Ahhh the smell of spring right around the corner and 64 teams ready to go smash, crash course at each other. One of the interesting things that happened thus far in just the bracketeering is the fact that we've got 3 of the top 4 teams from the Big East. Wow. Never thought I'd see that day...but then again...I'd never thought I'd see the day that the top 4 teams going into the conference championship play would all lose previous to the finals rounds.
Nonetheless...let's get it on!! I've got my final four picks right here:
MidWest:
Wake Forest is dangerous with Teague at the point and Johnson at the forward. They shoot just above 31% from the arc and just under 50% from the field. However, this team is dangerous and streaky. However, they'll definitely have their hands full Louisville in the elite eight. Pitino's team has a nitty gritty defense that can definitely shut down the perimeter shooters and this season, he's got 8 deep that can give him some valid minutes. The great thing about this team is that every player brings something to the table. What they lack in size, they make up in speed and wit. Pitino presses hard and I'll definitely be looking for them to get some easy steals and fast break points.
However, my sleeper pick's going to be USC from this group. I believe that they'll have an easy time against Tyrese Rice and BC. USC outmatches BC in the post with a older, more matured Taj Gibson and a consistent backcourt in Hackett and Lewis. Michigan State looked quite skiddish against Ohio State in the Big Ten finale and I think they'll continue that skid (barely surviving the Cinderella story) and then getting kicked out in the top 32.
Kansas looked horrible against Baylor and their excuse for being a young team will not save them from the onslaught that will be USC in the sweet 16.
USC will win a nailbiter against Pitino's slightly smaller, press-oriented defense using their backcourt prowess and added presence of DeRozan who will have a huge game due to the press defense, the spot holes near the rim, and the focus on Gibson. There just won't be enough people to cover all the weapons...
More to come for the next 3 divisions...
(Oh, right...and THE most beautiful time of the year is the Super Bowl, duh?!)
Monday, March 16, 2009
Monday, February 23, 2009
November Rain
Like the lyrics of guns'n'roses puts it: "it's so hard to hold a candle in the cold November rain." As we approach and plummet thru the horrendous November 08 lows, can we even find a shed of light to guide us out? AIG's at its maximum 79.9% Gov bailout (unable to legally take anymore Government money), Citi is rumored to be in talks of nationalization, the US carmakers STILL need more money even after their bobbled-headed nods n smiles convinced us otherwise, the financials rallied with no inkling of support from any other sector today (and it was only on the possssssssibility of nationalization which Obie's dog even barked it last on her list), Geithner has yet to speak about anything more than another outline and perhaps a Pizza party at the local Chucky Cheese where he plays Chucky's younger half-brother Marco, and we still have 2-3 of the toughest yrs of sub-prime crappage to wade through...Not to mention that we are still overleveraged compared to the total asset value that's available, we have a continually slowing velocity of money and we have no way of borrowing overseas with such an inflated dollar price to everybody else (also since we've already killed our interest rate AND we've over-extended ourselves in first place)...So now we've come up to either letting the contractionary period persist or print more (a buncha fat ppl more) cash to front load M1 and M2 and pray that the gov return brings the treasuries up for ppl who have literally thrown their money at T-bonds worth zilch when in actuality the velocity of money is only matchin the contraction from derivatives and thus has no "real" asset backing to ever increase the value of that money. But it's okay!!! We'll survive (NOT!)!! I feel like I'm ranting about the same shit! WTF?! Someone LISTEN TO ME!!!!! (I feel like a cow chewing the same cud over and over and over again cuz i got like 4 stomachs n none of them can digest the same shit...)
Step 1: STOP WHAT YOU'RE DOING!!!! ONLY RESCUE THE MOOOOOST NECESSARY = AIG (and supply a few banks like JPM, GS and a buncha regionals with enough cash to back all the deposits that will be flooooding in. This cash will be significantly less than actually saving all the shittttty banks like C, BAC, WFC, USB, etc from dying out)
Step 2: Make sure that future regulations and laws are in place to prevent fraud and illegitimate children deals that put us back into this predicament again
Step 3: Hire a SHITLOAD of ppl to work the bankruptcy offices (prolli a buncha those ppl who lost their jobs) -- I guess we can do some infrastructure too as long as we keep with the war AND infrastructure jobs are legitimate like.. building bridges or restoring railroads...not makin gov buildings prettier...
Step 4: FIRE anyone associated with the ridiculous models that existed in all of these god forsaken tootsie roll suckin owlz that just care to get to the middle of the lollipop without any fuckin rhyme or reason...
Step 5: Setup senior life support and a buncha ghetto fab housin for all the unemployed
Step 6: DUCK AND COVER!!!!!
Step 7: WATCH!!! A whole shitload of M&A will eventually come out of this (give it a yr or 2) with a helluva strong dollar AND another shit load of companies will buy themselves private due to the liquid to asset ratio they have. ALL of the overleveraged, triple-spined, quadruple jointed carnivorous companies will cannibalize themselves...(what's it called when someone eats himself?!??) and we will RESET the whole fuckin US economy...in fact, the whole GLOBAL economy bc a few other countries like China and Brazil will FEAST on the feebled toooo!!!!
Step 8: FIRE Obama's ridiculous staff and send him back to his all talk, no walk, unfit for accompanying nomads who don't understand that its pointless to walk an endless journey around in circles to find yourself when you're standing right fucking there...shit...look in a goddamn reflection once in a while...
Let's put it this way, just go find some shelter and a blanket cuz itll be a damn cold year and you'd better keep dem matches to start a fire instead of wastin them on candlez in the rain!! November 09 is setting up to be much worse than 08. (Sub-prime part 2).
