ASK OL' FRED
FRED'S
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Pierre wrote:
>First, Could you please explain me why the objective of maximizing stock price and maximizing earnings per share differ?
>Secondly, How does beta as a measure of risk differs from variance as a measure of risk?
>And finally, why the price of bonds with lower coupon rates will be more sensitive to changes in interest rates? Thank you in advance.
Dear Pierre,
Three excellent questions. Maximizing earnings, ultimately will improve stock price valuations, the textbook definition of stock valuation being "the discounted FUTURE earnings stream." Of course the implict discount rate and term of future earnings are left undefined for any given company... but THAT is another whole issue. There are several ways a company can achieve this, increasing cashflows/revenue in excess of increased costs (ie. the traditional sell more while reducing per unit costs approach), or increasing the financial leverage of the company (borrowing more where the cost of doing so reduces the cost of funds to the company, or buying in outstanding shares, thus driving up the EPS ratio). There are several kinds of accounting games that can also be played but these generally come back to haunt the perpetrators, witness Cendant and Bre-X and several other recent "earnings restatement" stories.
In the CAPM world, Beta is defined as the variance of the stock price in relation to some broad market index, often the S&P500. The problem with this is what is really being defined here is a measure of dispersion around a central tendency, both above and below. Risk, if you really think about it has nothing to do with HIGHER prices (unless you are short) it has to do with losing money. Simply knowing that a given stock is more volatile may be helpful in weathering the price moves, but less useful in knowing what a good price to pay is. What is more usable is the idea of downside risk vs. upside potential. Dr. Frank Sortino and others have done good work in this area from an academic point of view, but the blocktrader forecasts on blockdesk.com are the most readily obtainable and useable explicit measures of this comparison.
Ok, lastly the bonds. Price changes for bonds are a function of both the maturity date and 'effective duration'. Duration being a measure of interest and redemption of principal cashflows discounted back to net present value. Also present is a 'convexity' function, best thought of as the acceleration in the rate of price of the bond given a unit change in the interest rate, (roughly Gamma if you are familiar with options).
-Ol' Fred
Subject: Re: Kroger reward:risk shift on no new news
obthomas wrote:
>The
other day like as recent as early last week Kroger KR showed up as much
potential for reward and very small risk on 
's
risk reward chart. Today I note that the risk reward ratio has moved significantly
to higher risk and low reward. What gives? There has been very little
news other than restructuring loans and a reiteration by Merrill Lynch?
The stock price is really quite stable. Earnings announcement next month,
To me still looks like high reward low risk stock near its 52 week low
sitting on 25 support and just broke its down trend. Validate 's
take on this for me. Thanks.
Dear Ob,
Excellent questions. A few points to remember, The market is a discounting
mechanism. Expectations of future earnings/cash flow are what drive the
stock prices. And those expectations are subject to change. When they
do, the reasonable price range moves, and so the relationship of price
to expectations shifts as well.
Reward:Risk charts are a measure of those future price expectations vs current
price. It is precisely the ability to measure those expectations changes that
gives charts from Blockdesk their value. Normal price/volume charts can't
tell you this, just where prices/volumes have been in the past.
Rumors of acquisitions, dilution of earnings, can have some impact. Unfortunately, analysts' pronouncements, are also subject to some internal political influences, and it wouldn't be the first time the retail public got left holding the bag.
-Ol' Fred
Subject: Re: 10-Stock Trading
Portfolio
Ekwatee wrote:
> As distinguished from a 'long-term portfolio', the holding period in
a 'trading portfolio' is normally expressed in weeks or months. Forecasting
ensuing price action borders on the impossible, nevertheless, the success
of a stock picker rests squarely on his ability to predict future price movement.
It is vital to understand notwithstanding that no stock is immune to downside
risk, therefore, no stock should ever be purchased without a sell discipline.
As investors we have absolutely no control over price movement, but have complete
control over trade timing.
Dear Ekwatee:
I agree that trying to forecast tick by tick price action is probably futile.
