded the great inflation of the 1970s? Take a look below (self-explanatory):
Why study the 1960′s, a period of time that preceded the great inflation of the 1970s? Take a look below (self-explanatory):
Bitcoins are the product of socially naive programmers’ fantasies. They thought they could substitute algorithms for ethics, digits for legality, anonymity for custom, and dreams for responsibility. Ultimately, they thought they could substitute impersonalism for personalism. They were wrong. They merely launched a tulip mania.
If the advocates of crypotocurrency have a case for a free market social order, then they should advocate not buying Bitcoins until such an order exists. Money develops out of a social order. They have put the cart before the horse: a new monetary system before the institutional arrangements to support it. This was Mises’ argument regarding the regression theorem. A comprehensive monetary order that will replace the existing one is not going to be designed by obscure programmers. It will be the product of human action within a prevailing social and legal order.
The best article on Bitcoin–by far–from Gary North: http://www.garynorth.com/public/11866.cfm
Bitcoin is not money
Here is the problem in one sentence: a modern division of labor economy is very close to all or nothing. You cannot have a monetary system that does not apply across the board, yet still defend the concept of the division of labor through competitive pricing. You cannot have a currency that applies to illegal drugs, programming services, and almost nothing else, and expect that currency to replace the existing currency, which is a fiat money-based currency. There has to be a transition from the fiat-based currency, in which there are hundreds of billions of transactions a day worldwide, which in turn provides a comprehensive system of pricing and information feedback, in order for the present system of the division of labor to be maintained.
Any suggestion that Bitcoins can move from the modern system of integrated currencies, prices, and contracts, to get to an equally comprehensive system in which you could make a pencil, without the pricing system that is provided by the existing fiat money order, is simply utopian.
Most of all, Mises argued, socialism has no means of pricing capital. There are no capital markets.
The same is true of the as-yet nonexistent Bitcoins economy. It cannot do without the pricing system provided by central banking. It cannot produce goods and services without converting Bitcoins’ digital fiat money into the banking system’s fiat money. You cannot produce real goods with virtual money.
You have no capital markets without the monetary system. Capital markets are all based on contract. Bitcoins are based on a rejection of contracts. Capital is based on responsible owbnership: public claims on assets, enforceable by law.
Bitcoins are based on a rejection of enforcement by law.
Bitcoins relate only to consumer goods, and hardly any. Yet even these cannot be delivered by sellers without selling Bitcoins and buying dollars to fulfill contracts. Sellers cannot replace sold assets unless they have bank money to buy them in the real world economy. This economy operates in terms of real money, which today is central bank money.
Bitcoins represent zero threat to the central banks. Bitcoins are used by most owners as ways to make money: to buy more dollars than they paid. It is just another investment asset — one based initially on a complete fantasy, namely, that Bitcoins will somehow remove people from central banking.
Bitcoins are valued in terms of dollars. The mania is fueled by their rising dollar-denominated price. They provide an investment medium for high-risk speculators. They are nothing more than a way to get into a tiny market, and then ride the wave up, as more people get into it. There is no payoff in terms of the economic value of autonomous Bitcoins that are held only because they will serve as an alternative currency. They are held as a way to make money by selling to the greater fools, who will pay real money — dollars — for them.
It’s tulip bulb market. It rests entirely on getting back into the dollar economy.
Bitcoins will have no impact at all on the monetary base. They will have no impact on the capita; markets.
Capital is valued in terms of central bank money. Bitcoins will not change this, for they cannot reduce the size of the monetary base. They do not pull money out of the fractional reserve banking system. The quantity of real money is in no way affected. The investors remain in the central bank economy, in which capital is priced. Capital is not priced in terms of Bitcoins.
This is why Bitcoins’ economy today cannot produce even a broken pencil. It is giving Bitcoins far too much credit to say that they can produce a broken pencil. There is almost no division of labor based on stand-alone units of Bitcoins. To move to Bitcoins’ realm of virtual money for real products, other than maybe programming services, is a fantasy.
