• 08 May
    Heuristic Simplification Makes Everyone Happier, But It’s Terrible For Investing

    Heuristic Simplification Makes Everyone Happier, But It’s Terrible For Investing

    • Irrational behavior leads to higher risks and lower returns. We’ll show how to avoid it.
    • We’ll describe how a cognitive bias can be extremely dangerous in the current market environment.

    Introduction

    Standard finance assumes that investors always behave rationally and therefore it ignores cognitive and emotional biases that might affect investor behavior. But such phycological biases don’t only affect the individual investor, but can also affect the majority of the investing population. When the majority of investors behave irrationally, the market becomes inefficient and extremely dangerous as risks increase and longer-term returns turn negative.

    Today, I’ll describe the most common psychological bias affecting investors and making them behave irrationally. More →

  • 07 May
    Sunday Edition: When AMD’s Chart Was A Crystal Ball

    Sunday Edition: When AMD’s Chart Was A Crystal Ball

    A few weeks ago I wrote an article for our sister publication Direction Alerts about a technical pattern I had spotted on semiconductor company AMD.

    What I had found at the time was a head and shoulders formation that I determined would see the stock price falling and giving investors an opportunity to buy this growth stock at a discount. More →

  • 05 May
    The Market Is Dumb And Getting Dumber

    The Market Is Dumb And Getting Dumber

    • The number of analysts is declining, stocks don’t react to earnings nor news anymore, and the underlying economic environment is rigged.
    • However, as investors, we have to always look at risk and reward as there is always a way to profit.
    • Protecting yourself from market ignorance doesn’t even cost much.

    Introduction

    I would define a dumb investor as one who doesn’t think about risk in relation to reward, and therefore I fearlessly say: the majority of investors are behaving in a pretty dumb way.

    This is a heavy statement, especially considering markets have performed nothing short of spectacularly in the last 8 years. As evidence, the S&P 500 is up three-fold since 2009 and continues to strongly march ahead. More →

  • 04 May
    Here’s What Happens When An ETF Gets Too Big

    Here’s What Happens When An ETF Gets Too Big

    • When an ETF owns more than 10% of a company, any kind of rebalancing can be very dangerous for the stock.
    • The VanEck Vectors Junior Gold Miners ETF is becoming too big for its index, and has been forced to look beyond junior miners and to sell up to 50% of some of its positions in order to rebalance.
    • The main danger coming from ETFs is the lack of underlying liquidity, especially when there is no one to buy the assets sold in a fire sale.

    Introduction

    ETFs are potential vehicles of mass destruction. There is a high chance that in a few years from now, we’ll be talking about the 2000 dot-com bubble, the 2009 subprime crisis, and the 201X ETF liquidity crisis.

    After ETFs took the investment stage, there weren’t many issues with them as they remained relatively small. However, the continuous inflow of capital has already made some ETFs too big.

    In today’s article, we’ll describe the issue with the VanEck Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ) and how it’s affecting index constituents. More →

  • 03 May
    Think Only Brick & Mortar Retail Is In Trouble? Think Again.

    Think Only Brick & Mortar Retail Is In Trouble? Think Again.

    • The number of bankruptcies in retail is increasing and the probability of new bankruptcies is still high.
    • In the online environment, the competition is intensifying their efforts precisely at the moment when Amazon has finally reached some kind of profitability.
    • Price wars could make the whole online growth story a bad experience for investors. We’ll use Wayfair as an example.

    Introduction

    We’re seeing significant structural shifts in the retail environment where companies that were once considered blue chips are slowly going bankrupt, think Sears Holdings (NASDAQ: SHLD), while online retailer Amazon (NASDAQ: AMZN) is crushing it.

