Hi Paul. Yes, I'd like to offer a serious critique of that article.
And the point I'd like to make is a conceptual one directed to all thread readers. And it's not simply a response to his faulty conclusions about GG.
That piece is a perfect example of the kind of incomplete, even flawed thinking about valuation that's leading a lot of investors and traders to miss the boat year after year on the very best performing stocks in leading sectors or sectors showing clear indications of emerging LT relative strength as the golds - by my analysis - were doing in March. .
What is a leader? How and why does it behave differently compared to other stocks from the onset to the conclusion of the bull cycle in it's industry sector?
IMO, it's the failure to ask or pay attention to the answers to these questions that result in more under performance by investors that almost anything else except failure to cut losses AND let profits run in their portfolios!!
Slider uses a phrase that's straight on: "Thinking outside the box."
People read the work of Ben Graham and other valuation gurus and fail to realize one key factor. Just as savvy pros fade the most popular TA concepts, they also trade against over emphasized fashions in FA.
Am I saying that valuation investing is out of date...obselete? HELL NO<g> I have and will continue to buy stocks that are under valued and consider FA of the utmost importance in identifying those opportunities.
BUT.....most of the stocks that are pumped in the financial press AND on web threads using the most common and popular valuation buzz tools as "undervalued"? ARE NOT.
They are just CHEAP. And they are cheap for a reason.
If you look beyond the superficial analysis often employed to pitch some of these ideas you quickly begin to uncover any number of very serious fundamental problems with the company, ranging the gamut from balance sheet, operational, legal and regulatory risks to anecdotal evidence via heavy insider selling that there are and will continue to be chronic and significant under performance by the stock. Even risks of a severe decline going forward. On rare occasions even good professionals are fooled and taken a hit. But doing your own DD and making an honest effort to take it further than the analysis by the source who presented it will cut WAY down on the frequency of those mistakes.
By contrast sector "leaders" are usually avoided by the majority of "value investors" in favor of "laggard" that as often continue to lag. The primary reason is that they fail to recognize and understand the TA concept of relative strength.
RS is simply the market ratifying and legitimizing - via price - that the best managed companies with the strongest balance sheets, highest profitability, increasing reserves (as we've just seen released by GG mgt, AGAIN this year) that are located in politically stable and secure nations have an important "value premium" (subjective though it may be) that MUST be added to traditional valuation thinking when we weigh the merits of WHAT conditions create a profitable LT investment opportunity. Not talking about ST "mo mo" or "swing trading" here. Although I'll occasionally use those methods.
This really gets to the heart of my style of trading and investing. I'm NOT a "TA guy" or primarily a ST player. But have melded selected TA concepts with traditional fundamental thinking to arrive at what I guess can best characterized as:
"Expanded Value Investing"
To identify stocks that offer a higher probability to "let profits run" for months or longer.
This forum and our limited time make a full exploration of this investment style impossible. But if I do write a book in collaboration with several of my friends (like Paul), in a few years? It will certainly be one of the central themes.
Best regards,
Isopatch |
