(I’m working away on my monthly S&P 500 Market Strategy blog for the month of January. Over the holidays I have been rereading some of my earlier blogs. With over 250 blog posts I realize time can be a big impediment for my blog readers, especially new readers, to read blogs I have written some time ago. I will reblog some of my earlier blogs that are my favourites and not time sensitive over the next few months in hopes you fine them interesting and increase your knowledge of our model price work. 2013 was one of my best years in terms of profitable trading with the use of our Model Price app. Here’s hoping 2014 will be one of your best ever with our Model Price app and our rapidly expanding community of Model Price users.)
“Why do stocks go up and down?” (Blog posted May 2, 2012)
As a teenager I was mystified how this happened. The question of “why” never left my mind when looking at the stock tables in the newspaper.
Aren’t you curious why this happens?
I have put in my 10,000 hours. I have seen it all. I have studied track records of other managers. I started reading Warren Buffet annual reports in 1984. Warren who? More importantly I gave up reading them in the mid 1990’s. In the early 80’s I knew John Templeton’s track record off by heart. Getting a Barron’s on a Saturday morning and digesting every page before the market opened on Monday morning. I haven’t read a Barron’s in 15 years, maybe more!
I quit the accounting profession in 1985, to become a stockbroker. In those days, I would ring up or go visit any manager of financial assets with a hot hand. I would fetch coffee, lunch anything they needed just as long as I could sit silently in the corner and see what they did. How they worked. The system they used. They were open and honest. Those were the days.
I was on the trading floor, Sunday night, October 18, 1987, watching Jim Baker’s face and telling the world Germany would not lower their interest rates. Two things happened, the crash of 1987 and television as a tool to deliver financial news. I remember unplugging my television (CNBC) from my desk in early 2001. If CNBC went off the air tomorrow I wouldn’t miss it at all.
When I saw the basic math for model price, just a kernel of what we have today – I saw the potential. As the team built on these foundations I could start reconciling the movement of stock prices. Stock prices were conforming to these valuations zones, now known to you as Economic Book Values (EBVs) or Economic Structural Values (ESVs).
We went into the bull market of 1998 – 2000 armed only with our EBVs. What we were observing was something different. There was a feedback mechanism-taking place that had to do with the structure of the balance sheet. Curiosity. Hard work. Convexity. Model Price.
What is my dream?
I see it nightly. There is a panel of experts. CFAs’, stock analysts’, true experts in the field of equity securities analysis. Sure, include a technical analyst for good measure. All gathered to opine on some equity security. Telling investors in their own way, they haven’t a clue what the security is worth and where the equity price is heading.
The panel is facing a six year old with an iPad. The six year old calls up Facebook, starts up the Model Price application and drops in the symbol that is being discussed. Presto, the child can recite what the stock is worth, model price, and with a blink of an eye can tell the audience, specifically, whether fundamentals are improving (equity price breaking up through EBVs) or declining (equity price breaking down through EBVs). The six year old can give support and resistance price targets that work over time, much to the amazement of our esteemed panel of experts.
The financial industry, and finance itself needs a total rework in my estimation. I have made this app, the graphical interface, as simple as possible. Yes, the explanations maybe difficult to grasp but I have time and hopefully through this blog these concepts will become familiar to you.
I don’t care whether the financial professionals get it! I care about the six year olds. I care about the people finance has locked out. Finance should be for everyone. It’s time for democratization – finance’s Arab Spring!
Yes, I have been a registered securities broker for 26 years. Started with the question, ‘Why do stocks go up and down?’ for close to 40 years. I have not seen any security analysis anywhere that comes close to what I’m delivering here and Facebook. No catch. It’s the best I’ve found and developed with the help of others. We are not going away.
Why do stocks go up and down?