Saturday November 6th


Stock-Operation #2



Stock



General Gauges


There are two ways of deciding on a profit-target: The horizontal and the vertical count. Depending on how the pattern has formed out, there seem to be some that favor the one, and some that favor the other.
Of course they are just guidelines and nothing is set in stone. But they appear reasonable. One can think of the horizontal count as like the amount of gunpowder available, and the vertical count as the gun-barrel and as soon as the projectile leaves, it has additional pressure from gravity (in this case theoretically the chart would have to be turned 90 degrees that it would make ultimate sense)

The nice thing is, that if entering at a trend-reversal, there's usually a broader bottom which gives a higher target, and if entering already in the trend, like here, the target is closer.

Since here both methods seemed reasonable, I take half from the vertical and the other half from horizontal, if reached.

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Finished part 5 of 7 in Securities Analysis.
Today was about capital-structure.
One interesting point was made: You can get a feel of how speculative the stock is and which players are to be expected, by looking on how the entire capital of the company is distributed between debt capital and equity capital.
Reason is, if there is a lot of capital borrowed in form of bonds, these loan givers have priority in case the company goes bancrupt to be paid off, before common-stockholders.
So if there's a lot of debt-capital, less long-term investors and more short term speculation is to be expected in the equity capital.
At least that's how I understood it.

Monday November 8th

12 Technology charts

Finished part 6 of 7.
A lot about balance-sheet analysis. Book value, current assets & liabilities. I already knew a bit about that and the Quick Ratio. They say 2 times thes assets of the liabilites is reasonable, but of course there are tons of other things to consider and exceptions.
Coincidentally they took U.S. Steel for an example analysis, which formation was at the same time subject in the Morgan biography.
It's pretty astounding if you think for how long companies like this or the Union Pacific already exist. It's kinda long, but on the other hand not that long.
One thing I thought about recently is, if people like for example Elon Musk have a different time-perception. For the average person it seems that the older you get, the faster time appears to pass by, but maybe it's not a question of age, but a question of how one lives his life.

Tuesday November 9th

12 Tech-charts

SA about options, comparing companies in the same sector and corporate pyramiding. The last one I think is interesting, since it appears to me that a lot of big boys have their hands in holding companies and conglomerates which seem to be convoluted in degrees that even the most distinguished lawyers can't even see through them.

Try to finish it tomorrow as well as getting through with the remaining tech-stock-charts.

Interesting how you are reading all this old material.

Just so you know, Graham and Dodd is definitely a classic, and is worth knowing about, but the analytical framework is principally for comparing a company's assets to its stock price, to find undervalued stocks where the market doesn't correctly price the stock in terms of its underlying asset value. Nothing wrong with this, but this type of analysis worked much better in the time it was written, when it made sense to look for stocks that you could buy at a good price compared to their liquidation value (undervalued.)

There have been very long stretches of time, beginning in the 1960's, and off and on since, when this kind of investing simply didn't find many good candidates. But prices are very, very much higher now than then, which means these value investing ideas didn't actually work out that well... or at least let a lot go by.

Also, it is inherently a long-term investing approach. You don't know when the market valuation will change, if it does. If you are a long-term investor, it can be an arrow in your quiver, but only that. One thing to know is that there are always others who know the company way better than you ever will, just looking at the public data. Another thing is that valuing a company based on its assets is not a good complete picture. Investors who buy companies as businesses, like Warren Buffet, assess their likely future prospects as businesses, which is a different type of valuation. They want to know how it's likely to do in the future, as a business with a product in a competitive market where it needs to show a profit as a business concern. A different question, and harder to answer.

And of course, short-term traders are short-term, so this doesn't apply to them at all.

I know you won't be deterred by what I just said, and I don't intend you to be. By all means carry on. But I lived through the period of Graham and Dodd's successes (or just after it, really) and saw the market change, and it never really went back.

This is not to say you shouldn't know about it, but, for instance, would anyone using the Securities Analysis model have bought Amazon in the early days, or Microsoft, or Apple? Well, they didn't.

Just be aware there is more stuff out there, and by all means keep going. Deciding how you want to deal with the markets is an essential thing. What kind of market participant are you, or do you want to be?

I do drop in to see what you're up to now and then, and it's interesting. I hope you can make some money with it.