Step 1: STOP WHAT YOU'RE DOING!!!! ONLY RESCUE THE MOOOOOST NECESSARY = AIG (and supply a few banks like JPM, GS and a buncha regionals with enough cash to back all the deposits that will be flooooding in. This cash will be significantly less than actually saving all the shittttty banks like C, BAC, WFC, USB, etc from dying out)
Step 2: Make sure that future regulations and laws are in place to prevent fraud and illegitimate children deals that put us back into this predicament again
Step 3: Hire a SHITLOAD of ppl to work the bankruptcy offices (prolli a buncha those ppl who lost their jobs) -- I guess we can do some infrastructure too as long as we keep with the war AND infrastructure jobs are legitimate like.. building bridges or restoring railroads...not makin gov buildings prettier...
Step 4: FIRE anyone associated with the ridiculous models that existed in all of these god forsaken tootsie roll suckin owlz that just care to get to the middle of the lollipop without any fuckin rhyme or reason...
Step 5: Setup senior life support and a buncha ghetto fab housin for all the unemployed
Step 6: DUCK AND COVER!!!!!
Step 7: WATCH!!! A whole shitload of M&A will eventually come out of this (give it a yr or 2) with a helluva strong dollar AND another shit load of companies will buy themselves private due to the liquid to asset ratio they have. ALL of the overleveraged, triple-spined, quadruple jointed carnivorous companies will cannibalize themselves...(what's it called when someone eats himself?!??) and we will RESET the whole fuckin US economy...in fact, the whole GLOBAL economy bc a few other countries like China and Brazil will FEAST on the feebled toooo!!!!
Step 8: FIRE Obama's ridiculous staff and send him back to his all talk, no walk, unfit for accompanying nomads who don't understand that its pointless to walk an endless journey around in circles to find yourself when you're standing right fucking there...shit...look in a goddamn reflection once in a while...
Let's put it this way, just go find some shelter and a blanket cuz itll be a damn cold year and you'd better keep dem matches to start a fire instead of wastin them on candlez in the rain!! November 09 is setting up to be much worse than 08. (Sub-prime part 2).
Tuesday, February 17, 2009
Farewell Obie...
Mr. Obama,
There comes a time in everyone's life when they have to admit that they just don't have the cahones to do the job...And after reading that a total of 20 House and Senators actually discussed and added value to the stimulus package and there was a total of 5...thats right FIVE copies of the stimulus bill at hand for everyone to read and because of this some of the senators and house members didn't even read the stimulus before they voted?! for shame on you! Especially after your speech about transparency and vigilant eyes... Mr. Obama, I don't think you deserve the title President. So far, in your first 30 days in office, you've added in ridiculous things to the stimulus package like STD research and unnecessary government building refurnishes, you've literally taken the market back to its November lows by refuting any type of outright stand on any formidable idea to resurrect this economy from the now inevitable depression and your plan has nothing to do with the problems of today nor will they fix anything in the future. The stimulus is partitioned 20% 2009, 40% 2010 and 40% 2011 when everyone knows that if you are going to inject money it better be now. The bad bank idea is suddenly foregone for a new lesser obvious allusion to a toxic bank. Your treasury secretary's plans for getting out of this predicament is nothing more than a laundry list of ideas that have already been discussed from the previous regime (minus the stress test, which I do admit is a good idea), and while all the ideas of HOPE, as you state it, can be flung around by the way side, implementation, execution, and reality should be your only concerns. The reality of it is that we are heading towards a Depression-like pre-Clinton un-adjusted unemployment rate of 25% and you have no idea how to fix it. Our currency is getting stronger by the minute which should tell you that we will have no way of selling ourselves out of this mess because no country will want to invest in us. On top of that interest rates are at an all time low across the globe and yet still we have only slightly budged off our high horse in the credit markets, we cannot expand within!! And our beautiful safety net Gold (now regaining its bubble-like status) can only dictate everyone's state of mind and how obvious it is...that in every currency...gold is approaching its high. The de-stabilization of currencies could cause a deeply disturbing riptide that will annihilate all of the sovereign funds that have so ignorantly obtained our assets and we have so ridiculously extended ourselves. With all who have invested in our assets and sub-assets, we will be in trouble and there is nothing we can do but wait. Oh, Mr. Obie, you do not know the crisis that we are in and you do not know the repercussions that you will incur with the lack of execution by any means of the term. Your words instill false hope of prosperity that will never be obtained with this path of flux and indecision.
If left up to me, I'd let the MARKET DECIDE, but given your limited knowledge of the situation and the fact that you lean too much on your advisory committee to execute something more implementable so that when we come out of this depressed state, you will seem the victor...I would recommend something like this:
Nationalize the banks. Assume the risk of the bad assets and use the good assets on balance sheet to suffice for much needed liquidity. In the meantime, increase the Fed interest rate at which the remaining banks borrow from you while subsidizing the interest increase with a tax cut on specific spending for the people (namely housing and necessary loans). The reason for this is to increase velocity at which a dollar circulates. This pseudo-inflation will have a ripple effect because the good banks with more cash won't borrow from the Fed but invest in other things because the fed rate is too high and the perceived risk/reward of "safety" is lower. The banks out there that are still struggling will pay a slight premium for their disservice to the community but they should also be able to stay afloat due to the increase in the velocity of M1 and M2 and thereby the increase in the amt of debt one can handle on a balance sheet.