And not necessary, if you understand how to trade ranges, which implies a
sense of high vs low. Trade timing follows directly from knowing what
high/low is.
Can small investors control price movement? No, but there are players who
do influence it. They're called block traders. Like most markets, volume
drives liquidity, and the block guys drive the volume.
I use 
to get a good focus on timing. They focus on what
the block guys are up to, you might want to take a look at it.
Subject: BUY, BUY, BUY but not MOT(if you want to make
$$$)
perho wrote:
Fact: the cellular manufacturing
and systems business will continue to have the steepest growth curves in global
terms for the next decade at least. Fact: MOT is out of this growth picture
for at least 3 to 5 years. Those of you who think investing is a matter of
religious loyalty, hang in there at the side of your mortally wounded MOT.
Those who want to catch the growth curve, tune in to the Nokia phenomenon.
Dear perho:
I like facts, I also like to know where I can buy Value. I don't buy on religious
loyalty, but do buy Value. While we're considering the cellular business,
let's add QC0M, ERICSY, and SNE to the mix. It's good theme, now which is
the real value here? Or is there more than one good value here? And what does
the Block trading community think about them?
The best source to answer those
questions I know of is.
Their R:R chart lets you plot upside/downside forecasts for all of
these stocks on one chart.
Hey, after 20 years in the market one of the most reliable things I've learned
is: Just about the time "everybody" writes off a stock for 3 to
5 years is when I want to start really looking at it. And when "everybody"
has to own it, might be time to lighten up a bit. Either way, it helps to
know what the Street's real smart money has riding on it. You might want to
see what they think about NKA.
-Ol' Fred
dmn45 wrote:
Any thoughts on this? MOT seems
to be holding up pretty well with all the negativity, how come we aren't in
the tank?
Dear dmn45;
Well, there's an old saw on the street about, "Those who know don't talk."
Actually they do talk, but very few people know where to listen. Sometimes
all the blather is just cover for the smart (in the know) money to clean up.
Rumors and stories get started somewhere by somebody. My experience suggests
that often the real action is contrary to the story.
Ol' Fred
Subject: market movers
When 98% of the float is controlled by institutions, perhaps it might be a good idea to know what they think about the price. But how do you get them to tell you?
If you want to find out about those perceptions there is a site I've been using to measure that very concern. It focuses on block trading price opinions, this might be a prime candidate for you to check them out on. It can't hurt to know what the big guys are thinking can it?
Marlee wrote:
Given recent drop in price what is your long and short time opinion on Saville
Systems (savly) and Ligand Pharmaceuticals (lgnd)? Thanks.
Dear Marlee,
It's hard to know where to begin. Saville is in a business that should be
benefitting from the merging of internet and other communication bandwith
providers, yet the stock has been in free-fall over the past year. The financial
underpinnings look ok (reasonable ratios, return on assets, cash in hand)
so if this is a consideration for a new purchase, it might be worth considering,
with the caveat that stocks that drop into single digits rarely get out of
them. In other words, don't bet the rent money on it. Ligand suffers from
a common problem in the Biotech area, a cash burn rate that is now unsustainable,
even if they can float some new loans/equity. Any new offerings will make
some ugly balance sheet numbers even nastier and with sales crumbling, I'd
be inclined to pass on this one.
jp wrote:
What do you think of WNI (weider nutrition) and DGN (data general)?
Dear jp,
While I have heard of Joe Weider, and several of his related companies, they
really don't come up on my radar screens very often. The float is too thin
and I have concerns with stocks priced under $5, they are down there for a
reason, and it isn't usually a positive one. Not to mention that they are
paying out more in dividends than the topline earnings number. 50x earnings
for an unsustainable dividend? Nahh, I think I'll pass. As for DGN, it's become
a second tier hardware remarketer, (they buy components from other OEM sources,
slap it together with an ok O/S and put their badge on it.) They used to compete
with DEC, Tandem, Wang and IBM (in the AS/400 - SYS36 range) now trying to
get into the highend NT market, still viable for small data center, academic
and divisional computing needs. Priced just about my bottom limit for stocks,
maybe worth a flyer, but I wouldn't put a lot of cash into it, UIS might be
a better core holding, in the same target areas (NT, mini/mainframe type systems).
