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Are graphs just self-fulfilling prophecies?

Why constant stock-market gambles never pay off

The use of graphs and trends in share prices are being used more and more by both professional and private investors. They do offer a useful means of tracking share prices, indicating the creation of possible trends although in reality they are more useful when analysing historic data. We all know that trends are repeated time and time again within similar environments and it is possible to identify the emergence of a trend at a relatively early stage and act accordingly. However, are graphs just self-fulfilling prophecies?

Is the tail wagging the dog?

It is maybe a little unfair to suggest that graphs are self-fulfilling prophecies but sometimes there can be an element of this when the investment herd gets behind a particular trend, a crossover point on a graph or a change in direction. Talk of double tops, head and shoulders, etc can on occasion prompt investors to act in a certain manner which simply creates the environment where the expectations of a certain movement are met. Continue reading “Are graphs just self-fulfilling prophecies?”

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Stripping out the froth on a share price

Stripping out the froth on a share price

Whether it is good news or bad news, stock markets and investors tend to overreact on the upside and the downside. If we focus on the upside, an overbought position will eventually fall back into line but it can for some time become a self-fulfilling prophecy attracting more and more investors. There is a skill in stripping out the froth of a share price, the overbought position compared to the potential for the long term, and there are many ways in which you can benefit financially.

Short selling

If you have monitored the stock market over the years you will no doubt have seen many situations where share prices are pushed to levels which are unsustainable in the short term. There may be some kind of feelgood factor, short-term news expectations or simply misplaced hopes for the future. You will see “professional investors” taking advantage of these short-term spikes to sell stock they don’t hold and then buy back at a lower level. This is your stereotypical short selling position and done correctly it can create some significant gains. Continue reading “Stripping out the froth on a share price”

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Dow Jones industrial average hits record high

Are we approaching the top of the bull market?

As we kick off the second half of 2017 the Dow Jones industrial average index has today climbed 200 points to reach an all-time high of over 21,500. This seems to be something of a blue day for the US stock market with the banking industry now joining the party. As we have covered in some of our more recent articles, Fed stress tests were passed by all banking businesses in the US suggesting they are on a much firmer financial footing than many had expected.

NASDAQ slightly down

While the NASDAQ composite was down 0.1% in early trading this is neither here nor there but could it indicate a change in investor strategy going forward? For some time now banking stocks have underperformed because of their perceived defensive nature and concerns about their financial well-being in the short to medium term. The fact that they all passed the Fed stress test has taken away some of the doubt prompting a rebound in share prices amid talk of mergers and acquisitions. Continue reading “Dow Jones industrial average hits record high”

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Have the courage of your investment convictions

Are there viable options other than investing on the stock market?

When you start investing people will often say to you “only invest with money you can afford to lose” which makes sense in one way. However, to make money in the world of investment there always needs to be an edge, a risk and something to focus your mind. If you are simply investing money “you can afford to lose” how will this focus your mind?

Start small and build up

If you are looking to long-term investment as a means of providing in your later years, it is advisable to start with a fairly small investment pot and build up as your experience grows. There are no investors in the world who have literally jumped in with all of their pension fund money, made a fortune and sat back and enjoyed the life they had always dreamed of. You will make mistakes, a standard rule of investing, but if you start relatively small and learn from your mistakes you will do just fine. Continue reading “Have the courage of your investment convictions”

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Ron Paul predicts doom and gloom for US stock market

Ron Paul predicts doom and gloom for US stock market

Former Republican congressman and presidential candidate Ron Paul has been very vocal over the last few days regarding his bearish stance on the US economy, US stock markets and distrust of Donald Trump. While Ron Paul is a renowned bear of the US stock market even his suggestion that it “wouldn’t be a total shock to me” to see stock markets down 25% and gold up 50% as soon October is a little too bearish. While nobody else is forecasting that kind of correction it has made some investors sit up and listen and re-evaluate their plans for the future.

Federal Reserve

At a time when the Federal Reserve would appear to be an easy target of criticism it will be no surprise to learn that Ron Paul believes that the Fed is to blame for much of the forthcoming pain. He is not the first investment expert to criticise the extended period of low interest rates which has only recently come to an end. This has allowed US businesses, investors and the general public to build up excessive debt at a time when the economy is growing but not at the rate many had expected. Continue reading “Ron Paul predicts doom and gloom for US stock market”

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Central banks ponder move to traditional monetary policies

Authorities finally come together with positive comments

Since the 2008 US mortgage led crisis which led to a worldwide economic collapse we have lived in something of a bubble where interest rates have been historically low and finance has been readily available. Central banks around the world introduced quantitative easing and acquired billions of dollars of assets to ensure that money market liquidity remain strong. Over the last few months the US Federal Reserve has increased US interest rates, five increase since December 2015, with a further increase expected later this year. It now appears as though the Bank of England and the ECB are looking to follow suit.

