This is MoneyClub

Featured Article: Buying Into Weakness

“The only actions a prudent investor will take in this type of environment are to leverage short-term market swings in the context of a long-term objective.  For example, the health care and financial sectors are excellent long-term plays.  The best time to buy those sectors are when they are out of favor but at least one-step away from market leadership.  We’ve seen a shift in investor behavior from greed to fear.  In essence, the prudent investor will seek time in the market, yet patiently await opportunities to sell into strength and buy into weakness…  “

Be sure to check out the neat graphic!

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Featured Article: Why Apple Profits Pack Such Punch on BusinessWeek

When you get down to it, picking out stocks involves valuing companies, and the judgement calls involved in that valuation really depend on your opinion of the business decisions of the management. It is of minor importance that you do not have relevant personal experience in that particular line of business; if this were a necessary condition for investing, none of us would be able to sleep soundly if we used any kind of diversification at all! While it takes entire careers to know every intricate detail of firms and management, you as a (potential) shareholder are empowered – even obliged – to pass judgement on the broad strategy of the company.

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Other candidates for today’s feature:

What Do Great Investors Have In Common – post about Financial Philosophy, which is basically why Buffett is so quotable

Why Does Cisco Need More Share Buybacks Now? – more a corporate finance issue; buybacks are often controversial and used for various purposes, as in this example. Much to learn from it

Altercation over Indexation – Great introduction to the fundamental difference between market-cap vs. fundamental weightings in Indexes and the implications for investing. (for the record, I’m firmly on the side of the fundamental index)

Before you click that link, let’s consider what a stock (definition) price should mean to you. It ought to reflect the market’s present valuation of all future income discounted (i.e. taking into account interest rates and miscellaneous factors like the ‘equity premium’, the marketwide flat rate we apply to reflect the fact that shares in companies are inherently riskier than other instruments like bonds). That’s in an unrealistic situation of perfect information; to the extent that we function in a world of imperfect information and uncertainty, we assign probabilities to the financial performance of the company underlying the stock and, ‘A’-level style, compute the ‘expected’ income from the company (never forgetting to discount it of course) and this should be the total market capitalization (definition) of the company. Divide that by number of shares outstanding (definition), and you have a rough idea of what one share ought to be worth.

Many things happen on the day that a company announces its earnings (or profit, to economists); an earnings increase, all things being equal, should greatly improve investor sentiment regarding the long run profitability of the business, and vice versa.

How unequal can all things be? Imagine jubilantly announcing that profits have fallen by 57% to a shellshocked crowd who have put their life’s savings with you (ok I exaggerate). What do you think they’ll do?

Featured Case: Hanes Brands

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Featured Article: Gold by Lance Lewis

“…the ultimate store of value throughout recorded history has been gold, which outperformed just about every asset class in the stagflationary 1970s.“

Today’s sole article is a longish but well-informed and very positively reviewed introduction to Gold (minor bits of history) and some gold plays. The site (Minyanville) has also done a few other interesting bits on gold today.

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Featured Interview: Mohnish Pabrai (Estd. Reading time: 15 minutes)

Excerpt:
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InvestorGuide: Some investment strategies stop working as soon as they become sufficiently popular. Do you think this would happen if everyone who reads The Dhandho Investor starts following your strategy?
Pabrai: Take the example of Petrochina. The stock went up some 8% after Buffett’s stake was disclosed. One could have easily bought boat loads of Petrochina stock at that 8% premium to Buffett’s last known buys. Well, since then Petrochina is up some eight-fold – excluding some very significant dividends. The entire planet could have done that trade. Yet very very few did.
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This interview was also interesting as an example of how the intangible experience earned from a totally unrelated sector/career was (very) successfully ported over, in this example, from the IT Consulting Business to the Value Investing/Mutual Fund world.

