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Simon Gordon
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Interesting article and thank you.
I think this type of strategy should be deployed for wealthy private investors who are not keen on individual stocks and don't want to buy mutual funds because of the high charges that eat capital in a low return environment.
Many UK investors buy into mutual funds that charge a 5% entrance and 1% to 2% in annual fees.
ETF's are the perfect place for these investors.
Perfect for your auntie!
I think this type of strategy should be deployed for wealthy private investors who are not keen on individual stocks and don't want to buy mutual funds because of the high charges that eat capital in a low return environment.
Many UK investors buy into mutual funds that charge a 5% entrance and 1% to 2% in annual fees.
ETF's are the perfect place for these investors.
Perfect for your auntie!
FetteredChinos
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nice hat, and interesting article.
super long term stuff though!
super long term stuff though!
FC
You like the hat.
As regards long term, short term, some will work out quite quickly ( months ) some will take longer ( years )
However, the maximum seems to be about 2 yrs.
If you were just moderate in your expectation, and took a 50% return, thats still 25% / annum, which is ( 24% ) what the research found.
It is aimed at people who have tried the daytrading, tried the futures, etc, have not had the results that they expected or wanted, but still feel that they want to use the market to generate wealth.
Thus as a minimum risk, minimum level of knowledge required, minimum effort ( time ) this provides returns that will probably exceed the majority anyway.
cheers d998
You like the hat.
As regards long term, short term, some will work out quite quickly ( months ) some will take longer ( years )
However, the maximum seems to be about 2 yrs.
If you were just moderate in your expectation, and took a 50% return, thats still 25% / annum, which is ( 24% ) what the research found.
It is aimed at people who have tried the daytrading, tried the futures, etc, have not had the results that they expected or wanted, but still feel that they want to use the market to generate wealth.
Thus as a minimum risk, minimum level of knowledge required, minimum effort ( time ) this provides returns that will probably exceed the majority anyway.
cheers d998
the blades
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Good article ducati.
UTB
UTB
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Ducati,
You would have been better off telling us how to pick the next Google, that is what the people here want to know and hear about. What is the next sector that will provide 10 baggers to all and sundry regardless of how good they are at trading. Talk about fireworks and then you will have everyone's attention and praise and be considered an unadulterated genius. Instead of that, you have chosen to share a recipe for steady, consistent and virtually risk free profits. Shame on you.
That is a very good article and goes to show that there is money to be made in all types of markets (bull or bear) provided one is prepared to do some homework and be patient. What I find interesting is that a lot of people mock returns of 24% per annum on average, yet they confess to losing money. Unless I am missing something, the markets must be made up of a lot of dumb participants (I am not interested in doing a handful of trades a year and making 24% risk free as I can do 25 trades a week, sit in front of my computer all day long and lose a large percentage of my capital in the process).
The sad thing is that the message will be lost on most readers because it is too simple, many believe that the more complex a strategy/method the more money they make. Simple charts or analysis are not sufficient or engaging enough. The hare and the tortoise theory do not sit well in financial markets.
Keep up the good work.
You would have been better off telling us how to pick the next Google, that is what the people here want to know and hear about. What is the next sector that will provide 10 baggers to all and sundry regardless of how good they are at trading. Talk about fireworks and then you will have everyone's attention and praise and be considered an unadulterated genius. Instead of that, you have chosen to share a recipe for steady, consistent and virtually risk free profits. Shame on you.
That is a very good article and goes to show that there is money to be made in all types of markets (bull or bear) provided one is prepared to do some homework and be patient. What I find interesting is that a lot of people mock returns of 24% per annum on average, yet they confess to losing money. Unless I am missing something, the markets must be made up of a lot of dumb participants (I am not interested in doing a handful of trades a year and making 24% risk free as I can do 25 trades a week, sit in front of my computer all day long and lose a large percentage of my capital in the process).
The sad thing is that the message will be lost on most readers because it is too simple, many believe that the more complex a strategy/method the more money they make. Simple charts or analysis are not sufficient or engaging enough. The hare and the tortoise theory do not sit well in financial markets.
Keep up the good work.
barjon
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Please excuse my fat moderating finger, but this thread is dedicated to discussing a Knowledge Lab article and will itself form part of that permanent archive. It is, therefore, more important than usual that it stays on topic and does not become yet another vehicle for jolly - and not so jolly - jousting. So I'm editing/deleting off-topic content and hope that you will respect the thread. Thanks.
jon
jon
roguetrader
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Interesting and simple approach, nice to see the highlight of ETF's, they can be a great way to achieve diversification within a sector.