Mills wrote:
Dear Fred,
What do you think
of pepsco? I have about 2000 shares i have been buying over the years through
payroll deduction and also have stock options it seem to be sitting still
for the last year should i put it in something else or keep buying im 46 years
old and would like to retire some day thank you for any help.
Dear Mills,
While the policy of blockdesk.com is not to give specific investment advice,
I will offer you some general guidance based on a single assumption. Which
is, that you have other investments as part of your retirement planning. PEP
is a reasonably high quality company that has enjoyed market levels of performance
over the years. Part of what seem to be holding it back here are costs of
launching several new products and spinning off the restaurants. We will have
to see how the new products fare with the customers, and the stock will respond
accordingly. Now, if this is your sole investment, I offer the following caution:
It is generally a bad thing to be dependent on a single stock for your portfolio.
This is called lack of diversification. I would encourage a talk with your
benefits manager about what other investment options beside company stock
are offered. See if they offer SPDR's which are traded on the AMEX (tkr:SPY).
This is an S&P500 index trust, ie. a diversified portfolio of 500 stocks traded
as a single stock, like a mutual fund but without the management fees or yearly
distribution headaches.
Mark wrote:
Fred: this company's chat board is filled with employee gripes, I'm gonna sell.
Dear Mark,
Some gripe lists on message boards are worth paying attention to. They can signal areas that management may not want to or are failing to deal with adequately. Most of the individual comments though seem to fall into the "i hate my boss...coworker...life" type of rant. When the negativity gets really high though, is when I really start to pay close attention, because the stock if not cheap now will be soon. The other thing I need to know is what are the institutional investor expectations, they bring the big volume that moves the prices. I-watch and www.blockdesk.com are two good sites for keeping up with the institutional view.
notfooled wrote:
I think this stock is going to double by years' end, all the analysts agree. My predictions are always correct. That's all you need to know.
Dear notfooled,
Well, now that's reassuring. After twenty years in the investment business, in stocks, bonds, futures, options or currency trading, I have never met nor known any CREDIBLE source of information that was ALWAYS right. In my experience, claims of 100% accuracy are a dead giveaway that the analysis is incorrect, incomplete and usually both. Even my most reliable tools aren't perfect, but better than most and that is enough to keep me using them. Price predictions can get made by anybody, on anything. The real issue is credibility, does the predictor have/deserve it? Street 'research' is necessarily biased by investment banking considerations, no matter what anybody says to the contrary. Most traditional T/A is so much playing with numbers, mostly delusional because it cannot quantify the differences between market participants, the playing field isn't level. Moving the stock price around is a function of volume and $. Especially with multibillion market cap companies. So, what to do? Watch the institutional block trades, which is still over half of the total share volume of trading, on a tiny fraction of the total number of trades. www.blockdesk.com offers a perspective on the near future expectations of the biggest players in the game.
split99 wrote:
they will split the stock next month, buy! buy!
Dear Split99,
Call me old fashioned, but I don't buy off on the notion of constantly splitting stock. At some point the dilution of earnings catches up with you, and heaven forfend, if the market/economy should go into a protracted decline, you'll have some wonderfully engraved TP. Now this is not to say that splits have no place, they do, but to constantly debase the capital stock is a rather insidious form of inflation just as dangerous as printing too much money.
magi wrote:
you can't keep luring new customers with a 3.9% APR and then 6 mo. later when the rate is jacked up to 15% -lose them to someone else who will accept their transfer of debt with an "introductory rate" of 3.9% for another 6 months. As long as this practice is permitted, the enormity of credit card debt in this country will continue to escalate!
