Investment Strategies that Emerge After Decoding Wall Street Propaganda

Investment Strategies that Emerge After Decoding Wall Street Propaganda via CSInvesting

Agenda

I. Define Propaganda and Why It Matters

II. Outline Steps for Decoding

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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

See full PDF below.