Have a question in mind that you think is so dumb you’re embarrassed to ask it? That’s what we’re here for today!
This bonus post was inspired by a reader who wanted to know “where to ask a dumb question” here on Stock Gumshoe… and while his question was not actually stupid, and I’m happy to see questions pop up in our comment threads anywhere on the site, I thought it would be a great idea to open the floor and be more welcoming for the shy, the embarrassed, or, yes, even the uninformed.
So this is a no-judgement zone… smart people do things we’d call “dumb” all the time: Warren Buffett didn’t invest in Google in 2004, Albert Einstein married his cousin, and I just had to go back and double check that I didn’t call him Alfred Einstein (which I’ve done before, in print). So if you have that question that you can’t ask your stockbroker or your brother-in-law or Twitter without feeling like a dummy, let ‘er rip by submitting it below. I’ll be nice… and we might all learn something.
And yes, the SEC is always watching, so I must remind you that I can’t give personal investment advice… but I’ll try to share whatever opinion or answers I can provide to any investment-related question you’ve got, though if we end up with a lot of them it might take me a little while to answer thoughtfully.
So please, let your questions fly using the friendly little comment box below… and thanks for being the best readers in cyberspace!
(I will moderate the discussion just to make sure we don’t get too much profanity or offensive stuff, or personal attacks, but I’ll use a light hand — you can be mean to me if you like, just don’t be mean to any other participants.)
How should we structure our portfolio’s for the next year? What types of investments would be appropriate now?
I don’t know how you should structure your portfolio. I’m structuring mine with an above-average allocation to cash because I don’t see lots of compelling “back up the truck” opportunities, hedging a little in case we have a catastrophic crash, and buying small bites of long-term investments that look worthwhile from time to time.
The most compelling forecast I’ve seen is from David Rosenberg, who often speaks at conferences — I took some notes from his talk at the Grant’s Conference back in April, here’s an excerpt of my notes:
I don’t know if he’s right or not about the Fed bringing a recession by next year, but I find the argument compelling… and it’s a worthwhile thought exercise to think about what the market would look like if we’re going to see interest rates spike up and then fall back down, and a recession and possible market drop of 20%… and he at least went out on a limb and suggested some specific investments that tend to do well “late in the cycle” before the economy turns south.
I’ve reviewed material that implies the stock market is rigged. What’s your opinion.
Depends what you mean by “rigged” — it’s rigged to inspire action and drive trading, and the media is biased toward cheering for rising markets and covering lurid stories. That means the tendency is for the market to be a cash-consuming machine that inspires investors to buy high and sell low, which is the human tendency anyway… and there are legions of advisors and brokers and commentators who will push you to churn your portfolio, generating fee income or just trying to keep the “animal spirits” of greed-seeking intact.
I think the marketplace is rigged to inspire action, even though inaction is often best for us… but it’s not rigged to go up or down according to some central command.
Recently read Zack’s book on stock screeners and was wondering if there are any fundamental indicators that you consistently rely on and if there are any unusual ones? I always defaulted to P/E and growth rate but am starting to seek out others that can help in the selction process. Thanks for all the analysis.
Travis – what are your thoughts on the barbell strategy line of thinking? Namely, having exposure to extremely safe assets since survival is the main factor in anyone’s long term success (think gold) and exposure to extremely risky investments with asymmetric risks. Nothing in between. Since I’m pretty young, I have close to 50% of my capital in risky plays with big potential payoffs (speculative plays mostly in small cap resources, bitcoin, etc). and the rest is relatively liquid amongst tangible assets and cash. Thanks in advance!
Generally, I like the barbell strategy of balancing very low-risk and very high-risk investments — but it is important to be honest with yourself about how correlated those speculative or risky things might be, if they all fall at once then you’re (historically, at least) facing a huge opportunity cost by not being in the broad stock market and compounding those 8%ish average annual returns. People often build a portfolio of speculative ideas because they are personally appealing, and it might be that all the things that are personally appealing (for example, gold, bitcoin, mining stocks) get sold off sharply at the same time. Make sure all of your speculative or high-risk ideas are not based on some specific philosophy that has you predicting what the market or the economy will do over the next year or two — you’re almost certainly going to be wrong on the specifics, and most of us will even be wrong about the big picture most of the time. Gold may be “long term safe”, for example, but that historical safety is measured in centuries — it could fall 50% in the next five years, and if it does most of the small natural resources stocks are likely to go bankrupt, so if you’re not careful a sentiment that “gold is safe” could destroy both the safe and the risky ends of your “barbell” in some market environments. Try to be aware of what your assumptions and biases are.