To counter the unemployment rate, we need to setup funding and jobs (think military stylistics) for unemployed people. They will have free room and board if they need it and a government allotted subsidy only allowed for necessities. This will last for six months and during this time, they will await an assignment to do a particular task and then get trained for that task. Due to the evolution of a white-collared society, we will give these people an ultimatum of "whatever is available for work" or "going to war". The pay will be a certain percentage above minimum wage which will be determined by ranking. If someone refuses either of these options, they will be stripped of citizenship and deported. If one is able to sustain with the money they own, then there will be no consequence and they do not need to fulfill these duties and we will remove them from "unemployment ranks".
To counter the dollar, we will increase supply of bonds available to smaller countries. We can't do this right now because our T-bond rate would go negative but if we raise Fed rate steadily to 1% or 2%, we will have some room to play with the T-bond space. Now, the reason for doing all of this is because the euro will probably dissociate due to most countries not being able to adjust currency but we can definitely be the levered currency. By increasing the supply of bonds, and having certain countries lever themselves to our "stability" we bring up more of the world's currency together (and prevent more free-fall) and we effectively invest in these countries' currencies at a low price. In doing so, we keep our dollar value less inflated compared to the world and keep the rest of the world from imploding.
Of course there will still be some long term ramifications (unlike the complete market reset, which will better us in the long term), Mr. Obama, but at least we mediate the damages and we come up with a baseline that wasn't determined by arbitrary values.
But of course, you won't do that because it's not what you had in mind for all the "Joe Plumber's" in the world... oh well...Mr. Obama...I bid you farewell now...please hear my call before its too late!
There comes a time in everyone's life when they have to admit that they just don't have the cahones to do the job...And after reading that a total of 20 House and Senators actually discussed and added value to the stimulus package and there was a total of 5...thats right FIVE copies of the stimulus bill at hand for everyone to read and because of this some of the senators and house members didn't even read the stimulus before they voted?! for shame on you! Especially after your speech about transparency and vigilant eyes... Mr. Obama, I don't think you deserve the title President. So far, in your first 30 days in office, you've added in ridiculous things to the stimulus package like STD research and unnecessary government building refurnishes, you've literally taken the market back to its November lows by refuting any type of outright stand on any formidable idea to resurrect this economy from the now inevitable depression and your plan has nothing to do with the problems of today nor will they fix anything in the future. The stimulus is partitioned 20% 2009, 40% 2010 and 40% 2011 when everyone knows that if you are going to inject money it better be now. The bad bank idea is suddenly foregone for a new lesser obvious allusion to a toxic bank. Your treasury secretary's plans for getting out of this predicament is nothing more than a laundry list of ideas that have already been discussed from the previous regime (minus the stress test, which I do admit is a good idea), and while all the ideas of HOPE, as you state it, can be flung around by the way side, implementation, execution, and reality should be your only concerns. The reality of it is that we are heading towards a Depression-like pre-Clinton un-adjusted unemployment rate of 25% and you have no idea how to fix it. Our currency is getting stronger by the minute which should tell you that we will have no way of selling ourselves out of this mess because no country will want to invest in us. On top of that interest rates are at an all time low across the globe and yet still we have only slightly budged off our high horse in the credit markets, we cannot expand within!! And our beautiful safety net Gold (now regaining its bubble-like status) can only dictate everyone's state of mind and how obvious it is...that in every currency...gold is approaching its high. The de-stabilization of currencies could cause a deeply disturbing riptide that will annihilate all of the sovereign funds that have so ignorantly obtained our assets and we have so ridiculously extended ourselves. With all who have invested in our assets and sub-assets, we will be in trouble and there is nothing we can do but wait. Oh, Mr. Obie, you do not know the crisis that we are in and you do not know the repercussions that you will incur with the lack of execution by any means of the term. Your words instill false hope of prosperity that will never be obtained with this path of flux and indecision.
If left up to me, I'd let the MARKET DECIDE, but given your limited knowledge of the situation and the fact that you lean too much on your advisory committee to execute something more implementable so that when we come out of this depressed state, you will seem the victor...I would recommend something like this:
Nationalize the banks. Assume the risk of the bad assets and use the good assets on balance sheet to suffice for much needed liquidity. In the meantime, increase the Fed interest rate at which the remaining banks borrow from you while subsidizing the interest increase with a tax cut on specific spending for the people (namely housing and necessary loans). The reason for this is to increase velocity at which a dollar circulates. This pseudo-inflation will have a ripple effect because the good banks with more cash won't borrow from the Fed but invest in other things because the fed rate is too high and the perceived risk/reward of "safety" is lower. The banks out there that are still struggling will pay a slight premium for their disservice to the community but they should also be able to stay afloat due to the increase in the velocity of M1 and M2 and thereby the increase in the amt of debt one can handle on a balance sheet.
To counter the unemployment rate, we need to setup funding and jobs (think military stylistics) for unemployed people. They will have free room and board if they need it and a government allotted subsidy only allowed for necessities. This will last for six months and during this time, they will await an assignment to do a particular task and then get trained for that task. Due to the evolution of a white-collared society, we will give these people an ultimatum of "whatever is available for work" or "going to war". The pay will be a certain percentage above minimum wage which will be determined by ranking. If someone refuses either of these options, they will be stripped of citizenship and deported. If one is able to sustain with the money they own, then there will be no consequence and they do not need to fulfill these duties and we will remove them from "unemployment ranks".
To counter the dollar, we will increase supply of bonds available to smaller countries. We can't do this right now because our T-bond rate would go negative but if we raise Fed rate steadily to 1% or 2%, we will have some room to play with the T-bond space. Now, the reason for doing all of this is because the euro will probably dissociate due to most countries not being able to adjust currency but we can definitely be the levered currency. By increasing the supply of bonds, and having certain countries lever themselves to our "stability" we bring up more of the world's currency together (and prevent more free-fall) and we effectively invest in these countries' currencies at a low price. In doing so, we keep our dollar value less inflated compared to the world and keep the rest of the world from imploding.