“I, Broken Pencil”: An Economic Analysis of Bitcoins
Gary North - December 06, 2013
To understand Bitcoins, return to the basics. . . . keep reading
And I, Pencil http://www.econlib.org/library/Essays/rdPncl1.html
Bitcoins: A Fully-Compliant Currency The Government Can Love … All of bitcoin’s benefits to the establishment revolve around its blockchain. In simple terms, a blockchain is a registry of all transactions carried out in bitcoins. Thus is resolved the problem of double-spending one particular bitcoin: It can’t be done (at least in theory) due to the blockchain. But the blockchain is in fact a register – a trail – of bitcoins. So it’s a relative cinch to piece together each and every transaction of any particular wallet in the bitcoin universe. And since exchanges need detailed personal information about a bitcoin user in order to comply with money-laundering laws before issuing a new user with a wallet, the government or other interested parties could determine what any one particular person has been doing in the bitcoin marketplace. – Blacklisted News/Gonzalo Lira
Dominant Social Theme: Are you ethical? Okay, then go live in a “green” hut and give government every cent you’ve got so the bureaucrats can reintroduce feudalism.
Free-Market Analysis: Let’s start with bitcoin. Then comes a bigger announcement … We’ve been skeptical of bitcoin for years. The smug techno-geekness of bitcoin’s backers irritated us, especially when we realized what they were supporting – a system that keeps track digitally of every single transaction ever made on the Internet.
You can see above that Gonzalo Lira has figured it out, as well. Those who blithely defend bitcoin without fully evaluating both the pros and cons of its technological stance are doing the freedom movement a, well … disservice, in our humble opinion, and apparently Lira’s, too.
That makes at least two of us against the rest of the libertarian world that is still a good deal enamored of this monetary marvel. Of course, it doesn’t hurt that bitcoin has recently hovered around US$1,000 a coin, a price that has sent people scurrying to garbage heaps to try to dig up old bitcoins now worth millions in aggregate.
One of these stories received wide attention recently. A fellow supposedly discarded an electronic cache of bitcoins years ago and then decided to search a dump to see if the coins were still there. This story – and we have our doubts about it – was all over the mainstream media, which is not a good sign.
Does anyone really believe that if bitcoin was a subversive, government-altering currency the mainstream media would be covering it so closely, or The Bernank would be issuing positive-sounding statements about it?
For all these reasons, we had reservations, which continue today, about bitcoin. Is it a system developed and placed on the Internet to anticipate the expansion of REAL alternative, digital currencies? Is it a kind of Trojan Horse, meant to provide the banking industry with a way to nullify a potential challenge – and regulate it – before something else comes along that is more challenging?
These may sound kind of hypothetical, but this iteration of The Daily Bell has certainly tried to speak to the expansion of alternative investing by setting some specific criteria. One powerful criterion would be “ethical” – as has been mentioned in past articles – and involves picking and choosing investments based on their ability to support freedom and free markets.
Fisher on Gold
Anyone care to receive a prize? What is the fatal flaw(s) in the above presentation? Another case study in why you must IGNORE the pundits and Wall Street. What proof can you provide that the above video is nonsense?
If you don’t answer the question, then you will end up like this guy: http://youtu.be/qPGUM5PZWEw
A Great Interview: The Forging of a Skeptic_Buffett
Learn about investigative journalism to become better at investing
Alice: Yes, I will give away some of my secrets. People would do well to study investigative journalism. Read something like Den of Thieves or A Civil Action and try to reverse engineer how it was reported.
Here are three other great books on conversing with people, understanding their real motives, and just generally understanding how the human mind works.
The Work of a Securities Analyst at a Wire House
You may wonder why analysts at banks hedge themselves so much – on the one hand this, on the other hand that. Partly it can be lack of courage. But someone is always trying to lawsuit-proof your opinion. Decisive statements are lawyered into “may, can, could, might, potentially, appears” instead of “is, does, should, will,” much less “look out below.”
The time pressures that work against quality research are also well-known. You write-up a lot of inconsequential things, especially what I call “elevator notes” (this quarter “X was up and Y was down”). Instead of writing original or probing views, you are really incentivized to spend as much time as possible marketing.
Also, if you adhere to consensus, it does protect your career. There’s an old saying that no one ever got fired for buying from IBM. Nobody ever got fired for making a wrong estimate that was within sell-side consensus.
