Finance Thread

I've had it with fundamentals. Google's profits have grown exponentially in the past five years and their stock hasn't done jack shit.

Price isn't based on fundamentals or technical analysis, it's simply public perception and what someone else is willing to pay for it. So fuck analysis.

I'm borrowing a strategy developed by Soros and test a trading strategy based on psychology of traders. Hell, it should be easier to predict public perception than next quarter's earnings. Hopefully more successfull as well.

 

I'd never say that expectations are not important and sometimes these can also become self-fulfilling. In the end however it comes down to value creation. Google's stock incidentally has risen from about 100 to the low 500's now. I wouldn't really call that jack shit over a 6 year period. It doubled more than twice over that period, that comes down to > 20% appreciation p.a. <a class="postlink" href="http://www.google.com/finance?q=NASDAQ%3AGOOG" onclick="window.open(this.href);return false;">http://www.google.com/finance?q=NASDAQ%3AGOOG</a>, P/E at the moment is in the 22,81 that's fairly high. This means that it is either overvalued or that it is expected that its price will increase over time, ie. a growth stock. The latter seems to be your conclusion.

If you want a good recent book on valuation I'd recommend McKinsey on Valuation. They just came out with a new edition this september.

 

It was also in the 500's 5 years ago, so yes, I would call it jack shit. Especially since profits have grown 50%+ since then.

If the price of the stock isn't growing with profits, I would say fundamentals aren't strongly related to the price of the stock.

 

23rd of september 2005 the price was 315,23. First time Google broke 500 was 24 november 2006, the second time was june 1 2007. Up till december 2007 Google's stock was rising significantly, then we hit a little recession. Those things tend to affect profit expectations and shareprices dropped as GDP contracted. Currently we see lowering inflation and high unemployement and we're still waaaay below trend for GDP growth. Given these fundamentals I wouldn't be that surprised to see a bit of stagnation. There's little to be cheerful about as the economy is still basically stagnant when we look at the growth path before the recession.

 

Which goes back to my orignal post, profits should accurately reflect a company's performance- not the overall outlook of the market.

If Google's stock price has not risen relative to it's profits, fundamentals are worthless.

 

You stated that profits had grown 50% since 2005. Google's shareprice has increased with 200+ points from 315 to 530 now. I don't really see your point. And while we're on it, yes profits are conditional on the performance of the economy. I don't really see why you would think that they're somehow independent of the real economy. Profit expectations are affected by income and we just had a major drop in income from which we haven't recovered and somehow Google's profit expectations would be immune from it? There's virtually no industry with that kind of demand inelasticity. Not only that but you expect that given a drop in income, Google's profit expectations should be higher? That would imply an increase in demand in a time when income has decreased.

Another point is that a P/E of >20 implies less than 5% return on investment p.a. Now it's likely that Google will do a bit better than that, however that still implies that a part of its growth is already priced into its shareprice. Fundemantal analysis simply means extrapolating expected profits. These expectations can be based on past profits, the state of the economy, but usually both as they're interdependent by definition.

I honestly don't see how you can say that fundamentals are worthless when they point towards the stagnation we're in fact observing.

 

So a $50 share of Google today is worth the same amount 4 years ago? Actually less due to inflation.

Yet income statements continue to grow?


I must be missing the fundamentals in that.

 

You must be indeed. In the end though if you believe what you do, you should put your money where your mouth is. Personally I wouldn't as I think there's more uncertainty in the market now than I am comfortable with. I sold my portfolio somewhat more than a year ago now as I expected stagnation and if there's no direction in the market the money you lose is worth considerably more than the money you earn. The beauty of the market though is that you can earn money exploiting my stupidity and the stupidity of those people that too believe the market isn't going anywhere.

 

I love how you can turn an argument on its head, 180 degrees against my original point to wrap up your point.

Where did I say I thought the market was going anywhere? In fact, my statement from the first post was that Google's stock hasn't done "jack shit" in the last few years even though profits continue to grow. You argued this, then went off on a tangent about stagflation.

So to wrap up my point, fuck off.

