Tag: investing

All investing related articles are found here. Educative, informative and written clearly.

  • Value Investing Is Coming Back

    Value Investing Is Coming Back

    Value Investing Is Coming Back
    Value stocks have underperformed since the beginning of 2007. But Goldman Sachs and Morgan Stanley claim that they have great potential.

    Value investing is coming back according to data from the last autumn. This granddaddy of all investment types was set up in the first half of the 20th century and it is still actual.

    For example last year, value investing has gotten fired by a typical value sector, energy. Last September made value investors satisfied, as returns of winners among cheap stocks outperformed big companies by a wide margin. The value-stock rally was exciting, unexpected, and fabulous. The past 10 years weren’t good for value investing. Actually, the value stocks were underperformed the growth stocks. They had weaker performances than it was the case with growth stocks. Moreover, some fund managers didn’t want to invest in utilities. What a great mistake! Utilities are the value stocks backbone. Their explanation was the value stocks are too expensive. Really? The fact is that utilities had a great performance last year and those managers suffered in a loss.

    Why value investing is still a good opportunity?

    Historically, they beat Grand Depression, played well during recessions, and inflation periods. Moreover, growth stocks have not become more profitable. So, the value stocks should finally be better. The reason is simple. They are unfairly cheaper. And that’s the point of value investing – finding under-appreciated stocks trading at low prices.

    The stock market analysts found that stocks traded with low P/E and P/B ratios can easily beat the wider market. This opinion is supported by the facts. 

    A historical outlook

    At the time of the financial crisis in August 2007, the S&P 500 index has returned 175%. The total return of value stocks in the US market was 120%. The return of growth stocks was fantastic 235%.  Let’s go in the past more. Almost 20 years ago, value investors were devastated. For example, in 1999 and 2000 were so bad years for the value investing that some value investors had to step out of the market and retired.

    But let’s stay for a while in 2007 and analyze growth investing deeper. What did happen? 

    That growth-strategy outperformance ended with the fall of the dot-com bubble.  Value stocks came out of favor after the 2007 Global Financial crisis. On the other hand, growth stocks are performing remarkably well. Value stocks became unfairly cheap. You can notice that investors are expecting this global trend to continue since the global economic growth is slow. So, value stocks are trading at a discount compared to its more expensive growth peers.

    But, is this discount a reason to invest in value stocks? It looks like that because value investing builds up. Slow economic growth caused value stocks to continue to produce stable free-cash flows. Yes, their businesses have slowed, but not damaged. At the same time, some of the growth stocks become extremely expensive. Moreover, the risk of failure in growth stock investing during slow economic conditions has grown.

    Value Investing continues to make the headlines and not only in the US but also in Europe. We all can witness an increased number of headlines and publications, most recently, on the coming death of value investing. But now, something has changed.

    Value investing is not dead

    Timing the market seems to be difficult for investors. The intraday volatility grew over the last year, therefore, investors prefer not to bet as it will hurt long term goals. But this situation is beneficial for value. The value stocks start to outperform.

    That will be a major market change. Value stocks’ years-long downtrend begins to turn. For some, it may seem a bit strange because investors in more cases neglect bargains. Everyone is trying to catch the major winners, famous companies, expensive stocks. They prefer to overpay some stock because of excitement. Oh, how wrong they are! But as we said, value stock investing is coming back.

    Firstly, value stocks are cheap.

    Value investing is the main principle for equity managers. There is long-term potency to buying cheap stocks over expensive growth stocks. Value investing was attractive over the entire history. Why shouldn’t it continue?
    No one could say value investing is dead. 

    Goldman Sachs predicts a new life for value investing

    Value investing has been decayed after years of underperformance. But Goldman Sachs says there’s still great growth possibilities in this classic factor strategy. And here are some reasons behind.

    Value stocks will come back in favor very soon.

    David Kostin, Goldman’s chief U.S. equity strategist explained that during the last 9 years the difference in valuation of expensive and cheap stocks was wider than ever. 

    Kostin said: “A wide distribution of price-to-earnings multiples has historically presaged strong value returns. However, a rotation into value stocks would require a sustained improvement in investor economic growth expectations, potentially driven by global monetary policy easing.”

    The renaissance is coming

    Value investing has gone out of favor particularly because the economic expansion gets stretched longer. Value brands continue to falter due to modest GDP.

    But this course could start to change for value stocks. In the US an easier monetary policy from the Federal Reserve could increase growth expectations. Also, a rate cut could support the economy additionally. Bankers announced that possibility. Also, we already saw signs of resilience in US value stocks last September. Analysts predict that value stocks could finally enjoy a rebirth in 2020. Value investing means buying stocks that are trading below their value in the hopes of notable profit when the company comes into favor. 

    By default, value stocks have underperformed since the financial crisis. The investors have shifted into more energetic growth stocks, for example into technology. But last autumn, growth stocks were trading at high valuations and they became too expensive. In the same period, value stocks have shown important strength.

    From October last year, the Russell 3000 Value index has dropped 2.4%, and the Russell 3000 Growth index has experienced a worrying 7.1% reversal. 

