Re: Economists

by kiranr Wed 26 Oct - 10:29:17

ToEy wrote:
kiranr wrote:
ToEy wrote:
kiranr wrote:
beatrixasdfghjk. wrote:GFC

What is GFC?

Global financial crisis lol

Oh. It is called the banking crisis here. But this crisis presents such an amazing time to put your money into the stock market.

The banking crisis might be small compared to imo the impending sovereign debt crisis....some even suggest that we are heading into a depression like the one that happened nearly a century ago haha

Sovereign crisis risk is there, no doubt. If it happens, it is going to be a big blow to the economy. But some how, even with all the wrangling by the politicians, i dont think they will let it happen.

If Greece defaults, they have in principle agreed to capitalize the banks to compensate the write downs. So most likely, there will not be a contagion, which is the biggest risk there is at present.

by beatrixasdfghjk. Wed 26 Oct - 10:32:25

I changed my mind, I can't be bothered finding a Dow Jones chart.

Yes, of course they wouldn't let it happen. The governments would get hated for it though. No one likes increased taxes and lower welfare.

by kiranr Wed 26 Oct - 10:32:52

beatrixasdfghjk. wrote:You know those times when an professional investor gets outdone by a dart board and a chimpanzee?

Yeah.

That is only for 70% of the professional investors out there. 30% still makes money.

What you have shown in the graph there is an index. There are better ways to invest your money.

by beatrixasdfghjk. Wed 26 Oct - 10:34:51

Yeah, 30% is pretty high, isn't it?

What do you mean by better ways?

by kiranr Wed 26 Oct - 10:41:45

beatrixasdfghjk. wrote:Yeah, 30% is pretty high, isn't it?

What do you mean by better ways?

Chimpanzee making more money is an experiment. What they did was they chose an index and compared its record with the record of professional investors out there. They found that it performed better than 70% (not too sure of this number) of them.

30% still performed better. There are several names in that 30% that are famous. You will be able to find their techniques well publicized and there are several books on these techniques. If you take time out to learn them, and put money in the market, you can make money. People have made money even in this volatile market.

The real story behind that example is that many of these professional investors actually did beat the chimpanzee, but after they take their share of the profit as compensation, their clients are left with a lot less, and the client's return was the one used as record. So, you can see how good and skilled the top 30% are.

The good news is, their techniques are learnable.

by beatrixasdfghjk. Wed 26 Oct - 10:47:48

Heyhey, what about the better ways?

by kiranr Wed 26 Oct - 10:54:35

beatrixasdfghjk. wrote:Heyhey, what about the better ways?

Well, you analyze a company and gauge its earning potential. You repeat this process for many companies out there. Choose the ones with the best earnings potential, about 10, and put your money in them. If your analysis is correct, you can beat the market index by a good margin over 5 years.

by ToEy Wed 26 Oct - 10:57:51

kiranr wrote:
beatrixasdfghjk. wrote:Heyhey, what about the better ways?

Well, you analyze a company and gauge its earning potential. You repeat this process for many companies out there. Choose the ones with the best earnings potential, about 10, and put your money in them. If your analysis is correct, you can beat the market index by a good margin over 5 years.

One thing about earning potential is that I believe small cap firms have higher earning potential than big cap, but that is just me

BTW how do you judge earning potential. Many uses historical data (price index), but as they say you do not judge the future based on history. Which tools do you use to judge earning potential?

by ToEy Wed 26 Oct - 11:01:18

beatrixasdfghjk. wrote:I changed my mind, I can't be bothered finding a Dow Jones chart.

Yes, of course they wouldn't let it happen. The governments would get hated for it though. No one likes increased taxes and lower welfare.

You can find the graph in yahoo.finance or bloomsberg

by beatrixasdfghjk. Wed 26 Oct - 11:03:50

Yeah, but the Yahoo one isn't an proper image, so I gave up.

by kiranr Wed 26 Oct - 11:06:53

ToEy wrote:
kiranr wrote:
beatrixasdfghjk. wrote:Heyhey, what about the better ways?

