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August 2 - August 18, 2022
fundamental analysis and technical analysis,
history tells us that the pace of improvement has always been uneven.
Thus, the optimal strategy is not to pick those faces the player thinks are prettiest, or those the other players are likely to fancy, but rather to predict what the average opinion is likely to be about what the average opinion will be, or to proceed even further along this sequence. So much for British beauty contests.
(A thing is worth only what someone else will pay for it.)
Unsustainable prices may persist for years, but eventually they reverse themselves.
Big losers in the South Sea Bubble included Isaac Newton, who is reported to have said, “I can calculate the motions of heavenly bodies, but not the madness of people.” So much for castles in the air.
history teaches us that very sharp increases in stock prices are seldom followed by a gradual return to relative price stability.
What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one frequently ignored.
Indeed, the managers of conglomerates tended to possess financial expertise rather than the operating skills required to improve the profitability of the acquired companies. By
Hence they also were called “one decision” stocks. You made a decision to buy them, once, and your portfolio-management problems were over.
stupidity well packaged can sound like wisdom.
Styles and fashions in investors’ evaluations of securities can and often do play a critical role in the pricing of securities.
Most initial public offerings underperform the stock market as a whole.
Eventually, one runs out of greater fools.
some corporate officers were transforming the meaning of EBITDA from earnings before interest, taxes, depreciation, and amortization to “earnings before I tricked the dumb auditor.”
The key to investing is not how much an industry will affect society or even how much it will grow, but rather its ability to make and sustain
profits.
an investor who simply buys and holds a broad-based portfolio of stocks can make reasonably generous long-run returns.
clear conclusion is that, in every case, the market did correct itself. The market eventually corrects any irrationality—albeit in its own slow, inexorable fashion. Anomalies can crop up, markets can get irrationally optimistic,
and often they attract unwary investors. But, eventually, true value is recognized by the market, and this is the main lesson investors must heed.
There is no evidence that anyone can generate excess returns by making consistently correct bets against the collective wisdom of the market.
NO ONE PERSON OR INSTITUTION CONSISTENTLY KNOWS MORE THAN THE MARKET.
But because an underlying phenomenon is “real” does not mean that it is not susceptible to “bubble” pricing.
One indication of a speculative bubble is the extent to which the price of the object rises.
Both the magnitude of the price increases and their volatility are suggestive of one of the biggest bubbles in history.
Even real technology revolutions do not guarantee benefits for investors.
efficient-market hypothesis (EMH) and its practical implication: Stock investors can do no better than simply buying and holding an index fund that owns a portfolio consisting of all the stocks in the market.
Technical analysis is the method of predicting the appropriate time to buy or sell a stock used by those believing in the castle-in-the-air view of stock pricing.
Fundamental analysis is the technique of applying the tenets of the firm-foundation theory to the selection of individual stocks.
Many chartists believe that the market is only 10 percent logical and 90 percent psychological.
Fundamental analysts take the opposite tack, believing that the market is 90 percent logical and only 10 percent psychological.
Perhaps 90 percent of the Wall Street security analysts consider themselves fundamentalists.
Rule 1: A rational investor should be willing to pay a higher price for a share the larger the growth rate of dividends and earnings.
The catch here is the phrase “other things equal.” Stocks that pay out a high percentage of earnings in dividends may be poor investments if their growth prospects are unfavorable. Conversely, many of the most dynamic growth companies often pay no dividends.
For two companies whose expected growth rates are the same, you are better off with the one that returns more cash to the shareholders.
Rule 3: A rational (and risk-averse) investor should pay a higher price for a share, other things equal, the less risky the company’s stock.
There is, I believe, a fundamental indeterminateness about the value of common shares even in principle.
Difficult as the job may be, picking stocks whose earnings grow is the name of the game.
The basic premise is that there are repeatable patterns in space and time.
The results reveal that past movements in stock prices cannot be used reliably to foretell future movements.
The stock market has little, if any, memory.
The “cycles” in the stock charts are no more true cycles than the runs of luck or misfortune of the ordinary gambler. And the fact that stocks seem to be in an uptrend, which looks just like the upward move in some earlier period, provides no useful information on the dependability or duration of the current uptrend.
don’t count on short-term momentum to give you some surefire strategy to allow you to beat the market.
The history of stock price movements contains no useful information that will enable an investor consistently to outperform a buy-and-hold strategy in managing a portfolio.
A study by a group of psychologists, however, suggests that the “hot hand” phenomenon is a myth.
probability of making a shot is independent of the outcome of previous shots.
When events sometimes do come in clusters and streaks, people refuse to believe that they are random, even though such clusters and streaks do occur frequently in random data such as are derived from the tossing of a coin.
The point is that market timers risk missing the infrequent large sprints that are the big contributors to performance.
fundamentalists pride themselves on the fact that it is based on specific, proven company performance.
If you had known the growth rates of all companies during, say, the 1980–90 period, this would not have helped you at all in predicting what growth they would achieve in the 1990–2000 period.