    Yes, growth stocks had a bounce, and outperformed value stocks. But there is some rule pointed by Morgan Stanley’s analysts. The markets are in the process of a regime change. That means the investors’ willingness to buy growth stocks will decrease as interest rates rise.

    Goldman’s High Sharpe ratio

    For investors assured on value stocks comeback, Goldman has selected value stocks with “a quality overlay.” Do you understand what does it mean?

    These stocks could easily generate three times bigger returns than the average S&P 500 company with similar volatility. It is Goldman’s Sharpe ratio basket composed of 50 S&P 500 stocks with the highest ratios. This ratio measures a stock’s performance related to its volatility. 

    Goldman named the stocks with the highest earnings-related upside to consensus target prices. That are Qualcomm, Western Digital, Marathon Petroleum, Halliburton, Facebook, and Salesforce.

    Bottom line

    Many of the world’s most successful investors hold value stocks. They are buying cheap value stocks and benefit as the companies manage to work better.

    For this to work, the stock has to stay cheap, so the company spends money on tremendous dividends and buybacks. The other option is the company be re-valued at a more relevant valuation, meaning more expensive. That is happening when the market recognizes the previous mistake in valuation.

    For example, take a look at Altria (MO).

    When the evidence about how toxic smoking is, appears to the public and more and more people stopped to smoke, investors had a feeling that cigarette producers will have a problem, the stock valuation was low. Well, something different happened to the company. The fundamentals remained strong. These stocks had good returns and still have. 

    How is this possible?

    The stocks had higher dividend yields and investors reinvesting their dividends. Very good play. Tobacco companies also reinvested. They were buying back their cheap stocks and increased their earnings-per-share and dividend-per-share. 

    Smart investors know that value stocks can outperform most other factors. Some of the cheapest stocks in the market today are banks, oil companies, and so on. Keep it in mind.

    So is value investing coming back? Do we really need to think better what the definition of value is?

  • Stocks Reached New Records in the First Five Days This Year

    Stocks Reached New Records in the First Five Days This Year

    Stocks Reached New Records in the First Five Days - January Effect
    Stocks rose in the first five trading days in January. There is an old tale of the January Effect but is that true or myth?

    Stocks reached new records in the first five days of this year. And when stocks play well in the first several sessions in some years like it is in this one, investors like to recall the “first five days” rule. The point is that this rule is, therefore, able to predict the market is often up at year-end. But is this true?

    Stock Trader’s Almanac, which analyzes the market phenomenon since 1950, discovered that if the first five days have a good track record it is a good prediction for the whole year meaning it will be well in the stock market.

    Actually, it is an old Wall Street “first five days in January” indicator and as we know the brokers are superstitious. They believe if the stock market during the first 5 days of the year reaches record, that represents the potential for the strong performance in the given year.
    So, stocks are sending a bullish signal for this year, according to that old indicator. Well, it is a good way of pumping stocks. Bulls in the market do that.

    Will the whole year be like this?

    But is this a reasonable way to make predictions for the whole year? We think it is an absurd way to estimate valuations.
    Yes, stocks reached new records but if you take a serious look at the indicator you will find some drawbacks. Frankly, stocks are overvalued more than ever.

    The stocks reached new records

    Yes, in the first five days in 2020 but few days will last forever and maybe it’s time to consult the historical data just to compare what could happen next.

    According to Dow Jones, historical data shows that the S&P 500 index has completed the year in the same trend as it started it in 82% of presidential-election years. It occurred from 1950 to today every time. In the first 5 days of 2020, the S&P 500 rose 0.7% and if the mentioned historical pattern is correct that should suggest that this year will finish with higher gains.

    But be serious. We will need a deeper look at this indicator and on what it shows. Otherwise, you can easily read your horoscope (pay attention to the “sex” section better than “finance”) it will make more sense.

    The ‘first five days of January’ indicator

    January in the stock market has a strong influence on predicting the trend of the stock market for the rest of the year. The January Effect occurs when investors’ selling off their losing positions at the end of the prior year to realize the tax losses. Usually, these stocks are at a discount during January. And what we have there? Bargain hunters! They step in with their buying pressure in the market.

    Statistics show when the S&P 500 rise in the first five trading days, there is around 86% possibility that the stock market will rise in that year. But this indicator isn’t very reliable due to the fact that we cannot find what happens when the gains in the first 5 days in January are below expected or in comparison to previous January or whatever. All we have is data for periods when the January Effect is triggered. But markets exist even without the January Effect. Even more, the markets exist even beyond January. 

    With a little help of stats, we can see that this effect had good predictions in 31 out of the past 36 years. Stocks reached new records in the first five days of 5 exceptions, 4 were war years and one was a flat market.

    So, this was a confirmation of the January Effect.

    Statistical answer as confirmation of something different

    Let’s use more current data and divide the past 34 years into two sections separated, from 1984 to 2000 and from 2001 to 2017. 

    Let’s observe the period from 2001 to 2017. Data shows that, for example, the December effect produced an average return of 2.62% or a return of 36.5% during the observed years. But if you take a look at January for the same period, you will find poorer results. The average returns in that month were at 2.48% or 34% pre the whole year.