Whereas, if you break from consensus, you really can’t afford to be wrong very often. That phenomenon really drives the sell-side. It can be overt, such as when we were judged on how “commercial” our work was. This is a veiled threat, because, of course, our work has to be marketable in order for us to have a job. The firms essentially want two things that are incompatible.
Focus on the Essentials
Miguel: It’s funny and I hope one day you can meet my boss. But you can tell him anything in the world (about an investment) but he always circles back to two questions
Miguel: I think that I am a little bit like you in that I love thinking about things. But I also find it very easy to get lost in details while forgetting to ask, “Is this something I even want to own in the first place?”
Alice: One trap is not probing deep enough to really answer whether a particular investment opportunity is a good business. It’s easy to make a facile judgment about that based on a summary description of a business. The sheer breadth of different business and investment opportunities in a modern capital market creates an overflow of information that leads many investors to have short attention spans in thinking about companies comparatively.
Curiosity is an inherent kind of arbitrage that no amount of computer technology can overcome. Warren makes it sound so simple to know what is and is not a truly good business – and great business do resonate very clearly when you understand why they are great and especially when they’ve been identified as successful investments by an investor like Warren Buffett and proven so with hindsight – but like many things in investing, Buffett makes it sound easier than it is. When it comes to appreciating something that is special about a business that others do not, I’ve learned that the devil really is in the details.
Miguel: How is Warren different from other value investors?
Alice: He’s more interested in money, for one thing (laughs).
In terms of how that affects his investing behavior, number one, in his classic investments he expends a lot of energy checking out details and ferreting out nuggets of information, way beyond the balance sheet. He would go back and look at the company’s history in-depth for decades. He used to pay people to attend shareholder meetings and ask questions for him. He checked out the personal lives of people who ran companies he invested in. He wanted to know about their financial status, their personal habits, what motivated them. He behaves like an investigative journalist. All this stuff about flipping through Moody’s Manual’s picking stocks … it was a screen for him, but he didn’t stop there.
Number two, his knowledge of business history, politics, and macroeconomics is both encyclopedic and detailed, which informs everything he does. If candy sales are up in a particular zip code in California, he knows what it means because he knows the demographics of that zip code and what’s going on in the California economy. When cotton prices fluctuate, he knows how that affects all sorts of businesses. And so on.
The third aspect is the way he looks at business models. The best way I can describe this is that it’s as if you and I see an animal, and he sees its DNA. He isn’t interested in whether the animal is furry; all he sees is whether it can run and how well it will reproduce, which are the two key elements that determine whether its species will thrive.
I remember when his daughter opened her knitting shop. Many parents would say, I’m so proud of Susie, she’s so creative, this is something of her own, maybe she can make a living at it. Warren’s version is, I’m so proud of Susie, I think a knitting shop can produce half a million a year in sales, they’re paying whatever a square foot for the storefront, and labor is cheap in Omaha.
It was similar when Peter was producing his multimedia show, The Seventh Fire. Many parents would say, wow, my son has pulled off a critically acclaimed show. Warren obviously thought that, but what he articulated was, they’re charging $40 a ticket, I think the Omaha market is too small for that price point, whereas in St. Louis they may cover the overhead, and I think he paid too much for the tent because the audience doesn’t really care what kind of tent it’s sitting in and it hurts margins, etc.
Read the entire interview:
Investigative Journalism and Brookfield Asset Management
Repetitive Advantage: Broad Run Investment Management:Broad-Run-VII-Profile-Nov-2013
Buying Jan 2015 $15 call option at $3.00 in ABX
A special situation since there is a change in Board. If ABX can survive its balance sheet by improving its low cost assets, then there could be 100% to 200% upside with gold prices above $1,250. Right now we are in tax selling as well as a weak gold environment. ABX’s management says they will pare down/sell off their high cost mines. If gold goes sub- $1,000, then ABX could really struggle.
Where are the Customer’s Yachts? (1940)
For one thing thing, customers have an unfortunate habit of asking about the financial future. Now if you do someone the signal honor of asking him a difficult question, you may be assured that you will get a detailed answer. Rarely will it be the most difficult of all answers–“I don’t know.”
