It is often said that cash is king. This phrase has many meanings to different people. For investors, it can mean maintain a large cash balance so they have buying power ready when they find bargains in the stock market. Or, investors may apply the phrase as a screening tool to identify companies with large cash balances that allow the companies to take advantage of opportunities as they become available. In this article, we look at why companies with large cash balances can make good investments and we identify some companies that could be good investment opportunities right now.Many investors ...
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This bull market began in March 2009, more than eight years ago. At the time, investors feared the worst. But stocks rallied, proving once again that bull markets can climb a wall of worry. If all it takes for bull markets is a wall of worry, the current market environment would be healthy. But, a bull market also generally requires an economy that’s growing, an accommodative Federal Reserve policy and stable fiscal policy from Washington. The worries are that those three factors are not firmly in place and investors are right to be worried about a market environment as uncertainty ...
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The news is not encouraging. This is true no matter where in the world we look. In Asia, North Korea appears to be taking steps to develop long range missiles capable of delivering nuclear weapons. All countries in the region are at risk. Yet, stocks are rising. In Taiwan, a country most likely within reach of North Korea’s missile program, the Dow Jones Taiwan Stock Index is trading near new all-time highs.In South Africa, riots are becoming more common as frustration with government grows. Recently, thousands of demonstrators gathered in one of the country’s three capital cities, Pretoria. One of ...
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It’s coming. We all know the end of the bull market will arrive one day. The obvious problem is that we don’t know when that day will come. The less obvious, but equally significant problem is that becoming bearish too soon can be costly.Stocks became overvalued by some measures by 1996. In December of that year, then-Chairman of the Federal Reserve Alan Greenspan famously asked, “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” His concern that stock ...
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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, especially ideas that are widely followed, this one does not work very well.The first problem we face ...
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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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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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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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