Well, you analyze a company and gauge its earning potential. You repeat this process for many companies out there. Choose the ones with the best earnings potential, about 10, and put your money in them. If your analysis is correct, you can beat the market index by a good margin over 5 years.

One thing about earning potential is that I believe small cap firms have higher earning potential than big cap, but that is just me

BTW how do you judge earning potential. Many uses historical data (price index), but as they say you do not judge the future based on history. Which tools do you use to judge earning potential?

Small cap firms definitely have higher potential for earnings growth compared to large firms purely because of the size. Large firms, typically exhaust a lot of room to grow. I mean how much bigger could Coca-cola or Walmart get?

I do fundamental analysis. Look at the company's profitability ratios, liquidity ratios, solvency ratios etc first. This can be calculated using the data from the financial statements published by the company every quarter.

These measures are objective and be done by anyone. The tricky part is when it comes to gauging the demand for the company's products. For that you are going to have to talk to a lot of people. The suppliers, the customers, the employees and anyone/any firm in that value chain are all useful sources of information. Then you piece together all this and make a judgement.

This is how i gauge earnings potential.

by zizzle Wed 26 Oct - 15:51:12

1- No. The decision to sell shares is usually made to finance capital investements, so even if it delutes the % of the share holders they should expect more return if the investement was a success. Devidents are cheap compared to Interest in most cases so it depends on the financial needs of the company

2- NO. But the sales of shares in the secondary market might have a positive influence on the stock price, which will benifit the company when it sells more of its unissued stocks

by Swanhends Wed 26 Oct - 16:40:10

Soul wrote:1. Doesn't the firm lose in the long run if they are selling shares? Not only they risk losing ownership, but they are forever obliged to pay dividends. Perhaps its a smaller cost compared to the benefits of expansion made possible due to the high capital raised?

2. Does the sale of secondary shares, (is it sale of shares between a current shareholder and a potential one?) benefit the company directly financially?

I'd really appreciate if you could provide me some source material to read on. Some articles I've read contradict each other so I'd like a clear picture before I start investing

1) No. Companies are not obliged to pay dividends just because they issued stock. Also no to the overall question, the firm does not lose in the long run from selling shares

2) No again...Shares by definition are titles of ownership to a certain portion of the company, so sale of shares from an owner to a buyer does nothing financially for the company

by Swanhends Wed 26 Oct - 16:42:14

beatrixasdfghjk. wrote:
kiranr wrote:
beatrixasdfghjk. wrote:Well, answering your second question, secondary shares don't do anything for the company; just changes the ownership of the company and who the dividends get paid to.

For the first one, it depends, I guess. For extra funds for expansion, you're either going to have to sell shares, or take a loan. If your company goes bankrupt, you wouldn't owe any financial institutions any money, I don't think?

Source material, I don't have any, just my trusty little preliminary economics book that I gave away after my exam a couple of weeks ago

My economics teacher always tells me that shares are basically like gambling. You can make huge wins, but also huge losses, and the risk isn't worth it.

Sorry to say this, but your economics teacher is just wrong!

Tomorrow, is the share market going up or down?
Thank you.

You are being far too shortsighted...The market is played over years and years, not over days or hours

Day to day speculation is one of the main ways that people get themselves in trouble

by Yuri Yukuv Wed 26 Oct - 20:06:50

Soul wrote:I'm a student of Economics but the syllabus never covered Stock Exchange or sale of shares in detail in high school nor college. It's a topic that very interests me not only because I plan to speculate as a secondary source of income in the future but also since its a very intriguing way of raising finance.

I actually feel very inferior despite my results as I do not possess enough knowledge regarding shares. Heck, the only clear picture I have about Wall Street is Wall Street: Money never sleeps movie

I've been doing some reading and I've got some doubts I hope some of you can help me with:

1. Doesn't the firm lose in the long run if they are selling shares? Not only they risk losing ownership, but they are forever obliged to pay dividends. Perhaps its a smaller cost compared to the benefits of expansion made possible due to the high capital raised?