Key Concept: ATR

That was all well and good if you would like to dedicate your whole life toward business and moneymaking, but I have also been thinking about what the casual investor – here defined as the type of person with an unrelated career and is involved with investing only to the extent that he wants to grow his savings – needs. Each individual will approach stock selection with his own methods, competencies, and biases, but one bit of knowledge that is always going to be relevant is knowing how to get the best value for a stock you have picked out. Here we can borrow from the wealth of indicators generated by professional traders, and here’s one that has been explained rather elegantly – Average True Range. (Word of advice: This article presumes knowledge of what a stop order is – it’s really a concept very much worth exploring!!)

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Featured Article: Passport to Other Countries by Bill Rempel

This should provide you some international perspective on the various country ETF performances out there, something that is all too few and far-between in the US-centric Internet. The numbers quoted should pique your interest; if they aren’t, you should take a second look at the timeframe this article refers to.

For a more verbose discussion of London’s re-emergence, see what Gordon Brown recently had to say. (3 pages)

Entertaining Article of the Day: Blackstone’s next buyout target is… Blackstone?!?

Featured Article: Coattail Investing - How to let the gurus do your grunt work

Introducing the basic concept of coattail investing if you’re new to it… 

Mr. Arjun, who pens a commodity investment blog under the name Wolf Stone, gets many of his best ideas from Toronto-based Sprott Asset Management. By choosing junior mining stocks from Sprott’s holdings, which are updated quarterly on its website, Mr. Rudra has turned his initial investment of $2,000 into $7,000 in less than three years.

“I don’t know 50 per cent of what those guys at Sprott know. So to have them on my side is an added benefit,” he says. “It gives me the extra confidence that they’ve researched the stock and put it in their portfolios.”

Contrasting Post: When asked to Do your homework, how do you know what the assignment is??

Jim Cramer says, “I can assure you that you will be soundly beaten by professional managers with good track records who are actively searching for good stocks all of the time.”

The prognosis isn’t good, but still the article recommends an hour per week per position; takeaway what you will!

Featured Post: 25 Ways to Reduce Your Re-Investment Risk

Some of the 25 are pretty trashy and frankly unavailable to the casual smalltime investor, but it’s good to have this well-thought out list in front of you as a checklist.

Market sentiment is pretty mixed right now and nobody is confident enough to make any sort of strong predictions for the near term. Bill Cara (yesterday’s feature) is of the opinion that stocks and bonds are on the decline and commodities will be next to peak before markets go into a general downtrend in the fall (no pun intended!).

Bonus Reading: Profile of Carlos Slim, World’s Richest Man at $63b vs William Gates III’s $59b. Isn’t he the world’s greatest investor now?

Featured Article: Bill Cara’s 072007 Market Chat

Written for the uninitiated, it patiently explains the technician’s mentality and tools of trade.

“In technical jargon, equity markets are either range-bound (ie, they are side-tracking) or they are trending (ie, the major market indexes are moving up to a newer trading range, or they are moving down.”

Look also for his Community Chat section at the bottom of his Daily posts if you decide to follow Bill more closely (he only posts once a day and evidently puts in a lot of effort into each post for no discernible reason at all other than pure altruism. If you see his lifestyle, he CLEARLY does not need the money)

Extra-Time Feature: Check out Zapata George’s Lessons (Youtube link) there is a consensus on the blogs I read that this guy is spot on in what he says, but I have an instinctive averse reaction to data presented the way he does it (i.e. arbitrarily and very ripe for manipulation in order to support an opinion). Comments?

Featured Article: S&P 500, Dow close at all-time high

Mr. Swyx will ask you to look at the fine print, and it’s here for your benefit:

 “So far this year, the Nasdaq’s gain of 12.6 per cent has outpaced the S&P 500 and the Dow Jones Industrial Average, while the Nasdaq 100 has rallied 16.8 per cent. In a bull market, the more volatile technology stocks led the way as they enable investors to reap higher returns.“

More fine print:

“After the closing bell Google reported a 28 per cent rise in second quarter profits that missed estimates as higher costs eroded better-than-expected revenue growth. Google slumped more than 6 per cent in post-market trade.

Hershey reported a 96 per cent drop in profits for the past quarter, as the confectionary maker invested in transforming its production lines. Its shares fell 3 per cent to $48.45.”

Double standards is the name of the game =)