Why You Should Ignore the P/E Ratio

Many investors closely follow the price-to-earnings (P/E) ratio. They believe this tool allows them to determine whether an individual stock or the entire stock market offers value. The general interpretation is that low P/E ratios are found in cheap stocks that offer the greatest potential. A high P/E ratio, on the other hand, indicates the stock is potentially overvalued and is unlikely to deliver gains that are better than average. This is a simple idea. Like many simple ideas related to the stock market trading, especially ideas that are widely followed, this one does not work very well. The first problem ...
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An Overlooked New Story Could Boost Your Wealth

In recent months, traders have seen news stories move stock markets. They have always known this. We often see stock prices make sharp moves after earnings announcements. But, in the past year we have seen widely anticipated events move markets in unexpected ways. Let’s consider the US Presidential election as an example. Heading into election day, it was widely believed that Hillary Clinton would win while a surprise victory by Donald Trump would set off a bear market. As the election results became clear, the overnight markets seemed to validate these opinions. Futures on the S&P 500 fell quickly and trading ...
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Should You Invest in Global Markets?

Diversification. That’s all many financial advisers recommend. They believe diversification reduces market risks and they are correct. With enough diversification, a portfolio’s performance will closely track the performance of an index. The problem with diversification is that a widely diversified portfolio will closely track the performance of an index. If the index declines, the portfolio will lose value. This is obvious, but many investors seem surprised that diversification isn’t much help in a bear market. To overcome this problem, many advisers suggest investing in global markets. A noted CNBC commentator often yells, “There’s always a bull market somewhere.” If this is true, ...
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Cheap Stocks Analysts Believe In

We’ve all seen it happen dozens of time. A stock sells off sharply after missing analysts’ expectations. Sometimes, earnings per share (EPS) come in just a penny below expectations. But that small miss can cost investors hundreds of millions of dollars. Of course, we’ve also seen the opposite happen. A stock soars after the company delivers EPS that beat expectations. It seems that beating expectations is all it takes for some stocks to end up on the list of the market’s biggest gainers on the day after they report earnings. As we look at these news stories, we noticed a common theme ...
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Spinoffs Can Unlock Value

We are always looking for ways to find value in the stock market trading. Our search includes researching for traditional value stocks and finding ways to identify high probability opportunities in growth stocks. We have researched momentum, size and other factors. Many strategies can be applied profitably. We also apply less well known strategies. These trading strategy often require more work but can offer larger rewards. Over the years, one of the strategies we have used with success involves spinoffs. A spinoff is a corporate transaction that is intended to unlock shareholder value. Based on experience, we know investing ...
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The Best Trades for May, Following A Strategy That Is up XX% This Year

At the beginning of the year, we began sharing real time buy recommendations with you for a successful trading strategy. This month, we continue with that process. The strategy is among the simplest seasonal trades possible. Few traders follow seasonal strategies although these strategies are often profitable. They are also relatively low risk because they limit market exposure to short periods of time. To apply this strategy, we are running a scan to find the stocks with the best historical performance in the month. To find trades for May, we started by looking at how stocks have performed, on average, during ...
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Duplicating the Success of Sir John Templeton

Sir John Templeton was one of the world’s greatest investors. But, his investment philosophy is less widely studied than the philosophy of more famous investors like Warren Buffett or Peter Lynch. This is unfortunate because Templeton’s wisdom can help small investors succeed. Templeton started his Wall Street career in 1938 and would eventually gain some degree of fame as the founder of one of the world’s largest international mutual fund company. Templeton was among the first to recognize the power of global diversification. The mutual fund company he founded, now part of the $720 billion Franklin Templeton Investments family, was a ...
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Are Stocks Overvalued?

Investors are often worried about the next bear market. The reason for this concern is obvious. Avoiding the bear means they can preserve wealth. But, becoming defensive too soon means missing out on gains that allow investors to accumulate wealth. Both problems, losing wealth in a market decline and failing to accumulate wealth as the market advances, can prevent an investor from meeting their financial goals. This means investors will spend a great deal of time searching for clues that will help them spot the next bear market in advance, but not too far in advance. To spot the bear, many ...
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