Posts filed under “Analysts”
My Sunday Business Washington Post column is out. This morning, we look at earnings, analysts forecasting track record, and what that means for stock valuations if we have a recession.
I actually like both headlines today: The online version is Market action a ‘conversation’ between investors very much sums up a philosophical view I have held for a long time. The print version cuts right to the chase: The investor’s dilemma: Earnings, valuations and what to do next.
Here is an excerpt from the column:
“To make sense of this, let’s look at a stock price relative to a company’s earnings — the key to understanding valuations. The slowing economy can help explain stock prices over the next year, as well as your queasiness.
Start with a basic method for valuing stocks. To grossly oversimplify, what you pay for a share in a company is based (in large part) on a formula called “earnings multiple.” How much you should pay today is a function of how much the company is likely to earn next year. The Wall Street analysts who create those earnings forecasts put a multiple on it, lets say 15X and — voila! — we get a fair estimate for what prices stocks should be next year.
What could possibly go wrong with that? Plenty. Three major things: estimates, multiples and forecasting error.”>
After last week’s huge Apple layout and art work, this week, I am relegated to a simple column (at least I’m next to a great piece on Voodoo economists by Steven Pearlstein):
click for ginormous version of print edition
Publishing note: Over the Summer, I filled in for WP’s tax columnist, publishing just about weekly over the past 2 months. After this week, I return to publishing 2X a month. I hope to use the longer interim between columns to focus on investment issues in greater depth, including more research, versus the timely/topical weekly items.
Market action a ‘conversation’ between investors
Washington Post, September 11, 2011
“Wow, that was a sobering meeting.” -Western Asset Management, Stephen Walsh, CIO > Did S&P leak US credit downgrade info to specific bond firms in advance of it occurring? That is the subject of a WSJ article today, and should be a question the SEC is investigating: “Standard & Poor’s Corp. officials held private meetings…Read More
Today’s Dick Bove wannabe is the once respected Paul Miller of FBR Capital Markets & Co. In a note to clients that revealed a stunning ignorance of fiduciary and legal obligations, Miller said FHA, FHFA, and GSEs were “acting in their own self-interest as opposed to that of the broader U.S. economy.” The details of…Read More
I always laugh whenever I hear anyone say eejit hack claim “No one saw it coming!” This video — featuring a thinner, less gray version of your humble blogger — discussing the coming housing storm in 2005 gives lie to that claim. The advice: Sell banks, Sell Home Builders, Sell Home Depot and Lowes. Video…Read More
Slap your best-guess multiple (trend growth?, slow growth?, no growth? contraction?) on 2012 EPS estimates and decide for yourself where fair value is for the S&P. Of course, beware Farrell’s Rule #9. Set an alert to revisit this post one year hence. >
Forecasting is a rough gig that often confounds even those who do it for a living and generally do it well. Situational awareness (see e.g., this and this), on the other hand, is all about knowing “what you need to know not to be surprised,” and having “the ability to maintain a constant, clear mental…Read More
Opinion: An excuse for slashing entitlements Matt Stoller August 9, 2011 06:37 AM EDT Politico.com ~~~ With all the talk of Standard & Poor’s downgrade, no one mentioned that the ratings agency’s business model is, essentially, lying for money. Instead, many politicians insist that the S&P downgrade is the reason for the market turmoil —…Read More