Of course there will still be some long term ramifications (unlike the complete market reset, which will better us in the long term), Mr. Obama, but at least we mediate the damages and we come up with a baseline that wasn't determined by arbitrary values.
But of course, you won't do that because it's not what you had in mind for all the "Joe Plumber's" in the world... oh well...Mr. Obama...I bid you farewell now...please hear my call before its too late!
Tuesday, January 27, 2009
10% of Our Minds...
I pose one question: How do you interpret the scientific posit that states "The average person uses 10% of our minds." Well the first response that I usually get is something of the sort "Wow we are such inefficient creatures. We only use 10% of our brain cells and the rest of the 90% either are dead or useless...so that's why Einstein was so smart...he must've used more than 15% of his brain..."
There is definitely a different explanation for this with an "engineering-ish" approach...Imagine your mind as a growing network of logic maps that connect various elements together. Now as a child, your mind grows at an exponential rate and after the age of 6, your brain stops growing. However, the mapping continues. This is how we continue to learn. More and more dendreons and axioms connecting multiple times tovarious cells that act like either cache (short-term memory) or RAM (long-term memory). Each cell acts as a bit of information and a cluster of cells equates to a thought. Each of these cells or bits takes a tiny amount of energy to store the information. Now your brain has a multitude of these clusters which equals a total power. Then you look at the dendreon and axiom mapping (hardwired decision logic). This low-loss, high-speed path connects various clusters together for learning or associative thinking, etc. For example, if I know the color blue defined cluster A and cluster B is the sky...then a mapping between these clusters creates the associative thinking for our thoughts of the sky being blue.
Anyway, so back to the discussion on 10% brain power. Every cell represents some measurement of "power" that exists in our brain. Imagine if you try to do like 20 things at once...you can't! Why? Well, because the amount of information that our brain can access at one time is only finite. Thus, the limit to the amount of power we can retrieve, on average, at any one given moment from our brain is 10%. This 10%, like for a computer, is probably for thermal reasons (fevers, etc) and/or capacity (bandwidth) and of course, a good portion of this 10% is allocated for keeping our automatic muscle, neuralogical immune system etc parts alive. However the important thing to note is that the only difference between Einstein and you is not the fact that he has more brain power than you but that his mapping algorithm is more efficient and thus takes less power to obtain the same solution! Therefore, not taking into account dead brain cells or cell count (head size), if you were to just work more efficiently and increase the effective productivity of how/what/why we learn in society, we could increase the ability of our minds to think and grasp ideas even if we are limited to 10% capacity.
This could definitely change the argument slightly for IQ tests (made so that most educational levels can understand) which demonstrates are ability to logically reason things out because now these mapping structures would definitely improve our reasoning. However, I do believe that nature does play some part like for instance if someone has more brain cells or more of a certain type of cell...or maybe the associative clustering is closer together so mapping of associative reasoning becomes easier.
But just think about it (not too hard or you might not be able to do anything else) the next time someone says that Einstein had more brain power than you and that's why he was so smart...it doesn't have to be like that at all...
There is definitely a different explanation for this with an "engineering-ish" approach...Imagine your mind as a growing network of logic maps that connect various elements together. Now as a child, your mind grows at an exponential rate and after the age of 6, your brain stops growing. However, the mapping continues. This is how we continue to learn. More and more dendreons and axioms connecting multiple times tovarious cells that act like either cache (short-term memory) or RAM (long-term memory). Each cell acts as a bit of information and a cluster of cells equates to a thought. Each of these cells or bits takes a tiny amount of energy to store the information. Now your brain has a multitude of these clusters which equals a total power. Then you look at the dendreon and axiom mapping (hardwired decision logic). This low-loss, high-speed path connects various clusters together for learning or associative thinking, etc. For example, if I know the color blue defined cluster A and cluster B is the sky...then a mapping between these clusters creates the associative thinking for our thoughts of the sky being blue.
Anyway, so back to the discussion on 10% brain power. Every cell represents some measurement of "power" that exists in our brain. Imagine if you try to do like 20 things at once...you can't! Why? Well, because the amount of information that our brain can access at one time is only finite. Thus, the limit to the amount of power we can retrieve, on average, at any one given moment from our brain is 10%. This 10%, like for a computer, is probably for thermal reasons (fevers, etc) and/or capacity (bandwidth) and of course, a good portion of this 10% is allocated for keeping our automatic muscle, neuralogical immune system etc parts alive. However the important thing to note is that the only difference between Einstein and you is not the fact that he has more brain power than you but that his mapping algorithm is more efficient and thus takes less power to obtain the same solution! Therefore, not taking into account dead brain cells or cell count (head size), if you were to just work more efficiently and increase the effective productivity of how/what/why we learn in society, we could increase the ability of our minds to think and grasp ideas even if we are limited to 10% capacity.
This could definitely change the argument slightly for IQ tests (made so that most educational levels can understand) which demonstrates are ability to logically reason things out because now these mapping structures would definitely improve our reasoning. However, I do believe that nature does play some part like for instance if someone has more brain cells or more of a certain type of cell...or maybe the associative clustering is closer together so mapping of associative reasoning becomes easier.
But just think about it (not too hard or you might not be able to do anything else) the next time someone says that Einstein had more brain power than you and that's why he was so smart...it doesn't have to be like that at all...
Monday, January 26, 2009
A touch of Finnies...
