arren Buffet recently posted an optimistic letter to the New York Times, stating that American Stocks are currently being traded at very attractive prices. If you believe that the S&P500 represents the level of pricing of the US stock market, you’ll have to at least partly agree with Buffett since the current Price-to-Earning (P/E) of this index is more than 20% below its 100-year average value.
The P/E ratio is usually calculated as the stock price divided by some measure of the company’s annual earnings. Most analysts use last year’s Net Income for calculating the current value of the P/E and next year’s forecast earnings to calculate the forward P/E. However, history has shown that this measure is very volatile, and more troublesome, too optimistic. Therefore, it is preferable to calculate the P/E ratio based on the earnings of a longer period; usually it is averaged on the past 5-10 years.
At current heights, where the S&P500 index is traded around 900 points, the 5-year P/E ratio is around 12.5. Last time it went below 12.5 was more than 20 years ago, in late 1985. Over the past 137 years, the average 5-year P/E ratio stood on 15.6, more than 20% higher than the current P/E. The current average 10-year P/E is a bit higher, around 14.5, but it is still lower than its average (16.4).
This could be a sign that many stocks are traded at attractive levels. However, one has to keep in mind that the P/E ratio usually falls way below its average before the market starts to rebound. Moreover, if the market does go into a lengthy recession, it’s possible that the earnings of many companies will decrease dramatically, thus lowering their P/E in the future.
No one knows for sure if the stock market has already bottomed out, and many stocks could still fall further down in the near future; however, I think that most of them are traded at reasonable levels and are definitely not overpriced like they have been in the past. So, if you haven’t done it already, you should start digging the market, searching for great businesses that lost too much value and are currently being traded way below their intrinsic value.
Telepresence refers to a set of technologies that allow a person to feel as if they were present, to give the appearance that they were present, or to have an effect at a location other than their true location. That’s what Wikipedia says about it. In simple words, it means that you can be in California and be seen and heard live by an audience in New York.
Cisco Systems first introduced this technology in October 2006. This product was built to provide high-definition video and spatial audio designed to link two physically separated rooms so they resemble a single conference room even though the two rooms may be on opposite sides of the world.
Since 2006, the product has been improved and was recently presented by the company’s CEO in a presentation to investors.
Most companies and private users won’t be using this expensive product, soyou probably shouldn’t run to buy Cisco’s stock (CSCO) the moment. However, I’m sure that Cisco will definitely continue to grow and lead global technology in the future.
In any case, Cisco is among the NASDAQ stocks that are traded in Yalicoo’s stock trading competitions, so continue to keep an eye on the developments in the company. If the stock price continues to decline, like what has been happening since October 2007, the stock might be attractive in the near future.
It could be the overly high expectations of growth from high-tech companies or the excessively large loans that were given to home buyers; every recession is caused by different reasons that cannot be predicted in advance. However, there are always stocks that perform well even during these bearish periods. They are usually called ‘defensive’ companies, and if you have never heard of them, you should carefully read what comes next to be prepared for the next recession.
Looking at the year-to-date performance of the 30 Dow Jones members (taken from Bespoke Investments) can teach us an important lesson about investing during a recession. Without looking at the chart below, can you guess which company’s stock had the best performance?
No matter what the reason for the recession, people will always have to buy home equipment and groceries; also, since your budget is limited during these periods, you’ll probably choose to buy in a discount store. This is exactly why sellers of cheap goods and food such as Wal-Mart (WMT) and McDonald’s (MCD), have thrived. The defensive stock story is a common recession theme, but it was clearly a winner this time.
All seven stocks that had positive returns for the year are defensive stocks. We already mentioned Wal-Mart and McDonald’s; IBM, the (relatively) cheap computer equipment seller is also placed higher on this list, as well as the giant healthcare products manufacturer Johnson & Johnson (JNJ), and the home improvement retailer Home Depot (HD). Despite the recession, people always have to have at least some fun during their vacations, and it should be not too pricy; thus, it is not surprising that we see the most well known entertainment company Walt Disney Company (DIS) closing the list of successive stocks.
Finally, if you want to remember only one thing from this short article, remember this: during a recession, the companies with the highest chance of yielding a positive return are the low-priced retailers with the most recognizable brands.
Everyone agrees that the market is continuing to decline and some of the analysts are even considering a much longer recession period in the U.S. Does this mean that you have to close all your stock positions and divert your investments into a low yield government bonds shelter?
Over the past decade, the market has seen both bullish runs and bearish ones; dot-com irrational exuberance; corporate corruption and the resulting legislation; 9/11 and the following consequences; and now a global sub-prime credit crisis. Despite all of these, the market has been more up than down.
Since it is impossible to predict in advance when a bearish or bullish period starts or ends, the conclusion is that in the long run you have to stay in the stock market in order to benefit from its overall increment throughout the years. This is not meant to suggest that you should never sell stocks; it is just that you should continuously learn stock investing strategies, improve your investing skills, and invest with your brain, not your emotions.
You can choose to hold an Index Fund or an Exchange Traded Fund that will match the market return; but, in case you want to beat the market return and gain larger profits, there are generally two ways to consider. The first is to buy stocks and hold them for a longer period of time; this is the value investing way and it is used by great investors such as Warren Buffet, Bill Miller, and a few others. This strategy includes analyzing the fundamentals of the company, such as its financial condition, its management and other essential issues, in order to estimate the company’s intrinsic value and understand if its stock is currently undervalued, which means the price is right for buying.
The second way is to try and gain from the short term volatility of a given stock price by using Technical Analysis indicators. Technical Analysis is based on the assumption that all the information about a stock is reflected in its price; thus, by analyzing the movements of the price or the changes in the trading volume of the stock, one can predict the future short term behavior of the stock price. As in the previous strategy, this too requires self-education and practice.
No matter which path you choose, you’ll need to find the right stocks for your portfolio and know when to buy and when to sell them. The Yalicoo arena is a great place to provide these needs. Yalicoo has thousands of registered traders holding many winnings stocks. Yalicoo’s leaders have proved in the past that they can definitely beat the market at any given time by picking the right stocks and holding them for the right period of time.
In any virtual stock trading competition that you join, you will immediately see the five top leaders in the competition, including all their transactions - live. Besides the cash prizes you can win in these competitions, copying Yalicoo leaders’ stocks into your real money portfolio can increase your actual profits by hundreds and even thousands of dollars. This will dramatically simplify the process and time required to choose the right stocks for your portfolio. In any case, remember one thing: monitoring the leaders’ moves should be regular and persistent in order to achieve consistent profits.
