Friday, 24 July 2009 01:00

A quick recap of what I do here on this blog

I have been getting emails from a few people who are interested in long research. I have started offering long biased research, and am in the process of implementing another scan for long candidates this weekend. What I want to remind many of is that this is a fundamental research site, and a pretty good one, at least in my opinion. We have been right roughly 90% of the time in reference to the fundamentals. With that being said, I cannot control stock prices. There are times when stock prices diverge from the fundamentals. Those are the periods that precede money making opportunities. The actual opportunity is (after recognizing the divergence) when reality and stock prices converge.

Now, there are many other methods of making money, ex. momentum/quant/algo trading, etc. That is not what I do. For those who feel that they are missing out on the market rally (which is quite understandable), I cannot give you advice, but I can tell you one simple maneuver that I have used. I have purchased SPX calls that allow me to participate on the broad market upside and provide a hedge against what I consider to be a divergence from the fundamentals. How much of a hedge is quite variable, of course.

Make no mistake about it, from where I stand, the market is trading way out of its fundamentals range. If you look at the last serveral blog posts/articles, you can see where companies balance sheets and earnings power are diminishing, their outlook is dark and murky and the regulatory and macro environment are providing headwinds, yet their share prices are going up. As a matter of fact, their share prices are going up faster and with higher multiples than those companies that are doing just fine, with bright prospects and futures visibly ahead. These are not the ingredients of a sustainable bull market or good investments. They are the ingredients of momentum trading and gambling. I am an investor, not a gambler.

There are ways to ride the coat tails of the gamble, but be aware that my outperformance of the past and throughout the history of this site has been based on scientific investing, not gambling. As, and when, share prices diverge from fundamentals, my investment style falls out of favor and performance dips. The good news is that fundamentals ALWAYS reign supreme in the end. I welcome any questions, comments and discussion.

Last modified on Friday, 24 July 2009 01:00

7 comments

  • Comment Link juanall Friday, 24 July 2009 21:46 posted by juanall

    Agree with the fundamental divergence with stock prices and are looking for your short candidates based on deterioration of earnings and balance sheet. Longs are for another day.

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  • Comment Link shaunsnoll Friday, 24 July 2009 19:31 posted by shaunsnoll

    Jun 5th 2008
    From The Economist print edition

    “THE worst is behind us,” proclaimed Dick Fuld, Lehman Brothers' boss, in April.

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  • Comment Link Andy Morris Friday, 24 July 2009 15:09 posted by Andy Morris

    Don't recall how I found your site, but it is impressive.
    I have included you in my personal roundtable, i. e. Pragmatic
    Capitalist, Ticker Forum, Leavitt Brothers, and others.

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  • Comment Link NDbadger Friday, 24 July 2009 13:56 posted by NDbadger

    I couldn't help but notice that a lot of the insurance companies have had 4+ fold moves off the bottom. I was just wondering if you again see opportunity on the short side?

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  • Comment Link shaunsnoll Friday, 24 July 2009 11:33 posted by shaunsnoll

    this is HANDS DOWN the best fundamental analysis i've ever seen that is public. only research i've personally ever seen that rivals your work reggie is private research done in house by friends of mine at hedge funds, and they make $250k+ a year doing that. i find it amazing that you are virtually self taught! impressive man!

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  • Comment Link shaunsnoll Friday, 24 July 2009 10:15 posted by shaunsnoll

    beating estimates based on cost cuts seems like it deserves a lower multiple anyway since its not as sustainable as beating estimates based on top line cyclical recovery for example. so it is particularly surprising to see these companies beating by firing half their workforce and then getting an above historical average P/E multiple..... this must have been what value investors felt like during the tech bubble? Reggie, were you trading in the dotcom bubble years?

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  • Comment Link NDbadger Friday, 24 July 2009 09:41 posted by NDbadger

    I appreciate your adherence to fundamentals. I too believe that is the only way to consistently make money in the long run. And I believe your research is second to none (at least I haven't found anything better).

    The banks' balance sheets suggest continued deterioration in fundamentals for at least the remainder of the year. The market is making a bet that the recession is over and will experience a "V" shaped recovery, I believe largely based on recent Fed policy and accommodation. If the market is wrong (and I believe it has at a minimum gotten ahead of itself), then the recent run-up provides an increadable opportunity on the short side.

    Thanks for the great work Reg,

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