 

I never said you did. You stated that based on the fundamentals the market should be going somewhere and that therefore fundamentals do not determine price. My counter to that was merely that given the fundamentals this is exactly what you would expect and something I in fact did expect to happen. Stagflation by the way is the phenomenon when inflation increases without a corresponding increase in economic growth. This is a supply shock phenomenon. I stated the opposite. Inflation is decreasing and the economy is stagnating (unemployement remains high). This is a demand shock.

To recap, you stated that Google's shareprice had not increased and their profits had. I showed you that it in fact had. You stated that Google's stockprice was at 500 for over 5 years, I showed you it wasn't. You stated that fundamentals should point towards an increasing price and that therefore you had had it with fundamentals. I showed you that given the current fundamentals this is exactly what you would expect. Now you state that I argued stagflation whilst I stated the exact opposite (demand shock vs supply shock).

You get facts wrong, you get the analysis wrong and you get terminology wrong. I don't know, but from what I see I don't have the feeling that you know what you're talking about. I was trying to be polite about it, and referred you to a book to read up on it, but if you want to be blunt we can be blunt.

 

Does anyone here have a good website for monitoring convertible debt issuance by public companies? I am trying to do some research and I haven't found a great aggregator of information.

With regard to Google, it seems like multiple contraction simply because the stock can't grow 25% per year in perpetuity. I mean maybe it can for awhile, but at some point something will give. That's probably why it stopped trading higher and higher. Having said that, it's still trading at 6x sales, 4x book, and 13x EV/EBITDA -- So not cheap across the board by any means. Of course there are myriad reasons for these higher multiples, but P/E multiple doesn't tell the whole story... The other thing I am sure people are worried about is, what does GOOG have past search? Maybe phones etc, but they need to find more growth engines with billions of dollars in potential revenues. Not the easiest thing to do.

 

For those of you looking to purchase a home using FHA financing or anyone looking to refinance and existing FHA loan some new guidelines have come out.

As of October 4,2010

Up front MI will decrease from 2.25% down to 1%.


Monthly MI will increase from .55% to .90% annually for LTV's > 95%.


Monthly MI will increase from .50% to .85% for LTV's < = 95%.


What that means to you is that on a purchase price of $200,000.00 with 3.5% down and financed upfront MI (mortgage insurance) your loan amount will be lower

So the old way your loan amount would be $197,342.00 and your principle and interest and mortgage insurance payment would be at 4.5% for 30 years, (999.80 for principle and interest and 88.46 for mortgage insurance for a total of $1088.36)

With HUD's infinite wisdom and only having the goal of helping the consumer the new way would be a loan amount of $194,930 your payment would be (987.68 for principle and interest and $146.20 per month for mortgage insurance for a total of $1133.88)

Way to go HUD

 

I guess I'm here for some career advice--where to start out in finance to end up in a position I'd like to be in. Sorry in advance for the long post. I appreciate all of the help that you guys can give me. I'm not posting looking for a job from anyone anywhere, I am just looking for some honest advice.

Where I'd love to be (the only place I'd like to be) 3 years into the workforce: At a fund that has a track record that (loosely) follows Ben Graham's work on value investing. It is tough to find net-nets now, but I think most people in finance understand what I mean. E.g. Graham-Newman Corporation (I know it's gone), Schloss' partnership (it was only Walter and Edwin, but an example of the style of investing I believe in), Longleaf Partners, Chieftain Capital, Wesco Financial, GMO (Jeremey Grantham), Sequoia Fund, Oaktree, Baupost Group (Klarman), Gotham Capital (Joel Greenblatt), Scion Capital (Dr. Michael Burry, if he still had this fund any more). I am just trying to give you guys an idea of the type of investing I believe in...all of these fine investors have different techniques they use, but they all share the common theme of finding value in whatever security they own, and trying to buy cheap. I can also list books that emulate the type of philosophy I believe in, if someone wants to PM me.

So here's my dilemma: recruiting starts soon on campuses across the country (I am a junior, I am looking for a junior internship by the way--I am just talking long term).. My campus is fortunate enough to have some financial institutions coming this year. I would love to work for one of these above mentioned funds, but surprisingly funds that A) preserve capital and B) generate out-of-this world returns do not have a need for 22-yr old college grads. I was just as shocked as you when I didn't see a "career" page on Baupost Capital's homepage....

