Tuesday, October 20, 2009

History Is Full of the Wrong Lessons

“Reload” said Bill. I had just pushed a drive out of bounds on the eighth hole at the Valley Club in Ketchum Idaho. “Dammit” I replied. “I really had a good round going.” (For the record I was one over par after 7 holes). “Yup, you have it goin’ today.” said Bill. “Too bad we’re history after the next hole.”

“We’re not playing 18?” I said as I re-teed.

“Fraid not. Check out the saddle between those two mountains ahead of us. See that whitish cloud that looks kinda like fog? It ain’t fog. It’s snow, and it should arrive in about 20 minutes.”

Sure enough, as we putted out on the ninth hole the snow flurries arrived and we were done for the day. Snow was the furthest thing from my mind when I packed up from South Florida to enjoy a little Indian summer in Sun Valley.

The statistics for Sun Valley in September are actually quite compelling. The average high temperature in September is 74°; the average low is 38°. The average precipitation is just 8/10 of an inch.

What actually happened was quite different…highs in the low 30s, lows in the teens, and 7 inches of snow. Looking at averages can be misleading when it comes to weather and of course investing.

“Reload” said Bill. I had just pushed a drive out of bounds on the eighth hole at the Valley Club in Ketchum Idaho. “Dammit” I replied. “I really had a good round going.” (For the record I was one over par after 7 holes). “Yup, you have it goin’ today.” said Bill. “Too bad we’re history after the next hole.”

“We’re not playing 18?” I said as I re-teed.

“Fraid not. Check out the saddle between those two mountains ahead of us. See that whitish cloud that looks kinda like fog? It ain’t fog. It’s snow, and it should arrive in about 20 minutes.”

Sure enough, as we putted out on the ninth hole the snow flurries arrived and we were done for the day. Snow was the furthest thing from my mind when I packed up from South Florida to enjoy a little Indian summer in Sun Valley.

The statistics for Sun Valley in September are actually quite compelling. The average high temperature in September is 74°; the average low is 38°. The average precipitation is just 8/10 of an inch.

What actually happened was quite different…highs in the low 30s, lows in the teens, and 7 inches of snow. Looking at averages can be misleading when it comes to weather and of course investing.

Arithmetic Lesson

However, there are times when looking at averages can be helpful. Consider the following example. Let’s assume that your investment portfolio returns over four years were:

Year 1 (+15%)
Year 2 (+15%)
Year 3 (+15%)
Year 4 (-15%)

What is your average rate of return? Many people are surprised to find out that it is just 6.9%.

The more important question is what must you gain in year five to get back to a 15% average rate of return? The answer? You need to be up 54% to get back to a 15% average return.

Home Runs vs. Singles and Doubles

The point is that it’s not how much you make when the market is going up that’s important. It’s what you don’t give back when the market declines that determines how well you’ll do long term.

Put another way, as the Dow crosses 10,000 many are thinking about upside potential and how long the rally can last. The smart money is concerned with down-side protection.

Cash Is Trash

With over $3 trillion sitting in money market funds it’s clear many investors have been sufficiently frightened into holding an “investment” paying less than 1%. Many have professed that “cash is king.”

I don’t buy it. With very few historical exceptions, cash has simply been a parking place for money with no real returns above the rate of inflation. To beat inflation you have to consider stocks.

Does buying an S&P index fund make sense here? We don’t think so. You don’t want to own “the market”.

But remember, it’s not the stock market… it’s a market of stocks. It’s not the bond market… it’s a market of bonds. Security selection will be critical going forward.

Cash Is Trash

With over $3 trillion sitting in money market funds it’s clear many investors have been sufficiently frightened into holding an “investment” paying less than 1%. Many have professed that “cash is king.”

I don’t buy it. With very few historical exceptions, cash has simply been a parking place for money with no real returns above the rate of inflation. To beat inflation you have to consider stocks.

Does buying an S&P index fund make sense here? We don’t think so. You don’t want to own “the market”.

But remember, it’s not the stock market… it’s a market of stocks. It’s not the bond market… it’s a market of bonds. Security selection will be critical going forward.

2 comments:

TSR said...