Cash is becoming a better and better asset in the short term, with short-term rates rising and the market at historically lofty valuations, but it’s not historically a good long-term asset.
I am looking to purchase long term call options on CRSP and EDIT. I can only get EDIT options out to Jan 2020 and CRSP out to Oct 2018. How come I cannot get options further out on these stocks?
Where’s the best place to get historical options data?
Are the individuals and companies which sell “tip sheets” subject to any form of regulation in the US?
Yes, but mostly the same regulations as any other publishers. When it comes to the SEC, mostly it’s about disclosure — my impression is that the government will let you do terrible things to people as long as you tell them what you’re doing, and the fact that you tell them in the fine print often means they don’t realize they’re being screwed.
For the most part, the newsletters are publishing investment analysis and opinion that’s protected by the first amendment… the ones who get particularly iffy, in my book, are the ones who also play the other side of the trade and get cozy with the companies they cover, or do “paid stock promotion” in addition to trying to be disinterested analysts. They’ll disclose this (it will say in the disclaimer that it’s a paid advertisement, and that they were paid “$50,000 for investor relations consulting” by the company they’re aggressively recommending), but so many folks don’t read that disclosure or understand that they love that stock the same way that Michael Jordon and Larry Bird loved McDonald’s hamburgers (just as much as McDonald’s paid them to). Most big newsletter publishers don’t do this, they have a great cash cow and have no need to screw over their readers, and the best of them know that happy subscribers and goodwill are a better asset than a quick check from a company… but the little guys and the bloggers are often tempted, I would assume.
What you think about GOLD in ahead this year?
I think I’ll probably keep buying a bit every now and then. And hoping that it doesn’t go up too sharply, since that will be an indicator that the rest of my portfolio is probably getting clobbered.
The presentations and commentary I’ve heard about gold is pretty focused on interest rates and the pressure that a strengthening dollar puts on gold in the near term, and about the fact that gold needs investor enthusiasm to break out of the range it’s been in for a couple years, particularly if Indian demand declines markedly. The $1,380-1,400 level is pretty frequently referenced as a key “resistance” point for gold, and those things tend to be self-fulfilling prophecies — if everyone thinks $1,400 is a breakout price, then they’ll buy it when it gets above $1,400 and the price will break out.
Approx. what percentage of the stocks hyped by these various gurus on the internet ( the ones you put into the thinkolator) actually perform anywhere near their hype. What percentage are losers? Matt M
Check Travis’ answer at 11:48 AM above, where he references http://stockgumshoe.com/tracking
What is the “internet of things” that Paul Mampilly keeps talking about on the internet and which stock is he referring to?
That’s his STM pitch, commented on that above.
What is zack scheidt’s marijuana beer stock?
copied from my response to similar question on page 1,Yes, Travis of Stock Gumshoe just had a discussion May 18, 2018 “Friday File: “Anheuser-Busch has their sights on one specific microcap marijuana company.” and as stevo says it is HIKU. suggest read more of Travis article.
Hello, I am wanting to know this cannibus company being teased that will supposedly be bought by Anheiser Busch that is being teased
Frank, see my answer to BubbleChaser immediately above. Also some
of my comments on page 3 response to Martin on pot stocks.
Will Aurora Cannabis ever stop diluting the hell out of my shares?
And should we be optimistic long term for Arch Therapeutics?
Oh, and why is Congress allowed to use insider information in financial transactions? (Just kidding. We all know why.)
Only answering question #2 for myself … I am!
Probably not anytime soon, companies are rushing to try to dominate the market with hopes of future profitability — but they don’t have any actual cash flow to speak of yet, so to grow and invest they have to sell more shares (or borrow money, or use their stock as a currency to buy other companies).
I don’t know anything about Arch Therapeutics, other than that it’s developing a product and hoping to submit it for regulatory approval (as a medical device) later this year. I know lots of readers follow it, and it was a favorite of Dr. KSS’s years ago (he was our biotech columnist for a few years), but I haven’t ever speculated on it and it’s very much a “story” stock where you have to guess at the inputs… so you’ll have to make your own guesses about approvability, the size of the potential market, and their ability to manufacture and sell it at a profit and at a price that the market will bear.