Today (Dec. 01, 2013) “As measured by the weekly Investors Intelligence survey of newsletter writers, the bullish boat is standing room only while the bear boat has the least amount of passengers dating back to the 1980′s. In today’s numbers, Bulls rose to 55.7 from 53.6 while the Bears fell to 14.4 from 15.5, an historic low in the history of this survey according to II. Combined with another record high in margin debt in October that puts its ratio to GDP at about 2.4%, near the high of 2.6% in July ’07 and 2.8% in March ’00 and it’s worth noting the historical limits in these two figures that we are pushing up against. That said, this says nothing about where markets go in the short term from here. This Fed hosted party can still have life left but I feel it’s always important to have perspective and these two data points should provide reason for an investing gut check in early 2014 in terms of how to be positioned.” www.hussmanfunds.com
“Being wrong on your own, as Keynes described so eloquently in Chapter 12 of the General Theory, is the cardinal crime of an investment manager. The management of career risk results in very destructive herding. Investors should be aware that the U.S. market is already badly overpriced – indeed, we believe it is priced to deliver negative real returns over seven years [GMO estimates fair value for the S&P 500 at 1100]. Be prudent and you’ll probably forego gains. Be risky and you’ll probably make some more money, but you may be bushwhacked and if you are, your excuses will look thin. My personal view is that the path of least resistance for the market will be up.”
- Value investor Jeremy Grantham, GMO, November 18, 2013
“I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends. You have got to be in things that are trending. Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending. I may be providing a public utility here, as the last bear to capitulate.”
- Hedge fund manager Hugh Hendry, Eclectica, November 22, 2013
“I am out of justification to fight the uptrend. Up until now, I have had what I thought was compelling evidence to believe in the bearish case, but it has now been revealed to have been insufficient for the task. I am without ammunition to bet on the bears. I don’t like it, because I see the market as overly dependent upon the Fed’s largesse for its upward continuation. I see this as a bubble, but a bubble that is continuing higher even though it should not. I plan to ride the bubble for a while, and will hope to be able to succeed in reading the right [exit] signs.”
- Market technician Tom McClellan, November 26, 2013
In a classic case of not only locking the barn door after the horse is loose, but removing its best opportunity to return home, we’re seeing a capitulation by investment managers across every discipline, from technical, to value-conscious, to global macro. Historically extreme overvalued, overbought, overbullish conditions were in place even ten months ago, and my impression is that every further extension worsens the payback will inexorably follow.
Lesson: Don’t listen to gurus or “experts”. They are more apt to be wrong. Follow your own common-sense thinking. Right now RISKS ARE HIGH. BE CAREFUL.
Lessons in Entrepreneurship (Gary Hoover) http://www.today.mccombs.utexas.edu/gary-hoover-video-library/
I have been so busy buying gold and miners that I haven’t had much chance to post, but I do plan to resume once things settle down (I hope).
I like this: buying bullion (gold/silver) at a 10% discount. Last time was 2001.
While being wary of this (in general). Go here: www.hussmanfunds.com
Note the early warnings signs—not all is well in Europe.
Jean-Marie Eveillard: “I just returned from Europe, where I was mostly in France, and the mood was not good there because the economy is not doing well. And since the economy is not doing well, there are political developments on the far-right and on the far-left….
“Some people, and I cannot blame them, believe that the establishment has failed them in the sense that the economy continues to do poorly.”
Eric King: “Jean-Marie, it sounds like there is a polarization happening in Europe where people are jumping on both sides and the middle-ground is being lost.”
Eveillard: “Yes, and usually it’s the middle-ground that governs. That has been the case in France where both the socialist party, which is currently in power, and the center-right party, both of them have historically been close to the center. That’s not the case any more.
They both have their own extreme wings, but it has been the center that has always governed. Now people believe that the ‘center’ has governed poorly enough that you have more people who are being seduced by the far-right, and the far-left.”
Eric King: “Does that worry you?”
Eveillard: “Yes, but, again, it’s a result of the establishment and it’s happening in the US as well. You have the center disappearing in the US, which means that both extremes on the left and the right will keep gaining additional audiences.”
Eric King: “This trend obviously has you worried.”
Eveillard: “It worries me particularly because in the US, France, and elsewhere, it’s Neo-Keynesian policies that are being followed because it’s the fashion of the day. Even though the Neo-Keynesians didn’t see the financial crisis coming, nevertheless they are still in power in academia, the political world, and in the world of corporate economists.