So, today I was asked about the type of valuation to consider when looking at companies. I definitely used to be all about the financial valuation, company outlook, and companies business model etc. However, after trying valuate companies with cash flow calcs and trying to estimate future values of cash flows etc, I was given an awakening...ALL OF THIS ESTIMATION IS IN THE PAST! Now, don't get me wrong...you definitely need to know where you've been to know where you're going. So, some of these types of financial valuations are necessary in a normal market. But I've definitely been swayed to use alot simpler "back of the envelope" ratios and numbers that are already given so as not to take away from the psychological and economic aspect of evaluation (which inevitably proves to be the most useful in the short-term)...
Here are the 3 categories that I want to evaluate quickly:
Profitability:
-ROA -- net profit margin * asset turnover (which should be ~net income / total averaged assets of a period) -- this basically shows the profitability per measurement of asset for a company and is (to me) the most accurate/important profit measurement for a company
-ROE -- net profit / average shareholder equity -- this is a % measurement of returns to the shareholder...if we use both the ROA and ROE together, we can definitely understand a company's profitability and how it respects its shareholders
Financial Current Liquidity:
Long-Term Debt / Equity Ratio (<40% is best on average) -- compares debt on-hand to equity available. Especially from this mortgage crisis, we know that debt/leverage is dangerous. In general the more debt, the worse off...to a point. HOWEVER, there are two things that we could use to offset that reasoning. The first would be if ROE is strong (continuous strength)...this means that the debt is returning a higher rate than what is paid for. The second would be below (WC / Dollar Sales) which if high could mean debt is about to be paid off or that it is continuously being paid off.
-Working Capital / Dollar Sales -- (Current Assets - Current Liabilities) / Avg Total Sales -- working capital is by far (to me) the best liquidity (for near future expansion or debt repayment) that is easily accessible. If we compare this to the total sales, we can see what the company has available for use at this specific time compared to its sales and comparing it to the Inventory Turns...we can measure how much liquidity it would actually need (bc we want to know how many times / yr it gets rid of its inventory to figure out if the WC / Sales measurement is good)
Management Efficiency
Inventory Turns -- Cost of Goods Sold / Avg Inventory for period -- used per above reasoning AND for management efficiency. Within its same industry...the more efficient this company, the faster the turnover rate of its goods (lower the ratio)...This measurement is also very good for determining if the cost of goods is very expensive compared to how much of it is being sold.
Anyway, let me know what you think. I think those are good decision points for stocks. I don't want to believe in PEG ratios and P/E to initially evaluate stocks. After getting these values (the 1st 3 can be found and the rest can be easily calculated), we can determine at least the current status of the company...which companies are good. Then, we can delve down a little deeper into the history of the company etc. Bottomline is that if a company is a good company with a bad quarter, it will still have a relatively good strength even though EPS or P/E etc are not quite there. I'd say we take the time to look a little closer initially...and decrease the effort spent panning through countless conference calls and 10Q/K forms.
Now I'm definitely not saying that this is going to be the best way to evaluate anything in this market or any market. In fact, I would tell you to shun away in general from this type of evaluation until company assets can be valued with low risk and high certainty. Otherwise, they will be guessing just as much as you...
(NOTE: THIS BLOG WAS WRITTEN TO GIVE AN OVERVIEW OF WHAT I THINK ARE THE MOST IMPORTANT QUICK CALC VALUATIONS WHEN TRYING TO GET A SNAPSHOT OF A COMPANY)
Here are the 3 categories that I want to evaluate quickly:
Profitability:
-ROA -- net profit margin * asset turnover (which should be ~net income / total averaged assets of a period) -- this basically shows the profitability per measurement of asset for a company and is (to me) the most accurate/important profit measurement for a company
-ROE -- net profit / average shareholder equity -- this is a % measurement of returns to the shareholder...if we use both the ROA and ROE together, we can definitely understand a company's profitability and how it respects its shareholders
Financial Current Liquidity:
Long-Term Debt / Equity Ratio (<40% is best on average) -- compares debt on-hand to equity available. Especially from this mortgage crisis, we know that debt/leverage is dangerous. In general the more debt, the worse off...to a point. HOWEVER, there are two things that we could use to offset that reasoning. The first would be if ROE is strong (continuous strength)...this means that the debt is returning a higher rate than what is paid for. The second would be below (WC / Dollar Sales) which if high could mean debt is about to be paid off or that it is continuously being paid off.
-Working Capital / Dollar Sales -- (Current Assets - Current Liabilities) / Avg Total Sales -- working capital is by far (to me) the best liquidity (for near future expansion or debt repayment) that is easily accessible. If we compare this to the total sales, we can see what the company has available for use at this specific time compared to its sales and comparing it to the Inventory Turns...we can measure how much liquidity it would actually need (bc we want to know how many times / yr it gets rid of its inventory to figure out if the WC / Sales measurement is good)
Management Efficiency
Inventory Turns -- Cost of Goods Sold / Avg Inventory for period -- used per above reasoning AND for management efficiency. Within its same industry...the more efficient this company, the faster the turnover rate of its goods (lower the ratio)...This measurement is also very good for determining if the cost of goods is very expensive compared to how much of it is being sold.
Anyway, let me know what you think. I think those are good decision points for stocks. I don't want to believe in PEG ratios and P/E to initially evaluate stocks. After getting these values (the 1st 3 can be found and the rest can be easily calculated), we can determine at least the current status of the company...which companies are good. Then, we can delve down a little deeper into the history of the company etc. Bottomline is that if a company is a good company with a bad quarter, it will still have a relatively good strength even though EPS or P/E etc are not quite there. I'd say we take the time to look a little closer initially...and decrease the effort spent panning through countless conference calls and 10Q/K forms.
Now I'm definitely not saying that this is going to be the best way to evaluate anything in this market or any market. In fact, I would tell you to shun away in general from this type of evaluation until company assets can be valued with low risk and high certainty. Otherwise, they will be guessing just as much as you...