SOCRATES
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I am very sorry Joules, I disagree with you completely, because what you are explaining is back to front.
Now, the first thing to do is to establish whether it is a bear market or a bull market, by examining the condition of the market from a technical viewpoint, with particular reference to what is in the background and the reasons why.
Having established this, now the direction is ascertained for the long pull, then stock selection is the next step.
The P/E ratios as printed in the newspapers are not reliable.
The P/E ratios have to be calculated by mining into the accounts and transposing this against the current market price of the stock. In this way a truly accurate figure can be achieved.
Only then can a proper assesment be made, but only if a proper chart is available, showing open, close, high, low and volume, on a daily basis and an hourly basis that captures the period of the range.
And then, finally, this scenario has to be carefully inspected to ascertain whether the given stock is in sync.
This means whether it is harmonius to the market as a whole or whether it is not, whether it is being accumulated or distributed, or just capped or supported.
So you see there is a lot of work to be done which is not mentioned, and in real practical terms not so simple.
Now, the first thing to do is to establish whether it is a bear market or a bull market, by examining the condition of the market from a technical viewpoint, with particular reference to what is in the background and the reasons why.
Having established this, now the direction is ascertained for the long pull, then stock selection is the next step.
The P/E ratios as printed in the newspapers are not reliable.
The P/E ratios have to be calculated by mining into the accounts and transposing this against the current market price of the stock. In this way a truly accurate figure can be achieved.
Only then can a proper assesment be made, but only if a proper chart is available, showing open, close, high, low and volume, on a daily basis and an hourly basis that captures the period of the range.
And then, finally, this scenario has to be carefully inspected to ascertain whether the given stock is in sync.
This means whether it is harmonius to the market as a whole or whether it is not, whether it is being accumulated or distributed, or just capped or supported.
So you see there is a lot of work to be done which is not mentioned, and in real practical terms not so simple.
There is no link of market P/Es to subsequent returns, no matter how you measure the ratio and no matter over how long (up to five years) you measure returns.
Not my words but from an article written by Ken Fisher, see link below.
For every view point there is an alternative.
www.forbes.com/global/2002/1111/074asia.html
Not my words but from an article written by Ken Fisher, see link below.
For every view point there is an alternative.
www.forbes.com/global/2002/1111/074asia.html
SOCRATES
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I have read it, and I concur with his viewpoint.Tuffty said:
Prices are not driven by Fundamental forces, they are driven by Supply / Demand imbalances.
Now, the assesment of the extent and cause of these imbalances is what serves to baffle nearly everybody.
You put your finger on the button by saying that for every viewpoint there is an alternative.
This is why this topic attracts so much argument.
I look upon all this in quiet contemplation and with wry amusement because all of it is obvious, yet the majority overlook the significance of the patently transparent.
SOCRATES
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Oh ! Hello Bracke ! There you are. Nice to see you posting again.bracke said:
May I tactfully suggest you say fat finger instead of suggesting corpulence as this may unjustifiably offend.
Now carry on, we are interested to see what response your question will elicit.
Mind you, if you look at my post above, you will see how I have explained it.
Clear as mud it is, but I am certain you are able to clock it.
Kind Regards As Usual.
SOCRATES said:
SOCRATES
Thank you for your reply
I do not think that the demon moderator will take offence as he is familiar with my somewhat acerbic sense of humour. If he does feel aggrieved perhaps he could provide his vital statistics suitably confirmed by a reliable person - politicians and members of the legal fraternity excluded.
I understood your post but was interested if ducati998 calculated the p/e himself bearing in mind that he mentioned the manner in which the p/e could be manipulated.
If it is necessary to calcuale the p/e from the accounts, that appears to be a considerable task, especially if one is intending to invest in a sector etf.
Regards
bracke
Julian
Julian I would tend to agree.
That is why an ETF is preferrable to individual stock choices, as you are looking at a sector, rather than an individual business.
Also, as a professional analyst will normally select a fair and best representation of a sector to be represented, you have ( hopefully ) any true dogs weeded out.
bracke
The P/E ratio is available on the web freely, as is the selection of ETF's, here they are.
http://finance.yahoo.com/etf
http://finance.yahoo.com/q?s=NEN
Tuffty
Ken Fisher is the son of Phillip Fisher, ( who coined the term scuttlebutt ) and and is a fund manager in his own right.
He wrote a book called "Super Stocks" and also writes for Forbes, their column "Portfolio Strategy" He also in a second book popularised the Price to Sales ratio, which at it's heart is very similar to the P/E ratio.