I ask myself, ‘If Keynes were alive today, would he be a Neo-Keynesian?’ I don’t think so. But the Neo-Keynesians believe, as Keynes did, that every now and then private sector demand is weak and has to be supplemented by public sector demand.
What we’ve had in the US over the past 5 years , both from a monetary and from a fiscal point of view, is the most stimulative economic policies ever — completely unprecedented. The printing of money, QE, etc, the budget deficit, the tremendous increase in government debt, and yet the economic recovery continues to be weak.
Now, the stock market is up sharply because some of the excess liquidity being created by the Fed is going into stocks. Some of it has also gone into things such as the real estate and fine art markets. But the money goes particularly into the stock market.
And the stock market is strong not just because of the excess liquidity, but because the vast majority of investors seem to believe, they are wrong, but they believe that, ‘Yes, we had a financial crisis 5 years ago, but that’s all over. We are going back to normal, and within a few months the economy in the US will grow at more than an annual rate of 2%.’
It hasn’t happened yet. How come it hasn’t happened yet? Nobody seems to be asking the question. It hasn’t happened yet because the medicine being prescribed by the Neo-Keynesians is not working. Incidentally, I don’t think anything will work because there no steps which can be taken by the politicians that would, almost overnight, result in a non-inflationary economy growing at 3% or 4% a year.
The reality is the steps which have been taken over the past 5 years will cause tremendous chaos and problems in the future, but we haven’t seen that yet.”
Eveillard also spoke about gold: “I believe that if I’m right, and the Neo-Keynesian medicine continues not to work, although they can continue with their QE, even at the Fed they know that quantitative easing cannot go on forever. So at some point something will have to give. That’s the point where investors will change their attitudes and move to gold. But it isn’t happening right now in the West because investors continue to believe the Neo-Keynesian medicine will succeed any day now.”
Eric King: “If there is this move you just described back to gold in the West, Jean-Marie, do you see new all-time highs in gold?”
Eveillard: “Yes, because gold will become the substitute currency. People will say, ‘I don’t want the yen, dollar, or the euro because they are all engaged in a race to the bottom.’ Yes, then gold will become the substitute currency. Gold will be money again. In a sense it never stopped, but 40 years ago the politicians decided that we were going to operate on the basis of a pure paper money system. But I can assure you that the history of pure paper money systems is not inspiring.” (www.kingworldnews.com)
CSInvesting: I don’t agree with everything said. Will gold become a substitute “currency?” Perhaps, more people will understand that Gold is the best money in the world (despite the raving over bitcoin or “token” money).
From a reader (Thanks Brian)
Dakota Sioux being buried in a mass grave (Wounded Knee Massacre)
Buy them when they are up, and sell them when the margin clerk insists on it. It is obviously impossible for the thinking Wall Streeter to avoid acting on that principle. He certainly can’t buy them when they are down, because when the are down “conditions” are terrible. You can ask an experienced Wall Street man to buy stocks when carloadings have just hit a new low and unemployment is at a peak and steel capacity is less than half of normal and a very big man (“of course I can’t tell you his name”) has just informed him in confidence that one of the big underwriting houses in the Middle West is in really serious trouble.
Unfortunately for everyone concerned, these are the only times when stocks are down. When “conditions” are good, the forward-looking investor buys. But when “conditions” are good, stocks are high. Then, without anyone having the courtesy to ring a warning bell, “conditions” get bad. Stocks go down, and the margin clerk sends the forward-looking investor a telegram containing the only piece of financial advice he will ever get from Wall Street which has no ifs or buts in it. (Source: Where Are The Customers’ Yachts? by Fred Schwed, Jr.)
John Hussman (www.hussmanfunds.com)
The fact that profits as a share of GDP are more than 70% above their historical norm should immediately raise a question as to whether current year earnings or next year’s projected “forward earnings” should be used as a sufficient statistic for long-term cash flows and equity market valuation without any further reflection. Then again, more work is required to demonstrate that such an approach would be misleading. We’re just getting warmed up.
GMO_QtlyLetter_ALL_3Q2013 Be Careful! Future returns expected to be negative over the next seven years.