(NOTE: THIS BLOG WAS WRITTEN TO GIVE AN OVERVIEW OF WHAT I THINK ARE THE MOST IMPORTANT QUICK CALC VALUATIONS WHEN TRYING TO GET A SNAPSHOT OF A COMPANY)
Wednesday, November 12, 2008
Fair Value
MARKET VALUATION AND ANALYSIS:
DATA:
US GDP 14.3 trillion 2008 (IMF time-series) and $11 trillion in 2005(wikipedia)
US Derivatives Market: 182.2 Trillion in May 2008 (wiki) and $298 trillion in 2005
US Market Cap: $40 trillion in Sept 2008, $57.5 trillion in May 2008 (wiki) and $17 trillion in 2005
GDP Yield (growth over 3 years) : 30% (like your "earnings" for company growth/returns yield)
Derivatives market yield (over 3 years): -39% <- probably more on the lines of -50-60% because of hedge fund liquidations
US Market Cap yield over 3 years (May): 238% (Price yield)
US Market Cap yield oer 3 years (Sept): 135% (Price yield)
US Total Market Yield over 3 years (May): -24%
ANAYLSIS:
US Total Market Value / Market Cap in May (Price-to-Book) = 240/57.5 ~ 4.2x
S&P500 average P/B: 2.84
Reduction Factor: 2.84/4.2 = 0.67 from avg May price 1400
Assuming Book value stays the same from May => 1400*0.67 = 938
S&P 500 P/E (May) ~ 24
S&P500 P/E (Oct 16) ~ 18.75 with S&P 500 price of 946
Goal: P/E = 15 (safe)
Reduction Factor: 15/18.75 = 0.8
Assuming Earnings stay the same from October 16: 946*0.8 = 756
SUMMARY:
My assumption for both of the above is as follows:
1. If we use book value vs earnings, we will get a difference because one will compare the growth story and the other will tell the valuation
story of the S&P / US Market.
2. Book value tells the valuation story of the core companies. If it could not grow anymore than the assets it already has, what would it have to work with. If we do some Price versus Book Value, Prices will go down because, from above, the US market cap has reduced by 1/2 between May and Oct. In the month of October, most of the problems have come from hedge fund liquidation which means that price, and book value will drop a little too but not nearly as much as price. Therefore, because of the drop in book value, price will have to drop more than the 938 that I have calculated.
3. Earnings tells us the growth story. If you take a look at the P/E ratio, you can see that if price and earnings both fell at the same rate, the ratio would be the same. However, because earnings are not necessarily all from price growth, the decrease by 1/2 of market cap will not correlate exactly to a decrease in 1/2 the earnings. Therefore, the ratio will stay higher than the P/E of 15 desired for safety because earnings will drop at a certain % of price creating a lower price outlook than 756 from a growth perspective.
*Valuation outlook for the S&P 500 will be about 20% below 938 because I believe that only ~20% (B/P = 1/4.2) of the book value is affected by the price fluctuation. Therefore, 938*.8 = 750.
*Growth outlook for the S&P500 will be about E/P = 1 / 18.75 = 5% below the 756 value because only about 5% of the earnings is affected by the price fluctuations.
Therefore, 756*.95 = 718.
Note: The reasons for these huge increases in market cap that highly exceeds the actual GDP growth is caused by a significant increase of shares (dilution of shares). I believe that a viable solution for this market recovering will be that because companies won't lend out to other companies, we will see a regression from publicly traded firms to more privately owned companies decreasing the amount of shares available and thus raising the value of the equity left standing. I think that this is a great opportunity for companies that have extra cash to instead of invest in other companies to instead, invest in themselves to restructure and re-image their business to fit a more globalized perspective. I believe that this effort was difficult to do in a ridiculously bullish market of 2003 to 2007 because this bullish attitude created a lot of short-term foresight in companies outlooks and focus.
RANGE OF FAIR VALUE FOR S&P 500: Low: 718 High 750.
DATA:
US GDP 14.3 trillion 2008 (IMF time-series) and $11 trillion in 2005(wikipedia)
US Derivatives Market: 182.2 Trillion in May 2008 (wiki) and $298 trillion in 2005
US Market Cap: $40 trillion in Sept 2008, $57.5 trillion in May 2008 (wiki) and $17 trillion in 2005
GDP Yield (growth over 3 years) : 30% (like your "earnings" for company growth/returns yield)
Derivatives market yield (over 3 years): -39% <- probably more on the lines of -50-60% because of hedge fund liquidations
US Market Cap yield over 3 years (May): 238% (Price yield)
US Market Cap yield oer 3 years (Sept): 135% (Price yield)
US Total Market Yield over 3 years (May): -24%
ANAYLSIS:
US Total Market Value / Market Cap in May (Price-to-Book) = 240/57.5 ~ 4.2x
S&P500 average P/B: 2.84
Reduction Factor: 2.84/4.2 = 0.67 from avg May price 1400
Assuming Book value stays the same from May => 1400*0.67 = 938
S&P 500 P/E (May) ~ 24
S&P500 P/E (Oct 16) ~ 18.75 with S&P 500 price of 946
Goal: P/E = 15 (safe)
Reduction Factor: 15/18.75 = 0.8
Assuming Earnings stay the same from October 16: 946*0.8 = 756
SUMMARY:
My assumption for both of the above is as follows:
1. If we use book value vs earnings, we will get a difference because one will compare the growth story and the other will tell the valuation
story of the S&P / US Market.