2. Does the sale of secondary shares, (is it sale of shares between a current shareholder and a potential one?) benefit the company directly financially?

I'd really appreciate if you could provide me some source material to read on. Some articles I've read contradict each other so I'd like a clear picture before I start investing

1. The firm itself doesnt really lose anything although the previous or diluted owners might lose out on some dividends, also it is not necessary for a company to ever pay out dividends.

Most IPOs are conducted so the previous owners can sell some of their own shares, they might want to go into another business or other wise. Also if a company is public it will be easier for it to get credit later on.

2. No the company will not directly benifit, the owners will and any management who have options might as well. Some companies pay a bonus based on the price of the share.

by Yuri Yukuv Wed 26 Oct - 20:19:15

bhends wrote:
beatrixasdfghjk. wrote:
kiranr wrote:
beatrixasdfghjk. wrote:Well, answering your second question, secondary shares don't do anything for the company; just changes the ownership of the company and who the dividends get paid to.

For the first one, it depends, I guess. For extra funds for expansion, you're either going to have to sell shares, or take a loan. If your company goes bankrupt, you wouldn't owe any financial institutions any money, I don't think?

Source material, I don't have any, just my trusty little preliminary economics book that I gave away after my exam a couple of weeks ago

My economics teacher always tells me that shares are basically like gambling. You can make huge wins, but also huge losses, and the risk isn't worth it.

Sorry to say this, but your economics teacher is just wrong!

Tomorrow, is the share market going up or down?
Thank you.

You are being far too shortsighted...The market is played over years and years, not over days or hours

Day to day speculation is one of the main ways that people get themselves in trouble

Retail laymen should never enter the market alone

by beatrixasdfghjk. Wed 26 Oct - 22:09:00

bhends wrote:
beatrixasdfghjk. wrote:
kiranr wrote:
beatrixasdfghjk. wrote:Well, answering your second question, secondary shares don't do anything for the company; just changes the ownership of the company and who the dividends get paid to.

For the first one, it depends, I guess. For extra funds for expansion, you're either going to have to sell shares, or take a loan. If your company goes bankrupt, you wouldn't owe any financial institutions any money, I don't think?

Source material, I don't have any, just my trusty little preliminary economics book that I gave away after my exam a couple of weeks ago

My economics teacher always tells me that shares are basically like gambling. You can make huge wins, but also huge losses, and the risk isn't worth it.

Sorry to say this, but your economics teacher is just wrong!

Tomorrow, is the share market going up or down?
Thank you.

You are being far too shortsighted...The market is played over years and years, not over days or hours

Day to day speculation is one of the main ways that people get themselves in trouble

I'm just saying that the market can be very, very unpredictable.

by BarrileteCosmico Thu 27 Oct - 2:09:49

You guys are crazy. I'm a senior in college studying economics and finance, and I can tell you with 100% certainty that if you believe in the EMH then it is like gambling.

As for this thread if you're interested in making money from the market there is two options. A) invest in the whole market through index funds (note: NOT actively managed funds) B) invest in value. Anything else is a waste of time.

by kiranr Thu 27 Oct - 2:30:51

BarrileteCosmico wrote:You guys are crazy. I'm a senior in college studying economics and finance, and I can tell you with 100% certainty that if you believe in the EMH then it is like gambling.

As for this thread if you're interested in making money from the market there is two options. A) invest in the whole market through index funds (note: NOT actively managed funds) B) invest in value. Anything else is a waste of time.

I disagree with you. You are correct in mentioning the two options, but those are not the only two ways. There are several other ways people make money in the market. As a retail investor (someone who knows his stuff), your options maybe limited but they are still greater than 2.

EMH is a myth and has been disproved by many practitioners out there. But, i do agree that there is a weak form of EMH and you are not going to make money in the market by luck alone.

by Swanhends Thu 27 Oct - 4:29:16

beatrixasdfghjk. wrote:
bhends wrote:
beatrixasdfghjk. wrote:
kiranr wrote:
beatrixasdfghjk. wrote:Well, answering your second question, secondary shares don't do anything for the company; just changes the ownership of the company and who the dividends get paid to.