Dear Magi,
Hmmm, it's considered a prudent move when corporations constantly refinance debt to lower costs, but not when families do it? Joe Sixpack has gotten a heck of a lot smarter about finance in the past few years. BTW, you do remember there once used to be usury laws in place limiting credit card rates? Since they were "temporarily suspended" by Jimmy Carter (!!) those lending spreads have become huge profit centers, if Joe and I can avoid those charges we will, wouldn't you? Now as to the moral hazard argument, I don't disagree, but consider the examples of moral rectitude provided by the current White House residents...
Warner wrote:
How come my fills always seem to be at the highs of the market day?
Dear Warner,
Your broker carries inventory. When you make a trade he looks at his inventory cost and compares it to the market price. Guess which you get? Right, the higher of the two. When he needs inventory, he buys it in block trades. This is the essence of "proprietary trading". Want to have a better idea of what the institutional price ranges are? www.blockdesk.com can help.
pharma wrote:
Daytraders are selling, the stock's in the tank. Sorry to annoy you with this fact.
Dear pharma,
There is no annoyance to be taken here, even if your statement is true. Why? It's called "market cap". Do you really believe that a few daytraders/small shareholders/shortside players really can move the price? Not a chance, they haven't got the bullets. Now you want to know what does move prices? Yep it's your average institutional block trade of 100k shares. Think about it, that's typically a $4-5 million trade, know many daytraders with that much TOTAL capital? www.blockdesk.com and I-watch will give you the perspective on what the institutions are up to, trading volume = pricing power and the little guys don't have it. I do get a small ironic kick out of watching these "stock manipulator" discussions. Why? First let's take a small reality check: look at the market cap, $50 bln+, look at avg volume of trading, 3 million shares/day. Another way to think of it is avg daily VALUE of trading, $250 million. Does it make any sense at all to believe that even a concerted group of small day traders command enough leverage to offset what is clearly an institutionally dominated stock? Not even a ghost of a chance.
don wrote:
Institutions buying? all that means is institutions is gonna take a bath. Can anyone read a chart? head and shoulders top way below 50 and 200 day MA, short term target $40. T/A is the only way to go.
Dear Don,
Just what "technicals" are you looking at? Do you really understand how to interpret them? Small time traders don't/can't move stocks the size of F, GM or XRX, but your average 100 to 250,000 share block sure gets the specialist's attention. Volume = power and knowing who's got the juice beats any oscillator or chart pattern. And yes, institutional traders do look at charts, but their evaluations might differ from yours.
moe wrote:
How can you ignore corporate insider actions? They are the real market insiders.
Dear moe,
144A/13F sales mean even less now than they might have once, and the time lag involved limited investor usefulness years ago. As more and more of executive pay is in the form of stock grants and options, in order to unlock that value they have to do what? Right, sell shares. So, a steady procession of small sales as a percentage of total holdings probably has little or no information content. Of much more timely and useful value is seeing how institutional holdings and expectations are changing daily. Over half of the NYSE volume comes is block trades, www.blockdesk.com knows how to extract market professional value judgements from those trades.
SteadyOne wrote:
Forget market timing it can't be done well enough often enough to be useful.
Dear Steady,
What's worth more from investing in now? Time-weighted rates of return are how market pros keep score. What's a better return, buy and hold for 20% a year or buy and sell for 10% in a few weeks, several times a year? Arithmetically it's obvious, but one practical answer may be "it depends on the time resources of the particular investor." How much time you can devote to research may have a bearing on your choice of investment style. www.blockdesk.com can help you reduce that time commitment, no matter what your investing style is.
Subject: Re: HELP!!!
prdesn wrote:
What Program Shows Source of Block Trades????? ANYBODY who could give me a clue what this program(s) might be, I would be tremendously grateful. Kindly address replies as follow-up posts to this newsgroup, or e-mail me at:
If your interest is in tracking particular institutional accounts, unless you can hack into instinet, autex, or SIAC, I know of no way to get that data. BUT, if what you are looking for is what the block trading community as a whole thinks about stock prices,
can
be of considerable help in watching how the wholesale market makers view pricing
of stocks.