I anticipated this occurring, but this leaves me in no better position. It still leaves me with applying to jobs that do not necessarily have me doing what I am passionate about (finding cheap, unloved, bottom of the barrel stocks). Currently I am looking at many positions, the usual Bulge Bracket banks hire each year for internships for positions like Investment Banking and Equity/Fixed Income Research. There are also some T. Rowe Price positions and such at larger mutual funds. So I realize that I probably am going to have to start my career at a bank, and not a fund (excluding large mutual funds).

That being said, what is the most worthwhile starting position that I can take up to eventually land my career at one of these funds (or funds with this investment strategy)? IBanking is always being thrown at me as the best, most open opportunity out there, but frankly, I am not bettering my skills in what I am really passionate about when I am working 100 hours a week at throwing together a pitch book on a deal that my company might not even secure. Don't get me wrong, IBanking is a needed profession, I am just not passionate about it. And I do not mind working long hours at all--in fact I wouldn't even really consider it work if it was doing something I liked to do anyways.....

So to sum up, if someone could point me in the direction of where I should be looking to start my career to end up at a shop that I would honestly believe in, I would appreciate it. A viable alternative is having one of you guys donate some money for myself to start a fund. I wouldn't mind that at all.....

Thank you again for the wonderful advice guys.

 

If that's what you really want to do, IB is the best place for you right now.

Putting together a pitch book and working your ass off don't seem like they're bettering you directly, but they are putting you in the best position to get where you want to be. For what you want to go into, consider it like a college degree - largely useless towards doing the work, but wholly necessary to get your foot in the door at all.

Some people will probably tell you that doing IB isn't a requirement, and technically, they'd be right. Smart people with good ideas will more often than not find their way to successful careers of all types. But if that's what you really want to do, IB is your best bet for making connections and learning the kind of skills you'll need to become useful to people the likes of which you've described.

If you end up with several different offers from different banks, ask about where people typically go after they do their two years. A lot of PE shops, funds, etc. will have feeder banks they typically recruit from. If you can find a place you like, and can knock it out of the park for a year with a bank they know and have gotten good people from in the past, you can increase your chances of getting a job there afterwards.

 

Thanks for the quick reply--this is definitely helpful. I have friends who have said that recruiting is already starting for very qualified candidates at some PE firms (by already, they just started working this summer, they are in their first year).

What kinds of risks do I run by looking for Equity Research or Fixed Income Research instead of IB? Many people said that it closes doors very quickly (no PE shops really look at Research apparently, but then again I am not looking for PE shops). But would I be doing more of the work that I like (valuations) by heading into research? Or is it still going to be half-assed--for example, would I have to make quarterly predictions for institutional investors, when in reality I'd like to look at things more long term (3-5 years)? That's probably rhetorical as institutional investing is mostly a short term horse-derby (not all, not all), but am I going to really be doing any of the work that I'd really like to be doing?

If not, I mean I guess I should just go the IB route like you said, kick ass/take names for a year, and then find a place where I can do what I enjoy (like you just advised me to do). Would it hurt to apply to research at the top financial institutions though (JPM and Barclays were apparently top of the list according to Institutional Investor), or should I just apply for IB at all the big names?

There is probably no cut and dry answer for all of this, but thank you for the help. It's kind of frustrating hearing that I'd have to take yet another year until I can start doing what I'd really like to do. So it goes.

 

Got accepted yesterday to my top-choice MBA program. I easily could have gotten into schools that are higher ranked/more prestigious, but the combination of cost and flexibility of this one makes it more attractive to me. All of that said, I haven't committed yet. Do we have any MBAs on this board? Talk to me about the value of the degree to you, the pitfalls, the advantages, etc.

 

Anyone out there knowledgeable about securities ratings? I could use some help with something. Basically I'm trying to find info on (ie identify) specific mortgage backed securities from the past four years that were incorrectly given high investment grade ratings.

Hit me up if you can. And please excuse any ignorance on my part. I'm doing some research for work and know very little about finance. Thanks in advance.

Sent from my PC36100 using Tapatalk

 

Assuming you qualify for the new higher mortgage, yes, you can consolidate the loan and current mortgage. The bank will blend the old balance and the new addition and create one new mortgage. The rates will also be blended either up or down depending on current vs original rates.

 

All of them.