Csinvesting: Stocks are probably fairly valued IF long-term bonds were normalized. 4% to 5% is a far cry from 3% in the Ten-year Treasury.
For Whom the Bell Tolls Bob Moriarty Archives Nov 25, 2013
I’ve heard it said that they don’t ring a bell at the top. That’s bullshit, of course. In March of 2000 I read that inmates in a jail in Baltimore were holding stock picking contests. If you wanted to pick the very last group who would ever be likely to participate in a stock market bubble, it would probably have to be inmates in a jail in Baltimore. Ding, ding, ding.
Luckily for the poor prisoners in Baltimore, they can go back to doing drugs, extortion and getting correctional officers pregnant, they don’t have to waste any more time on the stock market. They did ring a bell at that top on March 10, 2000.
They just rang another bell. Only time will tell if it’s a top but I can clearly hear the clanging of a bell.
There are times that you know intuitively that some people have way too many dollars and way too little ‘cents.’ Ten days or so ago, Mark Zuckerberg, CEO of Facebook offered $3 billion in cash for an application named Snapchat. Snapchat was co-founded by a 23-year-old named Evan Spiegel.
Snapchat is an interesting app that provides a 14-year-old young lady the opportunity to send her 15-year-old boyfriend a nice picture of her budding boobs. She can be secure in knowing that the competitive advantage of Snapchat is that the picture disappears in 1-10 seconds depending on the option of the person using it. Luckily for her boyfriend, he can do an instant save and pass the “sext” around to all his friends. This is known as “sexting” and is a lot more fun than anything I ever did in high school.
Snapchat CEO Evan Spiegel promptly rejected the $3 billion offer despite having no revenues and no business plan but runs a handy application for every 14-year-old.
Somebody is being really flipping stupid. It’s a tossup as to whether it’s Zuckerberg for offering to overpay for an application that anyone could duplicate in a month, or Spiegel for not taking the cash and running for the nearest French beach where all the women will show you their boobs and you don’t need a cellphone to look at them.
You don’t have to be the mayor of Toronto to smoke crack and do really stupid things. Applications come and go. Computers come and go. I can remember when the Trash 80 from Tandy Radio Shack was the hottest computer in the market. Then the IBM PC and AT and PCJr and now Apple. All things change.
Actually I think they are both being dumber than a brick.
Any investor that hasn’t learned about what happens to markets when they go curvilinear will soon find out.
Ding, ding, ding, ding.
How to Generate Stock Ideas
24 Nov 2013 08:55 pm | Vishal Khandelwal
In an interview with Warren Buffett in 1993, Adam Smith, author of Supermoney, asked how the small investor can find good investment ideas.
Warren Buffett: I’d tell him to do exactly what I did 40-odd years ago, which is to learn about every company in the United States that has publicly traded securities, and that bank of knowledge will do him or her terrific good over time.
Adam Smith: But there are 27,000 public companies.
Warren Buffett: Well, start with the A’s.
Everybody knows that Warren Buffett gets his investment ideas largely from annual reports.
Of course, now he has become so influential that companies call him to share their own ideas. But, fifty years ago, Buffett was not the go-to guy if you wanted to sell your company or raise capital for your failing bank.
He was a small investor who was clawing his way up the investing street by reading whatever annual report came his way, and then finding his investment ideas that worked wonders in the subsequent years.
You are probably at the same stage Buffett was fifty years ago. But there’s a big advantage you have over the early day Buffett.
That advantage is – technology.
With annual reports now available at the press of a few buttons (on company websites and BSE), you can look through hundreds of companies in lesser time than it took Buffett to access ten companies.
You may ask, “But how do I select companies whose annual reports I should read?”
Well, one quick suggestion is what Buffett told Adam Smith – “…start with the A’s.”
I would simplify this for you…
If you find this difficult to implement (and it is), here are a few other ways you can create a list of companies you would like to do a deeper research on to generate stock ideas…
Remember, good ideas rarely come from…
…so you may rather do your own homework than relying on free tips, however enticing they may sound.
Screening Your Way to Stock-dom!
While I am not anymore a big fan of using readymade screeners to generate stock ideas – because you tend to substitute thinking with a lot of data – simple screeners still help me in doing the initial groundwork.