2. Book value tells the valuation story of the core companies. If it could not grow anymore than the assets it already has, what would it have to work with. If we do some Price versus Book Value, Prices will go down because, from above, the US market cap has reduced by 1/2 between May and Oct. In the month of October, most of the problems have come from hedge fund liquidation which means that price, and book value will drop a little too but not nearly as much as price. Therefore, because of the drop in book value, price will have to drop more than the 938 that I have calculated.
3. Earnings tells us the growth story. If you take a look at the P/E ratio, you can see that if price and earnings both fell at the same rate, the ratio would be the same. However, because earnings are not necessarily all from price growth, the decrease by 1/2 of market cap will not correlate exactly to a decrease in 1/2 the earnings. Therefore, the ratio will stay higher than the P/E of 15 desired for safety because earnings will drop at a certain % of price creating a lower price outlook than 756 from a growth perspective.
*Valuation outlook for the S&P 500 will be about 20% below 938 because I believe that only ~20% (B/P = 1/4.2) of the book value is affected by the price fluctuation. Therefore, 938*.8 = 750.
*Growth outlook for the S&P500 will be about E/P = 1 / 18.75 = 5% below the 756 value because only about 5% of the earnings is affected by the price fluctuations.
Therefore, 756*.95 = 718.
Note: The reasons for these huge increases in market cap that highly exceeds the actual GDP growth is caused by a significant increase of shares (dilution of shares). I believe that a viable solution for this market recovering will be that because companies won't lend out to other companies, we will see a regression from publicly traded firms to more privately owned companies decreasing the amount of shares available and thus raising the value of the equity left standing. I think that this is a great opportunity for companies that have extra cash to instead of invest in other companies to instead, invest in themselves to restructure and re-image their business to fit a more globalized perspective. I believe that this effort was difficult to do in a ridiculously bullish market of 2003 to 2007 because this bullish attitude created a lot of short-term foresight in companies outlooks and focus.
RANGE OF FAIR VALUE FOR S&P 500: Low: 718 High 750.
Thursday, October 30, 2008
Decisions...
Huge consequences can come from the smallest decisions. A decision to wash your car right before a rainstorm...not so bad... But what if you decided to wash your car right before a tsunami hit...oh man would you be in trouble (because you probably should've been driving that dirty POS as fast as possible away from where you are)...The degree of the consequence determines the decisions that you make...more specifically...the decision that you make is determined by how risky you want to be. Pascal's wager was thought of as one of the biggest decision anyone could make..."God is, or He is not."
B = Believe
~B = Not Believe
G = God Exists
~G = God Doesn't Exist
B*G => + infinite
~B*G => -small #
B* ~G => +small #
~B*~G => - infinite
This would definitely be the first sign of game theory in a much more philosophical sense except that the contrapositive does not exist and we are therefore left to play the game as player B or ~B. There would definitely be an absolute advantage if all things were omniscient and we would pick the square BG. However, we don't know everything and we definitely can't guarantee that God exists...so we are forced to make the "best" decision. Well, the "best" hopeful decision is to live as though God exists because if he doesn't exist, then Pascal states that nothing would be different except you lived a good and moral life. If God does exist, then you have infinite happiness.
Pascal's wager was a very primitive game theory event that preyed on two of human's most important nurture-instilled traits: 1. Fear 2. Order. You see, people's decisions are based off of reason. But people's reasoning is based off of their risk aversity. So ask a man to make a decision and he will always pick a Nash Equilibrium...the one that will guarantee him something...instead of leave him nothing. It won't be the optimal solution nor will it be the best solution for someone else, but as long as he doesn't risk losing everything, he can live to fight another day. Furthermore, fear is what drives people to follow and conform. Fear drives people to stay within the bounds of the social, political and economical "norm", and prevents most people from ever learning to think outside the box...or maybe not at all...
Order is a little more complicated. You see, with the ability to reason...the ability to resolve problems, and the ability to create civilization, we forget that we have never really learned how not to learn. Most things that we know, things that we've experienced have all been based on a pre-conceived notion that society "is how it is". Even if we dare to change it, we never exit out of the bounds that restrain us. Everything needs a proof. Everything needs a reason. Everything needs a law or a theory or result. And nothing can just be accepted. And even if you think that you don't fall under this category, the very argument of "I don't care." means that you have already compared this array of information to the data that exists in your head to rule it out. Order builds upon order. Its like an infinite loop to disprove the 2nd Law of Thermodyamics for any type of philosophical argument. We, as a society, don't know what it's like to do something just to do it...no thoughts or consequence...that's order!
So why have I ranted for this long about all of this non-sensical gibberish?
Well, it has to do with the stock market. It has to do with the fact that when order is taken away, people resort to the only other thing that they know: FEAR. So, we must learn to use people's fear.
The market has been horrendously radical with no real reason for anybody to do anything. Yesterday, GE allegedly made a "comment" about earnings going to be "in-line" with next year and the market tanked from +4% to -2% in less than 3 minutes. This came just after the Fed had announced that it was dropping its interest rate to 1% (down 50 basis points). Wtf?!?! And get this...we have companies like XOM ($88 B) moving at 10-15% volatility in less than 1 day!!! I can only vouch for one thing...people fear what they don't understand. (And yes, I know you can make a case for liquidity, short squeeze, arbitration, bad assets, global swap trades, etc, but the bottom line is that people don't know what information will do what on any given day.)
I believe that the only people who will survive in this market are 3-fold:
1. Those who just get out and don't look (concede the game).
2. Those who seek any type of order (i.e. Nash Equilibrium) that will work to the least risky advantage (high dividends, decent bond yields, money market, etc)
3. Those who seek to play the game.
Right now, this is a time of no order. The credit crisis has just gotten its first $250B or so injected into the market, the Fed has agreed to play the futures games by assuming the risk of certain "decent-valued" assets, liquidity is now at a deflationary point due to lowered interest rates, liquidity injections, domestic/global recession and finally a lack of confidence in the order and fairness that the capitalist laws have put in place.
