Archive for November, 2007
Friday, November 30th, 2007
How do you tackle a large problem in your daily life or manage a project at work? If you’re like me, you look at the big picture and define what you need to accomplish, understand what variables exist and how they affect your progress, and create a strategy for execution. That is, you work your way from the top down to the details. This is also the essential idea behind “top-down” investing.
Top-Down Investing in a Nutshell
Top-down investors strive to understand how supply and demand is changing at a macroeconomic level and identify what sectors, industries, or geographic areas will benefit from these trends. From there, they look at what specific stocks have a competitive advantage and stand to realize the greatest gains as a result of these shifts.
The US Housing Market - A Brief Example
It’s no secret that the US housing market is (at the time of this article) severely depressed. However, while housing is in trouble today, a top-down investor will be focused on finding good companies in the industry that will benefit when the market for homes rebounds in the future. That is, he uses the overall economic trend as a guide for “where to look”, and then makes some basic assumptions about the industry moving forward. In this case, he assumes that the market for housing related goods and services (builders, etc.) will eventually improve in the long term.
In doing so, he is also acting as a “contrarian” investor. That is, he is investing against overall market trends in hopes of purchasing shares today at discounted prices (in order to profit in the future).
Posted in Stock Basics | No Comments »
Saturday, November 24th, 2007
Every investor has a favorite website for running stock screens using key metrics and ratios. However, if you don’t have to, why pay for it? That’s why Yahoo Finance’s Stock Screener is my current favorite tool for screening stocks. Sadly, the Reuters Powerscreener (which was a favorite of many) looks like it is no longer available to new users. So, Yahoo takes the #1 spot. We’ll walk you through a sample screen below. (more…)
Posted in Stock Metrics | No Comments »
Sunday, November 18th, 2007
All of the turmoil and volatility in the market these days makes understanding the value of a stock extremely important. While valuation is not an exact science (and can get fairly complex) a basic model using Free Cash Flow is useful to get a general idea of whether a stock is properly valued.
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Posted in Investing | 1 Comment »
Sunday, November 4th, 2007
One of my goals is to ensure that investors are able to learn the basics of finance and investing without having to wade through all of the “fluff” contained in many books. That is, I want to focus on just the “need to know” so you learn only the most important information when it comes to investing. So, let’s get started with one of the most important concepts in finance: the time value of money.
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Posted in Stock Basics | 1 Comment »
Friday, November 2nd, 2007
After investors seemed to agree with our earlier post that the October jobs report was not enough to rescue markets, stock prices once more headed south. However, one of the most respected value investors of the last 20 years, Bill Miller, made a comment that seemed to grant a temporary reprieve to the markets.
Miller stated that, over the next 5 years he believes that financial and housing stocks will likely benefit the most (as they have been depressed due to current market conditions in credit and housing). This helped bring back shares of stocks such as Merrill Lynch (NYSE: MER) and CitiGroup (NYSE:C).
In my opinion, he is absolutely right - just like technology stocks, people will avoid them like the plague out of irrational fear for some time. And, like a true value manager, I’m sure Miller will be waiting until they fall about 20% below intrinsic value before he snaps them up and rides them (slowly) back up to the top.
Related Links:
What is Value Investing?
Posted in Investing | 1 Comment »