Bob.

bobwest 

Interesting how you are reading all this old material. Just so you know, Graham and Dodd is definitely a classic, and is worth knowing about, but the analytical framework is principally for comparing a company's assets to its stock price, to find undervalued stocks where the market doesn't correctly price the stock in terms of its underlying asset value. Nothing wrong with this, but this type of analysis worked much better in the time it was written, when it made sense to look for stocks that you could buy at a good price compared to their liquidation value (undervalued.) There have been very long stretches of time, beginning in the 1960's, and off and on since, when this kind of investing simply didn't find many good candidates. But prices are very, very much higher now than then, which means these value investing ideas didn't actually work out that well... or at least let a lot go by. Also, it is inherently a long-term investing approach. You don't know when the market valuation will change, if it does. If you are a long-term investor, it can be an arrow in your quiver, but only that. One thing to know is that there are always others who know the company way better than you ever will, just looking at the public data. Another thing is that valuing a company based on its assets is not a good complete picture. Investors who buy companies as businesses, like Warren Buffet, assess their likely future prospects as businesses, which is a different type of valuation. They want to know how it's likely to do in the future, as a business with a product in a competitive market where it needs to show a profit as a business concern. A different question, and harder to answer. And of course, short-term traders are short-term, so this doesn't apply to them at all. I know you won't be deterred by what I just said, and I don't intend you to be. By all means carry on. But I lived through the period of Graham and Dodd's successes (or just after it, really) and saw the market change, and it never really went back. This is not to say you shouldn't know about it, but, for instance, would anyone using the Securities Analysis model have bought Amazon in the early days, or Microsoft, or Apple? Well, they didn't. Just be aware there is more stuff out there, and by all means keep going. Deciding how you want to deal with the markets is an essential thing. What kind of market participant are you, or do you want to be? I do drop in to see what you're up to now and then, and it's interesting. I hope you can make some money with it. Bob.

Hey Bob!

I don't intend to become a long-term investor, but I intend to add a fundamental side to my currently longer time-frame oriented trades. Speaking of fundamentals I think Security Analysis is one of the books to read. I have to admit that I thought it to be a bit different and it was definitely on the upper end of my understanding and at times difficult to read.
My interest in how businesses actually work has also increased lately and I'm trying to go where I get drawn to. And like in my shoemaker-baker analogy, I'm trying to "ask people" who doubtless know what they are doing and I heard them mentioning Graham and Dodd and so I want to know what Graham and Dodd are talking about.

I don't see a reason why value-investing shouldn't work the same way as it did 100 years ago. I guess there are of course other things to consider as back then, but the core of what value is and to understand value should always stay the same.

I even tend to see "value" as a type of core-principle. I think if one is able to create value for the world, being it with a business-idea, music that gives people a good mood, or distributing my capital in a way to help those with the valuable business, or even help controlling the economy in a way that the general public can live everyday life as comfortable as possible, the value I have to do that will automatically increase over time, since humanity evolves because of my contribution. It's little contribution by now, but somebody's alwas watching.
I think of this as a law of nature which would make sense to me. If there's really something to it, I'll find out in the coming decades.

What type of market participant I want to be, I would answer that I'm trying to become a speculator. I don't believe in the "do always the same and expect a different outcome" probability type of approach that much anymore. Maybe it works if applied properly, but it goes too much against my nature that I can become happy with it. I know that there will always be probability involved, but I'm trying to get more logical understanding into the equation and less probability.

You're alway welcome Bob! I appreciate your thoughts and comments.

MrMojoRisin 

Hey Bob! I don't intend to become a long-term investor, but I intend to add a fundamental side to my currently longer time-frame oriented trades. Speaking of fundamentals I think Security Analysis is one of the books to read. I have to admit that I thought it to be a bit different and it was definitely on the upper end of my understanding and at times difficult to read. My interest in how businesses actually work has also increased lately and I'm trying to go where I get drawn to. And like in my shoemaker-baker analogy, I'm trying to "ask people" who doubtless know what they are doing and I heard them mentioning Graham and Dodd and so I want to know what Graham and Dodd are talking about. I don't see a reason why value-investing shouldn't work the same way as it did 100 years ago. I guess there are of course other things to consider as back then, but the core of what value is and to understand value should always stay the same. I even tend to see "value" as a type of core-principle. I think if one is able to create value for the world, being it with a business-idea, music that gives people a good mood, or distributing my capital in a way to help those with the valuable business, or even help controlling the economy in a way that the general public can live everyday life as comfortable as possible, the value I have to do that will automatically increase over time, since humanity evolves because of my contribution. It's little contribution by now, but somebody's alwas watching. I think of this as a law of nature which would make sense to me. If there's really something to it, I'll find out in the coming decades. What type of market participant I want to be, I would answer that I'm trying to become a speculator. I don't believe in the "do always the same and expect a different outcome" probability type of approach that much anymore. Maybe it works if applied properly, but it goes too much against my nature that I can become happy with it. I know that there will always be probability involved, but I'm trying to get more logical understanding into the equation and less probability. You're alway welcome Bob! I appreciate your thoughts and comments.

Glad you can take my comments the way you do. I sometimes write something and say, uh-oh, should I have said that?

As to what you say about value investing, this is the exact point I wanted to address. Graham and Dodd wrote at a certain time in US and world history. I don't recall the exact dates now, but we are talking about the post-world-war-II period in the 50's or so. There were a lot of companies that had assets in hand that were worth more than the company's stock price. So if you found one of them, you had a very good deal: if the company succeeded, great. If it failed, you would be part-owner of those assets, and you would have paid less than the liquidating price. This was a very good idea. There was also an excellent chance that the rest of the people in the market would wise up and buy up the stock, so you would have a good chance of the stock appreciating. That's the idea of buying something that is undervalued: price will eventually recognize the value. Often, this is true. At the time, there were a lot of companies in that position.