The way you should trade should purely be upon the statistical data and information that you see in the numbers. If you see a double bottom, with an upside of 10% before the next ceiling level...invest. If you successively lower lows in a stock that sees no bottom, get out. If a stock is oscillating within a bounded region, wait for a 1-2% break up and buy or 1-2% break down and sell.
The only wrong way to trade the market is to think that anything you ever learned about an orderly market will work right now. Information is just a information but at this point, the only thing that will cause the market to crash would have to be significant stuff (like Barack Obama wins as president...oh man that will be a day we break new lows in the market hahaha). The government has given you an ultimate low at S&P500 at around 790 and I believe that it will stay around that 0-20% range above that price (even though I believe that the current "fair market" value for the S&P500 is actually more like 725 - 750).
Just remember, the words of the Joker, “Introduce a little anarchy, upset the established order, and everything becomes chaos...and you know the thing about chaos? It’s FAIR.”
...Become a real trading "monkey"...
B = Believe
~B = Not Believe
G = God Exists
~G = God Doesn't Exist
B*G => + infinite
~B*G => -small #
B* ~G => +small #
~B*~G => - infinite
This would definitely be the first sign of game theory in a much more philosophical sense except that the contrapositive does not exist and we are therefore left to play the game as player B or ~B. There would definitely be an absolute advantage if all things were omniscient and we would pick the square BG. However, we don't know everything and we definitely can't guarantee that God exists...so we are forced to make the "best" decision. Well, the "best" hopeful decision is to live as though God exists because if he doesn't exist, then Pascal states that nothing would be different except you lived a good and moral life. If God does exist, then you have infinite happiness.
Pascal's wager was a very primitive game theory event that preyed on two of human's most important nurture-instilled traits: 1. Fear 2. Order. You see, people's decisions are based off of reason. But people's reasoning is based off of their risk aversity. So ask a man to make a decision and he will always pick a Nash Equilibrium...the one that will guarantee him something...instead of leave him nothing. It won't be the optimal solution nor will it be the best solution for someone else, but as long as he doesn't risk losing everything, he can live to fight another day. Furthermore, fear is what drives people to follow and conform. Fear drives people to stay within the bounds of the social, political and economical "norm", and prevents most people from ever learning to think outside the box...or maybe not at all...
Order is a little more complicated. You see, with the ability to reason...the ability to resolve problems, and the ability to create civilization, we forget that we have never really learned how not to learn. Most things that we know, things that we've experienced have all been based on a pre-conceived notion that society "is how it is". Even if we dare to change it, we never exit out of the bounds that restrain us. Everything needs a proof. Everything needs a reason. Everything needs a law or a theory or result. And nothing can just be accepted. And even if you think that you don't fall under this category, the very argument of "I don't care." means that you have already compared this array of information to the data that exists in your head to rule it out. Order builds upon order. Its like an infinite loop to disprove the 2nd Law of Thermodyamics for any type of philosophical argument. We, as a society, don't know what it's like to do something just to do it...no thoughts or consequence...that's order!
So why have I ranted for this long about all of this non-sensical gibberish?
Well, it has to do with the stock market. It has to do with the fact that when order is taken away, people resort to the only other thing that they know: FEAR. So, we must learn to use people's fear.
The market has been horrendously radical with no real reason for anybody to do anything. Yesterday, GE allegedly made a "comment" about earnings going to be "in-line" with next year and the market tanked from +4% to -2% in less than 3 minutes. This came just after the Fed had announced that it was dropping its interest rate to 1% (down 50 basis points). Wtf?!?! And get this...we have companies like XOM ($88 B) moving at 10-15% volatility in less than 1 day!!! I can only vouch for one thing...people fear what they don't understand. (And yes, I know you can make a case for liquidity, short squeeze, arbitration, bad assets, global swap trades, etc, but the bottom line is that people don't know what information will do what on any given day.)
I believe that the only people who will survive in this market are 3-fold:
1. Those who just get out and don't look (concede the game).
2. Those who seek any type of order (i.e. Nash Equilibrium) that will work to the least risky advantage (high dividends, decent bond yields, money market, etc)
3. Those who seek to play the game.
Right now, this is a time of no order. The credit crisis has just gotten its first $250B or so injected into the market, the Fed has agreed to play the futures games by assuming the risk of certain "decent-valued" assets, liquidity is now at a deflationary point due to lowered interest rates, liquidity injections, domestic/global recession and finally a lack of confidence in the order and fairness that the capitalist laws have put in place.
The way you should trade should purely be upon the statistical data and information that you see in the numbers. If you see a double bottom, with an upside of 10% before the next ceiling level...invest. If you successively lower lows in a stock that sees no bottom, get out. If a stock is oscillating within a bounded region, wait for a 1-2% break up and buy or 1-2% break down and sell.
The only wrong way to trade the market is to think that anything you ever learned about an orderly market will work right now. Information is just a information but at this point, the only thing that will cause the market to crash would have to be significant stuff (like Barack Obama wins as president...oh man that will be a day we break new lows in the market hahaha). The government has given you an ultimate low at S&P500 at around 790 and I believe that it will stay around that 0-20% range above that price (even though I believe that the current "fair market" value for the S&P500 is actually more like 725 - 750).
Just remember, the words of the Joker, “Introduce a little anarchy, upset the established order, and everything becomes chaos...and you know the thing about chaos? It’s FAIR.”
...Become a real trading "monkey"...
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