As most of us, he has looked at a variety of ways of engaging the market, and has currently returned to his fathers roots of Growth Stock investing.
However your post does bring up some very relevant criticisms of statistically based articles, trading methodologies, drug studies whatever.
1......data mining
2.....survivorship bias
3.....lies, damned lies, & statistics.
All are relevant, and need to be addressed rationally.
I would suggest the best way is to explore the statistical evidence yourself, paying particular attention to the "methodology" employed, as this really is the key to any reliability in a statistical result.
From his article..............
1...He raises the point regarding demand for stocks not showing an inverse relationship to price.
This is correct, but entirely misses the point in my opinion, as you are not trying to buy a "hot" stock with a low P/E, you are trying to buy "cheap earnings"........there is a very important difference.
2......he advocates high P/E...........as in a growth stock. I have statistics showing the opposite, however, the point is the selection of true growth stocks, in their relative infancy is no easy matter, if it was, more would be sunning themselves on yachts.
3......regarding his study, having not read it, I can't really comment, however, the studies in favour of a low P/E are robust, and sound, and I use them myself, and have live examples that you can easily follow. There is also an example in the article, that I will update, and we can track it in real time.
Cheers d998
Julian I would tend to agree.
That is why an ETF is preferrable to individual stock choices, as you are looking at a sector, rather than an individual business.
Also, as a professional analyst will normally select a fair and best representation of a sector to be represented, you have ( hopefully ) any true dogs weeded out.
bracke
The P/E ratio is available on the web freely, as is the selection of ETF's, here they are.
http://finance.yahoo.com/etf
http://finance.yahoo.com/q?s=NEN
Tuffty
Ken Fisher is the son of Phillip Fisher, ( who coined the term scuttlebutt ) and and is a fund manager in his own right.
He wrote a book called "Super Stocks" and also writes for Forbes, their column "Portfolio Strategy" He also in a second book popularised the Price to Sales ratio, which at it's heart is very similar to the P/E ratio.
As most of us, he has looked at a variety of ways of engaging the market, and has currently returned to his fathers roots of Growth Stock investing.
However your post does bring up some very relevant criticisms of statistically based articles, trading methodologies, drug studies whatever.
1......data mining
2.....survivorship bias
3.....lies, damned lies, & statistics.
All are relevant, and need to be addressed rationally.
I would suggest the best way is to explore the statistical evidence yourself, paying particular attention to the "methodology" employed, as this really is the key to any reliability in a statistical result.
From his article..............
1...He raises the point regarding demand for stocks not showing an inverse relationship to price.
This is correct, but entirely misses the point in my opinion, as you are not trying to buy a "hot" stock with a low P/E, you are trying to buy "cheap earnings"........there is a very important difference.
2......he advocates high P/E...........as in a growth stock. I have statistics showing the opposite, however, the point is the selection of true growth stocks, in their relative infancy is no easy matter, if it was, more would be sunning themselves on yachts.
3......regarding his study, having not read it, I can't really comment, however, the studies in favour of a low P/E are robust, and sound, and I use them myself, and have live examples that you can easily follow. There is also an example in the article, that I will update, and we can track it in real time.
Cheers d998
Having just tested the link, the P/E ratios listed are ttm P/E's.
These are acceptable, but I prefer the "current" P/E.
To get the current P/E you would take last years earnings from the "Income Statement" and divide it into the current price.
With an ETF, there is no way around this, you'll have to use the ttm P/E.
You can also have a look at my watch list while you're there.
cheers d998
These are acceptable, but I prefer the "current" P/E.
To get the current P/E you would take last years earnings from the "Income Statement" and divide it into the current price.
With an ETF, there is no way around this, you'll have to use the ttm P/E.
You can also have a look at my watch list while you're there.
cheers d998
the blades
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an alternative viewpoint;
Excessively low PE's give rise to above average returns. At the same time, in other sectors, momentum exists. So buying stocks that are already rising, often with excessively high PE's, gives rise to above average returns.The correlation between high and low PE's and low and high returns doesn't exist. But both extremes in PE ratio's could still give good results. Maybe it's being caught in the middle that's the "dead zone".
Over a longer time period, the link between PE's and returns is more straight forward. - see attachment
UTB
Excessively low PE's give rise to above average returns. At the same time, in other sectors, momentum exists. So buying stocks that are already rising, often with excessively high PE's, gives rise to above average returns.The correlation between high and low PE's and low and high returns doesn't exist. But both extremes in PE ratio's could still give good results. Maybe it's being caught in the middle that's the "dead zone".
Over a longer time period, the link between PE's and returns is more straight forward. - see attachment
UTB