Then we had several decades when the economy grew tremendously, and you couldn't find those "values" any more because the price of stocks had been bid up in an expanding economy. Then the ways to make money based on fundamentals kept changing because the business environment kept changing. That's why I mentioned Warren Buffet, who evaluates companies as businesses with business prospects, not just in terms of their assets (obviously, with an understanding of the balance sheet too, just with more in mind) and also why I mentioned Amazon (which was laughed at for years because of its poor or nonexistent earnings) and Microsoft and Apple, which were part of a total revolution away from the old economy and the companies that dominated then. And which would not have been bought on the basis of Graham and Dodd valuations.

My point is that pure value investing, Graham and Dodd style, was a much bigger deal at one time than now, because the opportunities that would have made someone like Buffet rich (and did) or someone like Jeff Bezos of Amazon rich (and did) do not really show up on the view screen of a philosophy of buying undervalued assets. Not that it's not sometimes a good deal, but it's not all that it used to be.

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As for me, I don't care about fundamentals at all, and the type of market participant I am is a day trader, and it suits me. I have been other things in the past, and it is natural to expect to evolve.

Anyway, happy reading. I do suggest broadening out your reading a little, and getting familiar with times that are later than Morgan and Graham and Dodd too. (I don't have any suggestions, because fundamentals are not my thing.)

Again, good luck and pleasant journey. It does take all kinds to make a world.

Bob.

Wednesday November 10th

Finished charting the tech-sector and Security Analysis as well.

In the last chapter the criticised Dow-Theory and chart analysis. They kinda invalidate it and say that they seriously doubt that it is working, but "for an intelligent chart-analyst with talent, good judgement and intuition", they leave it basically open. The question is, how do you know something so highly multifaceted isn't working? How long do you try until you deem something as not working?
In essence they see analysis of the value of a specific security as something scientific (but also not a 100% scientific) and market-analysis via charts as a form of art.
It seems to me that they put comparatively little thought on a mass-psychological point of view.
But all in all it was a very informative book and well worth the read!

Thursday November 11th

Drawn 4 Cons. Discr. - charts.
230 charts by now and the daily updating starts to take quite an amount of time. In the near future I'll have to find a way to make that process more efficient.

Started to read "Trader Vic - Methods of a Wall Street Master"
I saw that book popping up in the recommendations every now and then, but because of the title I thought it one of those typical trading books and ignored it.
I stumbled upon the name "Victor Sperandeo" a few times recently and as I looked him up, I found that he actually is a pretty solid guy and that it is one of his two major books.
The reason why I think his book is worth to read, is:
- He is actually an advocate of Ayn Rand's philosophy, which gives me a common ground with him and makes me expect that I can relate to his way of thinking
- He implements the Dow Theory in his trading which also resonates with my current researching and takes the theory to the 80s/90s
- He also includes economics in his approach which I also want to try to dabble in a bit

So it's more a description of how he sees and handles things and not the rigid type of description of systems like I would have expected, just judging from the title and frontcover.

Friday November 12th

8 Cons. Discr. charts.

Trader Vic talked about the basic technical analysis stuff and also started to explain economy and how one should try to see it. I totally wasn't aware that the "Austrian school of economy" actually is about that type of laissez-faire capitalism with which I can identify pretty well. It would be nice if Austria itself were more on the capitalistic side. Pretty alarming that a few weeks ago the Communist-party won an election in a major city and that a lockdown for only unvaccinated people is coming. They take a step just a bit too far towards your direction, you feel uncomfortable and take a step back. Still enough space behind, isn't it?
That's how a lot of shit begins.

Monday November 15th

10 mixed charts, mostly Industrials.

Did a first sub-categorization of the Consumer-Discretionary sector. I'm trying to get a feel of which groups of stocks tend to move together.
I purposely didn't take the official S&P sub-categories, because I think it makes more sense to look at them in more of a real-life point of view.
That's the categories:
- Online Stores/Retail
- Cruise Ships
- Hotels/Ressorts/Booking
- Restaurants/Fastfood
- Clothing/Fashion/Sportswear
- Home Accessoires/Retail Store
- Appliances/fixed Furniture in and around the House
- Home Building
- Carmakers/sellers
- Autoparts
- "Not yet clear"

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Trader Vic currently about the basic principles of economy. How central banks work, inflation, credit and so on. It seems to me that the go-to economist for possible further research is Ludwig von Mises. I think he comes closest to free markets and capitalism.

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Started the last part in the Morgan biography. By now he’s 68 years old. A lot of business and politics going on. Well known companies he was involved in financing/consolidating such as General Electric, U.S. Steel, International Harvester and the International Mercantile Marine described.
Roosevelt is making life hard for the industrialists, and Morgan is spending tons of money on the fine arts.