Market Sentiment Analysis

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Market Sentiment Analysis

To begin with, stocks are not often as low-priced as they were back in the 1930s when Security Analysis was printed. And also as low-priced as they were back in 1982 when the typical stock offered for less than book value and eight times earnings as well as yielded just above 6%. And if you sat out the previous 28 years out as stocks had been too high-priced, you missed awful many chances. If you do find a stock that does meet Graham and Dodd's stringent requirements, you furthermore may be patient. Why? For the reason that companies which are the lowest are from help for any purpose. Sales are often flat or downward. Earnings are weak. Profit margins are low.

You cannot turn out well just by buying a company that is low-priced. (It will always turn out to be cheaper.) You need to buy a firm that will someday - and maybe not too far off - be dear for others. Otherwise, when will you are taking profits? So perhaps Graham and Dodd's message needs modifying. (Warren Buffett, Graham's most well-known student, has absolutely found ways to modify it.)I've found the meaning of value as well as tools to accomplish a margin of safety is flexible. And The Oxford Club has established winning ways to bend them.

In my opinion, one stock that goes from $10 to $50 was a "value" at $10. I don't worry what the P/E or price-to-book was at the time. With the luxury of hindsight, it was clearly a discount. Why quibble? But die-hard value investors will argue that if the stock was "overvalued" at $10, it is only more grossly so at $50 - and thus, you are on great risk holding it. I oppose. If you employ trailing stops your upside is unlimited plus your earnings completely protected. If a stock continues trending up, we're satisfied to hold on - no matter what the valuation. When the stock in due course turns, as entirely perform eventually, our stops will keep the profits from slipping through our fingers.

As for value analysis, quite frankly, we don't pay out a lot of time poring over P/Es and book values. We're just concerned about identifying companies which can be likely to show dramatic, better-than-expected growth in quarters to come. These stocks tend to be more expensive than normal, just as companies that will give you an idea about a small amount or no growth are usually less costly than average.

 

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