Skip to main content

Stock Price and Fundamentals

Jim Cramer:
Even at the height of my firm, Cramer Berkowirtz, I managed only about $450 million for a bunch of wealthy families, a pittance compared to the major mutual funds arid some large hedge funds that control the marginal dollar that determines stock prices at the end of' the day. I mention this to drill into your head the importance considering supply and demand of the stock at all times. That's because way too many people get confused; they think we are trading the actual companies themselves, that the pieces of paper we are trading, investing, owning, are sort of redemptive right, a coupon that will give you certain cents off, or an ownership right that will allow You to have a chunk of the brick and. mortar if not the cash in the treasury of' the joint, Untrue. These are, in the end, simply pieces of paper, to be bought, sold, or manipulated up and down by those with more capital than others. All other investment books stress the linkage between the stock and the company. Me? I stress the abject lack of short-term linkage and the opportunities that such an unconnectedness presents. While it is true that over the very, very long term-say your lifetime-stocks should indeed reflect the fundamentals, over the short term, the twelve- to eighteen-month time frame that is most applicable to most owners these days like it or not that's how long most stocks are held-the fundamentals of the company play only a part in what moves a stock up or down. In fact, I believe the reason that so many professional managers and amateurs fail to beat the market or make big money is that: they are way too hung up on the largely artificial linkage, short-term, between a company's health and the health of the stock. I think that deep down they like the linkage because it makes them feel that they aren't gambling with their money (or their clients' money). They think that if they stay focused on the fundamentals they have turned gambling into investing. I wish I could be so glib. I wish I could focus only on the company arid not the stock, because it would be much easier. But it would also be much less lucrative.

Labels:

Comments

Post a Comment

Popular posts from this blog

Spanish Debt Issues

There is a lot of talk about Spanish sovereign debts recently. I came across a research paper which I think is very useful for me and wish to share it here. This is taken from www.fundsupermart.com, an online fund broker where you can purchase funds form various fund managers. This portal provides some research and comparisons and it is essentially a self service portal. From the chart provided, we can see that there is a problem for Spain to service their debts for the next 4-5 years if the debts are not re-structured. With this kind of risk, no sane investors would want to risk their money to buy Spanish bonds. They can only turn to European central bank for bail out. The blue arrow is a fictitious line I draw assuming re-structuring is going to happen. Essentially, they have to move the payment of capitals into next 5-20 years to be affordable. In addition to that, they can't make additional loans. This is just taking a very simplistic view of the situation. To have that hap...
Post a Comment
Read more

How Serious Is Sub-Prime Home Loan Issue?

As a long term investor, you do not need to flee the market unless you are near to the retirement age (meaning, you are no longer "long term" in your investment). For many long term investor, they would say that the fundamental is unchanged. So, their stock valuation should not change. However, we must not be complacent about it. Fundamental do change when the market condition changes. That is the fact. How your stock will be affected depends on a few factors. The number one factor is whether the stock that you purchase is directly involved in the sub-prime loans. If they are, then the fundamentals of that company is changed immediately. The profit will be affected directly. So, if you are holding banking stocks, you may suffer loses. That amount will depend on what level of involvement your banking stock participates. However, if you are holding stocks of MacDonalds or Coca-cola, the impact to your stock will be minimal. You may see immediate price down but the prices will c...
Post a Comment
Read more

Patience is important

Recently, I had missed out the opportunities to make a few thousand dollars due to impatience. In each of the 4 cases, I sold out just before the break out because the counters refused to move while I was holding over a week. That cost me to missed out over $6,000 of profits. I noticed that I had unfounded fear of tying down my capital and not being able to fully utilizing my capital for additional gains. However, the true fact is that I have 75% of my capital sititng there and waiting. So, there is no compelling reasons to sell my existing positions since they had not breached the stop loss point. This is an important lesson to learn. Be patient and committed. Trade with more conviction then trying to hit-and-run. Quote Eckhardt did not want the Turtles to worry about linear decreases in their accounts. The slightest exponential curve from a big trend would eventually surpass the steepest linear curve they saw while losing. Discipline, money management, and patience were the only way...
1 comment
Read more