Government bond yields rise

The bond market is the greatest indicator of future interest rate movements and it has confirmed what many believe, interest rates around the world are now headed higher. In general inflation has been increasing around the world which indicates encouraging consumer demand although there are some anomalies such as Brexit and currency issues. The idea is that central banks will no longer be required to acquire assets and add to money market liquidity. There is enough supply and demand to warrant a gradual return to more traditional monetary policies. Continue reading “Central banks ponder move to traditional monetary policies”

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Nike beats expectations and announces deal with competitor

Nike beats expectations and announces deal with competitor

Nike shares were 7% higher in after-hours trading after the company announced fourth-quarter figures which comfortably beat analyst’s expectations. The results were also accompanied by a surprise deal with a competitor who the company has refused to do business with in years gone by. So, what is happening at Nike?

Fourth-quarter figures

Revenue hit $8.68 billion in the fourth quarter against analyst expectations of $8.63 billion and earnings per share were well ahead of expectations at 60c against analyst expectations of just 50c. Amazon has certainly performed exceptionally well in the fourth quarter and there are high expectations for the foreseeable future although currency issues may have a negative impact in 2019 and beyond.  The company saw significant growth in its international direct to consumer business and there is certainly more scope for this area in the future. However, a surprise partnership took the stock market by surprise. Continue reading “Nike beats expectations and announces deal with competitor”

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US banks pass Fed stress test

Learning to hold your investment nerve

For the first time since bank stress tests were introduced by the Federal Reserve seven years ago all 34 US banks had their capital return plans cleared. While Capital One will need to submit a new plan by 28 December, after certain weaknesses were identified, this is not a fail for the bank. So, what does this mean for the US banking sector and how will this impact the US economy?

Capital adequacy

In light of the 2008/9 worldwide crisis brought on by a collapse in the US mortgage market it was obvious that banks would need to recapitalise their balance sheets. The vast majority of major banks around the world were supported through this crisis by their local regulator and governments because if the banks collapsed then the economies collapsed. However, there was a price to pay for the banking community with ever more stringent capital adequacy requirements. Continue reading “US banks pass Fed stress test”

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Warren Buffett banking on US real estate market

Why constant stock-market gambles never pay off

Warren Buffett’s investment vehicle Berkshire Hathaway has been steadily increasing its exposure to US real estate over the last few months. This week it was announced that the company has taken a near 10% stake in real estate investment trust Store Capital Corporation. The stake, acquired by one of the investment company’s subsidiaries, cost $377.1 million for 18.62 million shares. So, is it time to take a look at the US real estate market?

Warren Buffett is no fool

The Store Capital Corporation investment comes just four days after Berkshire Hathaway invested C$400 million for a near 40% stake in struggling lender Home Capital Corporation. Warren Buffett has also made available a C$2 billion credit line which should be enough to see the company through its current woes and a probable restructuring. It is well-known that Warren Buffett and his team like to become actively involved with companies in which they have a significant stake. There is no point investing millions of dollars into these companies without offering their expertise. Continue reading “Warren Buffett banking on US real estate market”

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Could exchange traded funds be behind US stock market gains?

Would you trust Donald Trump with your investments?

If you take a step back and look at US stock markets from a distance, is there really any reason why many indexes are within touching distance of their all-time high? Is the US economy buoyant? Are interest rates going to remain low for the foreseeable future? The truth is that the economic background to the recent rise in US stock markets does not correspond to the pattern we have seen in years gone by. The economic story just does not support US stock markets moving to within touching distance of their all-time high.

Demand for ETFs

Exchange traded funds (ETFs) have become an integral part of the US stock market in recent times. Historically the vast majority of US investors tended to go for stock picking funds which were a little more expensive but offered the potential for above-average capital gains. In recent times there has been a move towards ETFs where the charges are significantly lower and they basically track any index that you choose. Such has been the rise in demand that ETFs acquired $98 billion worth of US stock in the first three months of 2017 and are set to buy upwards of $390 billion for the year as a whole. Continue reading “Could exchange traded funds be behind US stock market gains?”