Also, while there are a few paid (and expensive) screeners available in the market – like Ace Equity, Prowess, Capital Line – I find a few free screeners to be very effective when it comes to the value I can derive from using them.
Here are three steps you can use while using three free screeners I use to do a basic analysis on companies…
Step 1: Use a Google Screener
Visit this Google Finance Stock Screener page and select “India” from the drop down list of countries, and then BSE or NSE from the stock exchange list.
Remove all entries like “Market Cap”, “P/E Ratio” etc, so that you can set your own criteria for screening. Then, screen for companies using these key numbers (you may add more screening criteria from those available)…
Here is how the screening and its output look like…
Note: Another good screener that a tribesmen has directed me to is from Financial Times – FT Equity Screener. It has greater number of criteria than Google’s screener, but does not display the results in INR. You must however try it out for sure.
Step 2: From the list of companies you get, exclude those outside your circle of competence – businesses you “know” you don’t understand (like I would exclude commodity businesses like metals and mining, or oil & gas businesses).
The best part about these two screeners – Screener and Morningstar – is that you can download companies’s financial performance in excel and then do you own analyses.
Better Alternative to Step 3
While you may use Screener or Morningstar to study the past 5/10 years’s performance of companies that you get from Step 1 and Step 2 above, a far better way is to pick up the annual reports of the resultant companies and then read them one by one.
After having used ready-made screens for the past few years, I have realized that you should not use numbers prepared by others, but rather generate them yourself. This way you get into the habit of actually reading annual reports and also get to learn what numbers you need to focus on.
Here are two videos that will tell you what you must focus on in an annual report…
Ultimately, as you would realize, just a few numbers / facts / variables will help you understand what drives a given business.
I have seen analysts and investors trying to get perfect in their analysis by accumulating as many data points as possible.
But then, my experience suggests that trying to increase your confidence by gathering information that is supposedly unknown to most others really only makes you more comfortable with your investment decisions, not better at them, and is generally an unproductive use of your limited time.
Thus, I would suggest that after you arrive at your list of companies using any or a combination of methods suggested above, use a “Less is More Checklist” while reading the annual reports of the companies in your list.
Use the “Less is More” Checklist
Rather than obsessing with the bewildering fusion of news and noise, concentrate on a few key elements in stock selection, i.e., what are the 5-10 most important things you should know about any business you are about to invest in?
Of course, if I knew the exact answer I would have retired long ago!
Even if I could know all the facts about an investment, I would not necessarily profit. This is not to say that fundamental analysis is not useful. It certainly is.
But information generally follows the well-known 80/20 rule: the first 80% of the available information is gathered in the first 20% of the time spent.
So if I were to list down eight questions that, I believe, would help me do an 80% analysis of a business, they would be…
Ultimately, successful investing is all about doing your own research carefully and buying good businesses.
If you know a company well and you’ve done your homework, you can take advantage of situations when Mr. Market offers them on a platter, which he occasionally does.
GOLD DURING 1980
Yes, we must be careful but there are–perhaps–pockets of value?
XOM_Nov 2013 You can see why Buffett recently bought XOM. Note the dotted line on the Value-Line. XOM has “underperformed” the general market for the past five years. But XOM is a better than average company trading far below the market multiple. You won’t get rich quick but you won’t lose it all either. He probably sees XOM as an inflation pass-through.
ESRX_Nov 2013 Note the decline on ROA. Since this is in an oligopolistic industry perhaps a reversion to higher margins can occur. I do not own either one.
Are bitcoins money? Bitcoin-CMRE
Why, if gold demand from Asia is so high and with inventories draining from GLD and the Comex, are gold prices soft? Stress in the collateral markets?
When the problem presents itself, turn away from it, put it out of your mind completely and think of something that pertains to God, such as God is love or God is truth, but you must keep the problem completely out of mind. This is the simple Golden Key which the great Emmet Fox recommends. It may sound too absurdly simple, it may sound like voodoo, but before you sneer at it and ignore it, first try it. I’ve used it many times and I can tell you that it works. The concept of the Golden Key is probably worth years of subscriptions to Dow Theory Letters. Use the Golden Key.