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Dear Friends,
Markets have been enthused by the initial result announcements of corporate India. Some select midcap stocks like Jay Bharat maruti, TTK prestige and Supreme Industries stand out from the crowd. Going ahead the men will be separated away from the boys. Expect companies reporting fair numbers to be rewarded and companies disappointing to be fairly punished. Do note that raw material costs have started accelerating from quarter two. If the recent run in crude oil is any indication of the days ahead.
The recent Sterlite ADS dilution makes a distinct observation. The corporate India is using the opportunity of a market rebound to raise resources to the fullest extent. PTC after all the recent QIP is sitting on a cash reserve of more then 55 rs per share. We had recommended Shivam Autotech to clients in the last week of June. The stock has given a 58% return in less then four months. Traders should note that with the ramp up of operations in Hero Honda plant in haridwar to 4000 units a day, Shivam auto is expected to perform well once the revenues from the expansion plan becomes visible. Even after recent run up the stock is trading at less then 2.5X its FY09EBITDA LEVELS. Its trading at a PE ratio of less then 8.
We had mentioned in our weekly report a fortnight ago that Banks are entering a bubble phase. The recent Upgrade of SBI by Morgan Stanley makes one remember of the SKYROOF valuation of RIL in January 2008 of 5000 rs per share by CLSA. Going ahead in Nifty keep a watch of 5208 and 5394 on Upsides. Don’t ignore any Dip if 4930 gets broken on downside.Do note Scam hit galleon holds investment in edelweiss,( 52 lakhs shares ) shriaram epc (20 lakh shares), reliance infratel pre ipo, pipavav shipyard. pre ipo.

NIFTY SUPPORT:-4931,5044

Nifty resistance :-5208,5271

Bullish and bearish stocks Uploaded every day at

http://stockrumours.blogspot.com/

TSR SEPTEMBER SERIES REPORT.

PROFIT 82945 = IN 1 LOT

REFER

http://www.future-friend.blogspot.com/

TSR INTRA NIFTY

PROFITS 32840 (688 POINTS IN 1 LOT)

REFER

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TSR OPTIONS PLAN

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REFER

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a said...

TSR NIFTY UPDATES- Week beginning 20.10.09 -Visit www.Niftyviews.com Charts attached
FOR FREE TRIAL ON COMMODITIES TYPE

TSRCOMMO AND SEND TO 567678

Financial Blogging is not easy.To make sure you keep getting our views invite people using
http://groups.google.com/group/STOCKRESEARCHER/members_invite

CLICK ON CHART TO ENLARGE




Dear Friends,
Markets have been enthused by the initial result announcements of corporate India. Some select midcap stocks like Jay Bharat maruti, TTK prestige and Supreme Industries stand out from the crowd. Going ahead the men will be separated away from the boys. Expect companies reporting fair numbers to be rewarded and companies disappointing to be fairly punished. Do note that raw material costs have started accelerating from quarter two. If the recent run in crude oil is any indication of the days ahead.
The recent Sterlite ADS dilution makes a distinct observation. The corporate India is using the opportunity of a market rebound to raise resources to the fullest extent. PTC after all the recent QIP is sitting on a cash reserve of more then 55 rs per share. We had recommended Shivam Autotech to clients in the last week of June. The stock has given a 58% return in less then four months. Traders should note that with the ramp up of operations in Hero Honda plant in haridwar to 4000 units a day, Shivam auto is expected to perform well once the revenues from the expansion plan becomes visible. Even after recent run up the stock is trading at less then 2.5X its FY09EBITDA LEVELS. Its trading at a PE ratio of less then 8.
We had mentioned in our weekly report a fortnight ago that Banks are entering a bubble phase. The recent Upgrade of SBI by Morgan Stanley makes one remember of the SKYROOF valuation of RIL in January 2008 of 5000 rs per share by CLSA. Going ahead in Nifty keep a watch of 5208 and 5394 on Upsides. Don’t ignore any Dip if 4930 gets broken on downside.Do note Scam hit galleon holds investment in edelweiss,( 52 lakhs shares ) shriaram epc (20 lakh shares), reliance infratel pre ipo, pipavav shipyard. pre ipo.

NIFTY SUPPORT:-4931,5044

Nifty resistance :-5208,5271

Bullish and bearish stocks Uploaded every day at

http://stockrumours.blogspot.com/

TSR SEPTEMBER SERIES REPORT.

PROFIT 82945 = IN 1 LOT

REFER

http://www.future-friend.blogspot.com/

TSR INTRA NIFTY

PROFITS 32840 (688 POINTS IN 1 LOT)

REFER

http://www.tsrnifty.blogspot.com/


TSR OPTIONS PLAN

PROFITS 38450

REFER

http://www.tsroption.blogspot.com/


More then 72% accuracy in SEPTEMBER series in Intraday calls.Check day by day sheet at http://www.smscalls.blogspot.com/ .

Get Flat 20% Commission on the Clients introduced by you till 8th september 2009 under MAP !!
For MAP info mail : mituldoshi@live.com or call : 09824743153 and start earning 20% partnership with TSR now !!

Be a TSR premium delivery client for as low as 650 per month on annual subscriptions

Get free updates on your mobile phone. SMS- JOIN Sresearchers to 567678.for our market updates
We are giving a free trial to register FOR FREE TRIAL using your phone, SMS 'ON SRESEARCHERS' to 09870807070.

Refer


http://groups.google.com/group/STOCKRESEARCHER/web/payment-details

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INTRADAY CALLS VISIT HERE


http://stockrumours.blogspot.com/


email to Contact@Niftyviews.com for payment details of our premium membership

HAVE A GREAT TRADING DAY


VINAYAK

TEAM STOCKRESEARCHERS


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