The World's Hottest Stocks

Just last year, markets in Austria, Egypt, Turkey, and South Korea delivered better than 50% returns, and that's no one-year fluke. In 2004, Mexico, Indonesia, Iceland, and Egypt (again) produced similarly great results. Look back to 2003 and you'll find a near-doubling of the Brazilian market, as well as very strong performance in places as diverse as Mexico, Indonesia, and Singapore.

IBD's highest rated stocks

TMF Selena takes a look at IBD's list

John Kenneth Galbraith

John Kenneth Galbraith, the iconoclastic economist, teacher and diplomat and an unapologetically liberal member of the political and academic establishment that he needled in prolific writings for more than half a century, died yesterday at a hospital in Cambridge, Mass. He was 97.

-- from brknews

Siegel vs. Shiller

The market has recovered from the lows of 2002. The question remains, though: Are we still experiencing "irrational exuberance," or can we expect long-run historical returns in the market going forward? Two heavyweight economists have been battling over just this question for the past 12 years.

bad call

April 19 (Bloomberg) -- One of the enduring mysteries of the finance world is also one of the simplest. How do seemingly intelligent, well-educated people make so many bad decisions?

New research confirms what many of us had suspected all along. Most managers find it virtually impossible to think straight. So do most investors. They keep letting their emotions and their pride get in the way.

As long as that's true, bad calls will still be made.

Richard Russell's Wisdom

John Mauldin extracts some words from Richard Russell

The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "giveaway" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are.

And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).

Rule #1

[4/14/06] Suppose you studied the investment style of Warren E. Buffett — really studied it. In fact, you became so intrigued with Mr. Buffett that you then parsed the works of the men he learned from — Benjamin Graham and David Dodd, the authors of "Security Analysis," which was first published more than 70 years ago. Then you filtered all this with the insights you gained from reading investing and management gurus like Peter Lynch, Jim Collins and James J. Cramer.

If you took all that learning, wrote an investment book and hyped it substantially, would it sell?

Probably.

But would it ultimately make people rich?

That is the very real question to ask about "Rule #1" (Crown/Random House, $25) by Phil Town, a former Green Beret and river guide turned financial guru.

[via brknews]

* * *

[5/28/06] Phil Town explains the idea.

First, identify a really wonderful business that you love. You know great companies because you spend money with them: Bed, Bath & Beyond, Chico’s, Budweiser, Harley Davidson, and Whole Foods Market are a few. You want to buy it on sale. You never pay retail. When it stops being on sale, you sell it, and then you go find another one and repeat it over and over again, until you get rich.

* * *

[8/29/06] Foolish book review

***

[5/2/11] Hey happened to see the book at BookOff PearlRidge on Saturday (first time I've been there). And bought it. Cost me a dollar. (Talk about your partient value investing.)

buying climaxes

Schwab's Liz Ann Sonders takes a look at buying climaxes in conjunction with the Schwab Equity Ratings for stocks that are candidates to be sold.

On the this list are TWW, ENG, TTI, IDSY, HYTM.

Buying climaxes take place when a stock makes a 12-month high, but closes the week with a loss. They're a sign of "distribution" and indicate that stocks are moving from strong hands to weak ones.

What's cheap now?

Morningstar applied their price/fair value ratio to ETFs to find out what's cheap, fair valued, and expensive in the present market.

The broad market looks fairly valued. The Asian ETFs were the most expensive. Real estate still looks pricey. Banks look cheap. And so do the blue chips.

The PEG ratio

[4/10/06] Joseph Khattab decided to back-test the PEG ratio to see whether it really is an accurate indicator of value.

The results? On average, companies with lower PEG ratios outperformed those with higher PEG ratios by a wide margin over the past three years.

His study is pretty flawed though because he took the p/e of stocks in 2003 and divided by the growth rate from 2003 through 2006. The problem is that those growth rates would be unknowable if you looking in 2003 (which he acknowledges).

*** [8/30/13]

The PEG ratio is a simple tool that can be useful in your search for undervalued stocks. But it is far from a perfect metric and is no substitute for doing your own homework.

 This metric was first popularized by Peter Lynch and is calculated as:

Price/Earnings/Growth

According to Lynch, a company that's fairly priced will have a P/E ratio equal to its growth rate. In other words, a stock with a PEG ratio of 1.0 is fairly valued, while a stock with a PEG ratio of less than 1.0 is undervalued and a stock with a PEG ratio greater than 1.0 would be overvalued.

While this seems intriguing and intuitive, remember it is only a rule of thumb. The assertion that a P/E ratio should equal earnings growth is somewhat arbitrary and certainly does not apply to all companies.

Consider a blue chip company operating in a mature industry. Its earnings growth may only be 5%. Does that mean it should have a P/E ratio of 5? What if it pays a huge dividend? [that's why I like to look at PEGY] What about a company with no growth... or even negative growth? [stay away]

There is also no consensus on whether to use a trailing or a forward P/E ratio and whether to use next year's expected growth rate or a longer-term expected growth rate. But this can have a major impact on the PEG ratio calculation.

 I would argue for using a forward P/E since the stock market is forward looking, along with a longer-term earnings growth rate to keep a long-term perspective. However, use the long-term earnings number only with a great deal of caution. That is because the long-term earnings growth rates that analysts publish are often way too optimistic.

A study by J. Randall Woolridge and Patrick Cusatis of Penn State showed that analysts consistently project EPS growth rates much higher than actual growth and that companies rarely meet or exceed their projected EPS growth rates. In fact, over a period of more than 20 years, Woolridge and Cusatis found that analysts' long-term EPS growth forecasts averaged +14.7%, but companies actual long-term EPS growth averaged only +9.1% - almost 40% lower.

***

More testing of the PEG ratio

Why PEG Ratio analysis is a silly tool.

ETFs

[8/10/07] Morningstar looks again

[11/3/06] Morningstar looks at the pros and cons of owning ETFs vs. mutual funds

[4/3/06] A 60-Second Guide to Exchange-Traded Funds