When you put a stock limit order, are they visible far market makers (or MM (computers).
Yes, you should assume that any order you place with your broker is visible in the market — at least in aggregate (your order may be combined with many others from the same brokerage, for example).
But on the other hand for the specific case of Trailing stop loss orders, Interactive Brokers assured me they were not exposed to the market until they triggered.
Makes sense. That’s not a limit order, it’s a trigger order (only gets placed after some other event takes place — in this case, the stock falling through a particular price point, at which point it becomes a market sell order).
The system is rigged like Trump says. Ever notice how in the pre and post market when earnings are announced the stock usually rises softly and falls hard at the least bit of “off” news? Ever notice how the price changes very dramatically with even a slightly bad report? WHO is setting these prices when there is minimal trading going on in the after markets?? It’s not a supply and demand issue. Can’t be. Someone somehow has insider information ahead of time before the herd hears about things.
And what good are so called analysts when they can’t seem to accurately predict earnings, sales and revenue? I can do a better job by throwing darts. Who needs ’em? Get lost!
I’m sure there’s plenty of small-time insider trading, but pre- and post-market trading doesn’t mean much of anything… and there’s a lot of fluctuation that happens as investors digest and interpret news, each piece of information does not necessarily mean “this should go up 2%” or “this should go down 2%”, the market is a mechanism for combining all of the individual reactions to company news into one price at any given moment.
And no, analysts can not predict anything very reliably… but we are humans and we are obsessed with trying to predict the future, so they are part of the future-predicting industry. They’re not dumb, and they do a good job of summarizing the mainstream opinion of a company and providing a baseline of financial expectations, in aggregate, but any one forecast is only going to be right if the company makes it and the company engineers its numbers to meet that number (or beat it by a reliable 5% each quarter, a’la Jack Welch at GE).
How do so many publicly traded companies keep operating and afloat year after year.while still having/showing no profits? Is the source a piggy bank from early investors or other similar benefactors? I assume the funds show up on the assets side as cash, but where does it show on the liabilities side?
Most publicly traded companies that are unprofitable are “hope for growth” stocks — and investors are often willing to pay for growth (sometimes way too much). Often, particularly these days, they have abundant cash from either early investors or from the IPO, and as long as the growth metrics remain exciting they will have no trouble raising more equity by selling more shares. Equity doesn’t really show up as a liability on the balance sheet like debt does, since no particular return of capital is promised for equity investors, though certainly the shareholders’ equity numbers are on the balance sheet… but it’s not at all unusual for growth stock investors to focus on that top-line growth number and not worry about “dilution” of new shares or about the dwindling cash balance — as long as the hope for something extraordinary sits just a little bit past the horizon, and the “story” is compelling and provides dreams of future riches, we can convince ourselves to accept really crummy balance sheets and income statements.
apart from all of the technology—————–what makes 1 bitcoin worth anything?????????????
The idea, primarily backed by the promise of artificial scarcity in bitcoin’s case, that someone will think it’s worth more in the future than you paid today.
Just wanted to know if you knew just how important this site and your work are? Countless times when so tired of trying to get that #@&$ carrot that is dangled by so many writers, that you take it all away. Like relaxing in a huge hot water bath. It’s fun to read, as you dissect their glorious writing and show the truth beneath the subterfuge. How much can I give ya, have saved me so much money, not joining every newsletter that dangles that carrot.
Sincerely thanking you every day
William D Edwards
Thanks William! You made my day. Taking away the carrot for long enough to give us a chance to pick up our chin, turn our head right and left a little, and look around (and maybe even think for ourselves) is important, I think.
do you give stock picks to your paying subscribers
I tell them what I’m buying and selling, and why.
I love the part of the world where you live. But, did you freeze your nads this winter?
And, yeah, I’d like to know if Harsimran Singh is mostly bogus. I have his service, have done some of his wacky option trades, profited on some, others not so much.
Yes, this was a bad winter — I ski to keep me sane, but spring was slow in coming this year.
And I don’t know anything about Harsimran Singh, sorry.
Wife and I are just east of Sioux City, Iowa in a small country town. Night of 12/31/2017 it was -23 F, wind chill -40 and night of Jan 1 it was -17 F, wind chill -28 F with highs during the days about -3!!! NOT much snow, tho! Not much skiing near here, anyway and we’re too old to ski.
OK, you win! There’s nothing like those whipping winter winds in the plains.