For the first one, it depends, I guess. For extra funds for expansion, you're either going to have to sell shares, or take a loan. If your company goes bankrupt, you wouldn't owe any financial institutions any money, I don't think?

Source material, I don't have any, just my trusty little preliminary economics book that I gave away after my exam a couple of weeks ago

My economics teacher always tells me that shares are basically like gambling. You can make huge wins, but also huge losses, and the risk isn't worth it.

Sorry to say this, but your economics teacher is just wrong!

Tomorrow, is the share market going up or down?
Thank you.

You are being far too shortsighted...The market is played over years and years, not over days or hours

Day to day speculation is one of the main ways that people get themselves in trouble
I'm just saying that the market can be very, very unpredictable.

On a day to day or month to month basis, perhaps...

But:

Economists - Page 2 DJIA-1928to2010

Does that look "very, very unpredictable" to you?

by beatrixasdfghjk. Thu 27 Oct - 12:18:27

Really?

That's coming from a company trying to sell a stock trading system, of course they're going to have a nice looking graph.

Go look at the Dow Jones, if you will, it's almost at the same level it was five years ago, now.

by Yuri Yukuv Thu 27 Oct - 14:16:45

BarrileteCosmico wrote:You guys are crazy. I'm a senior in college studying economics and finance, and I can tell you with 100% certainty that if you believe in the EMH then it is like gambling.

As for this thread if you're interested in making money from the market there is two options. A) invest in the whole market through index funds (note: NOT actively managed funds) B) invest in value. Anything else is a waste of time.

I dont understand why you would not invest in an actively managed funds.

beatrixasdfghjk. wrote:Really?

That's coming from a company trying to sell a stock trading system, of course they're going to have a nice looking graph.

Go look at the Dow Jones, if you will, it's almost at the same level it was five years ago, now.

You are right its tough predicting the market as a whole as it is hard to predict world events for example withouth thorough knowledge.

When there is no visibility in the market or when you believe the market is going down you should short sell just as much you are long. You short a company you think is going down the drain while you go long a company that you think will do well (irrespective of the market); for example lets say you go long AAPL at the beginning of the year while you go short NOKIA at jan 1st, 2011. APPL is about 20% YTD while Nokia is down 40% YTD, you would have been up 30% if you gave them equal weight.

Lets put it another way all stock performances has to components Stock=Individual Performance + Market Performance; if you want to eliminate the market performance you long a stock and you short another one.

Your portfolio = Stock A - Stock B ; Portfolio Performance = Stock A Performance + Market Performance - Stock B Performance - Market Performance = Stock A Performance - Stock B performance. Notice how we got rid of Market performance.

by Swanhends Thu 27 Oct - 15:33:09

beatrixasdfghjk. wrote:Really?

That's coming from a company trying to sell a stock trading system, of course they're going to have a nice looking graph.

Go look at the Dow Jones, if you will, it's almost at the same level it was five years ago, now.

Nasdaq:

by zizzle Thu 27 Oct - 16:43:44

adjust for inflation...

by kiranr Thu 27 Oct - 16:44:51

The real growth would still be quite high!

by BarrileteCosmico Thu 27 Oct - 16:52:08

Yuri Yukuv wrote:
BarrileteCosmico wrote:You guys are crazy. I'm a senior in college studying economics and finance, and I can tell you with 100% certainty that if you believe in the EMH then it is like gambling.

As for this thread if you're interested in making money from the market there is two options. A) invest in the whole market through index funds (note: NOT actively managed funds) B) invest in value. Anything else is a waste of time.

I dont understand why you would not invest in an actively managed funds.

There's a lot of literature about this, very unpopular in Wall Street of course. The main reasons are because a) no actively managed investment funds get consistent results b) when they do make money (relative to the S&P or other indexes) the high management fees eradicate the difference and c) studies have shown that due to the management fees they consistently under-perform the index funds, which means that you're losing money going into them.

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