Investment Strategies that Emerge After Decoding Wall Street Propaganda via CSInvesting
Agenda
I. Define Propaganda and Why It Matters
II. Outline Steps for Decoding
III. Present Emerging Investment Strategy
Part I: What Is the Propaganda and Why Does It Matter?
“…transfer property from the hands of many to the pockets of few.” from Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor
What Is The Propaganda
Reported Earnings Are Reliable
- Quarterly Earnings Conference Calls Provide Adequate Information
- Earnings are a reliable measure of profitability
Earnings Growth Drives Valuation
- Price-to-earnings and other simple valuation techniques are accurate
- Market cares about this quarter’s earnings more than anything else.
Wall Street Wants To Help Investors Make $
- Research aims to help investors make more informed decisions
- Brokerage services help create wealth for clients
- Spitzer Settlement has been effective
- Wall Street research coverage is not-conflicted
Define the Audience for the Propaganda
Speculator
“If you are a speculator, your decision to buy or sell is based on what you believe about the near-term direction of price.” – Ben Graham
“…speculation is the activity of forecasting the psychology of the market.” – John Maynard Keynes
Vs.
Investor
“If you are an investor, your decision to buy and sell is based on the underlying economics of the stock you own.” – Ben Graham
“Investing is an activity of forecasting the yield on assets over the life of the asset…” – John Maynard Keynes
Jump On the Bandwagon
Proof That There Is Lots of Speculation
Shorter Holding Periods for Stocks
- Until mid-1960’s average holding period was 7 years.
- Today, average holding period is less than 1 year and annual portfolio turnover is more than 100%.
Major Reactions to Quarterly Earnings
- Stock prices make large moves in response to earnings surprises.
- Suggests that long-term cash flows are less important.
Amateur Individual Investors – growth market
- Schwab, TD Waterhouse, Scottrade
- Day trading
Media – growth market
- TV: Mad Money, CNBC Squawk Box and Squawk on the Street.
- Print: Wall Street Journal, Investors Business Daily, local newspapers.
- Web: Motley Fool, The Street.Com, CBS MarketWatch
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