I’ve had it with these lunatics. Bill Dudley, a recently retired governor of the Federal Reserve and now, among other things, an op-ed writer for NYT, is defending the Repo operations. He stated that they have had nothing to do with the market’s run-up in the months of September through December, at the same time as the FED was executing massive balance sheet expansions and desperate strategies.
I love high prices as much as the next guy (after I buy low) and I love buying a stock and feeling smart since its price is going in only one direction – up – since the day I bought it, but the underlying question one must ask himself is WHY he is buying equities.
Value investing, which is the only kind of sustainable investing, dictates that what you’re buying today is a company’s ability to generate cash flow at present and in the future.
That’s the PERFECT definition for it. In other words, if shares of a given company are currently available for a price that underestimates future cash flow, then it should become a candidate for your portfolio. The 2nd question that arises is whether or not there are other candidates, so that one can compare their relative attractiveness. Thirdly, one must assess HIMSELF, asking the question, am I able to trust my OWN judgement on this topic, even if some gurus are bullish on it?
In other words, there is an analysis of the company’s intrinsic value, derived by estimating its future cash flow progression, and then there is self-analysis, exhibiting humility and logic, looking inside to contemplate one’s own capabilities at researching businesses.
If a company presently doesn’t generate any revenues, this process is speculative, by definition.
This is the case with many small-cap companies – certainly in the mining industry, but also in tech, biotech and cannabis. Small-cap companies also face big challenges from competition, higher costs of entry and lack of funding to pursue innovation.
For that reason, big business is becoming SUPER-CONCENTRATED!
Take a look:
Notice that in 2000 and 2008, the last two major bull market bubbles, this economic phenomenon occurred as well.
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As we know, opinions regarding WHEN a recession will happen vary from today to 2-3 years into the future.
In like fashion, opinions vary on the subject of central banking.
Some investors place high value on the topic of macro-economics, trading and formulating strategies according to those issues, while others (Warren Buffett among them) place NO value on the FED’s decisions, going as far as saying that any business that hires an economist has “one employee too many.”
The Austrian school of economics rejects the notion of central banking altogether, stating that interest rates are the result of market forces, creating a free market, not a number of bankers, determining these figures for the global economy.
No matter where you stand on this matter, know that wealth is created by BUYING VALUE and holding it, selling in opportune times or never.
Most times, value is offered by the S&P 500, but occasionally it is either too expensive or drastically cheap.
We are definitely closer to the side of the equation that offers less upside.
The even bigger dilemma is whether or not stocks make more sense than real estate or other avenues.
There are opportunities to lend funds to developers at 10%/annum or crowdfunding single-family homes that yield 7%/annum.
The opportunities exist outside of the traditional indices and it’s important to go out to conferences, networking events and take courses in order to FURTHER your financial literacy.
Research Partner, PortfolioWealthGlobal.com
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