    The question many ask is: are retailers cheap now and online retailers expensive, or is it the other way around? To answer this question, it’s extremely important to look at how the competition in the online space will affect margins. We’ll look at some situations and try to come to the best option for your portfolio. More →

    By Sven Carlin Amazon Investiv Daily Retail
  • 02 May
    The Art Of Business Valuation – Three Valuable Valuation Methods

    The Art Of Business Valuation – Three Valuable Valuation Methods

    • Don’t expect precision from business valuation, but accuracy helps a lot.
    • Calculating net present values, liquidation values, and stock market values are the best methods to use according to Klarman.

    Introduction

    Today, we’re really digging into the essence of Seth Klarman’s book Margin of Safety.

    Some think the market, being efficient, will tell you the exact value of a business, but history has shown that in the short term it often happens that the market values businesses extremely irrationally, either on the upside or on the downside. Knowing how to properly value a business gives an investor the perfect investing edge as it allows them to disregard what the market thinks and turn that into their own advantage by exploiting market mispricings.

    Let’s see what Klarman has to say about business valuation by going through chapter 8 of his book. More →

  • 01 May
    What You Can Learn From Under Armour

    What You Can Learn From Under Armour

    • There’s a divergence between Under Armour’s fundamentals and its stock price.
    • Every growth story is bound to end or at least slow down at some point, and at that point the stock usually gets hammered.
    • However, sentiment must not be underestimated as an $0.03 earnings beat can send the stock up 10%.

    Crazy Stock Movement

    Under Armour’s (NYSE: UAA, UA) stock has had a wild ride in the last four years. It went from $12 in 2013 to highs above $50 in 2015 only to fall to the current lows around $19. More →

  • 30 Apr
    Sunday Edition: When Buying Luxury Isn’t So Illogical

    Sunday Edition: When Buying Luxury Isn’t So Illogical

    Sven wrote an interesting article a couple of weeks ago on Ferrari (NYSE: RACE), and how investing in it is dangerous as doing so is investing purely in sentiment. If you didn’t have a chance to read it at the time, you’ll find the article here.

    I agree wholeheartedly with Sven on Ferrari. The brand is synonymous with exclusivity, and when a brand’s market is meant to remain small—Ferrari produces only about 8,000 vehicles per year—it’s hard to imagine how the company intends to grow sales, and if sales and revenue won’t grow significantly over time, I have to wonder what the real point is in investing in the company.

    Not only that, but the instant sentiment for the company changes or the market begins to decline, Ferrari’s stock price will undoubtedly fall significantly and any gains made will be wiped out.

    However, I also believe that there are ways to invest in luxury that do make sense. More →

  • 28 Apr
    Dollar Cost Average Your Way To Excellent Returns

    Dollar Cost Average Your Way To Excellent Returns

    • Dollar cost averaging brings higher returns on invested amounts with less risk.
    • It also offers less stress because if stocks go up, it’s fine, and if they fall, it’s even better as you can buy more.
    • The same strategy can be applied by the sophisticated investor around longer term market irrationalities.

    Introduction

    Dollar cost averaging might sound like a good thing for a novice investor, and it is, but don’t forget that the sophisticated investor can also use the strategy.

    Many novice and non-sophisticated investors don’t want to invest outside of the U.S. and when it comes to stocks, they just want to own a few of what they think are the best stocks. For those investors, the best strategy is to dollar cost average. More →

  • 27 Apr
    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    • Positive sentiment alone has added 950 points to the S&P 500 in the last 5 years.
    • The S&P 500 has returned 12% in the last 5 years, but only 4.5% in the last 10 years and just 2.7% in the last 17 years. Don’t let current positive sentiment lead you to such terrible long term returns.
    • The opportunity cost might be significant, but the long term picture of not following the herd looks much better.

    Introduction

    I know that if I buy a stock with a price to earnings (P/E) ratio of 10 and stable future business prospects, my very long-term return should be around 10%, plus inflation and eventual growth. If I buy a stock at a P/E ratio of 5, my returns will be around 20%, while if I buy a stock with a P/E ratio of 20, my returns will be around 5%. It’s as simple as that, in the long term. More →

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