    This seems to be a strong approval for the January effect. Nevertheless, whoever tried to use the January effect, and bought an S&P 500 index fund on January 1 and sold it on January 31, and kept cash for the rest of the year and did it in the next years to the end of 2017 made losses of 0.84% per year.

    Stocks reached new records but ignore the January effect.

    The using the January effect can be dangerous. This phenomenon is based on limited data and adjustments for confirmation. So, you shouldn’t believe that every time when the stocks reached new records in the first five days of the year were great gains in the market.

    The conclusion about the January Effect came from small samples. So, it has low statistical reliability if it has at all. You cannot make a conclusion based on limited data. Yes, some financial press reports will try to assure you how these “five days effect” is important and you will find a lot of catchy titles but it’s fishing and fake news also.

    Even the month of January was great for the stocks, what about the other months? If it is the only one-month effect what are you going to do with your investment over the rest of 11 months? Would you make decisions based on superstitions? Cash-out? We don’t think it is a smart investment strategy. 

    Common sense tells us something different. This isn’t a hypothetical situation, this is reality. Try to figure out why this phenomenon isn’t part of any extremely advanced computer software? Some software, and even not so sophisticated, will be able to identify the phenomenon and profit on it. 

    The reason is obvious. There is no unusual market’s phenomenons, that’s nonsense. If there is any phenomenon that is simple to be explained to the inexperienced trader or investor you can be sure it isn’t real. It is superstition.

    Bottom line

    This was another old tale to neglect, just like many others. Who can really believe that the first 5 trading days in January could predict the stock market’s direction for the full year? Yes, this old “indicator” gets much attention every year. As we said, the bulls are trumpeting it right now.

    But nothing is that easy, especially the stock market.

    If you have a problem to accept all of this, examine what did happen over the last 40 years. You will find that this pattern was a reversal. The fact is, since the 1970s every time when the Dow was down during that mythical period of 5 days in January, the whole year had higher gains. 

    To be said, any investor who admits the extraordinary influence of this superstition has a lack of knowledge and self-confidence. On the other hand, newspapers and financial reports enjoy cheating people when insisting on this.

    We would like to point one thing at the end. The words written above doesn’t mean the stock market will not rise this year. It can do it very well and produce great gains, but what does it have with “First Five Days of January”?

    Nothing!

  • Is Coca Cola Overvalued – Trick Or Treat

    Is Coca Cola Overvalued – Trick Or Treat

    Is Coca Cola Overvalued
    Coca-Cola has performed very well in 2019. The stock isn’t cheap but also, not overvalued. The increasing margin and investors seeking yield couldn’t be a problem for the company to continue great performing. 

    The question Is Coca Cola overvalued could be a trick. Why do we think so? If we take a cash flow at a consideration we can see that Coca Cola is trading at 24.4 times operating cash flow and 31.3 times earnings. Further, the forward price-to-earnings ratio is at 24.6%. and the latest price is $54.69 (data from January 3th, source Yahoo Finance). Although, the company is not expensive. 

    Further, if you have in your mind that most government bonds are trading under 0% yield, the negative interest rate in the EU, currently inflation is low, KO that provides a 2.9% yield, you must understand that it isn’t expensive.

    Of course, it will be better if the stock can provide a higher yield but for that, we have to wait for additional dividend increases. On April 9, the stock traded at $55.77, the current price is at $54.69 but we all have to admit it isn’t a sharp decline in the stock price. Coca Cola management may reinvest the company’s operating cash in capital expenditures (CapEx) to get, improve, and keep the property, improve technology, or equipment. Further, the company can reinvest in development such as innovation to improve the product portfolio, marketing or M&A to maintain the business like it was in the past 20 years or more.

    Also, Coca Cola can use the operating cash to further improve profitability. That would influence its P/E ratio.
    Having all these indicators in mind it is easy to conclude that Coca Cola isn’t overvalued stock.

    It has a high debt

    Coca Cola has raised debt levels. The company has a slightly low liquidity position as the current ratio is at 0.92. The sustainable level should be 1.00 but the current debt levels are not something to be worried about. Boosted debt came from the fast increase of long-term debt and falling sales. But as we said, the company plans to improve sales and operating cash flow will likely grow. That could easily cover the debt. Moreover, the company’s bonds are doing very well. 

    Why do some investors think that Coca Cola is overvalued?

    Some investors avoided this stock due to its valuation. But try to be honest, it isn’t expensive. The company is paying a stable dividend yield and, according to its statements, it plans to have strong sales in the future. Coca Cola isn’t in the phase of low operating cash flow. Experts’ opinion is the stock hasn’t sell signal. It is contrary, with 31.3 earnings it has “hold” or even “buy” signal. Moreover, some estimations and predictions show that stock may hit over $60 (close to $65) this year. Well, Coca-Cola is a solid dividend-paying stock and it will likely continue to produce stable profit for its shareholders.

    The profitability of the company

    Let’s see is Coca Cola overvalued. Over the last four years, the company had a total revenue drop of $10 billion to $34.3 billion. Operating margin was improved by 560 points up to almost 29% and income dropped to about $10 billion which is a difference of just $400 million. The good sign is that the company increased cash by almost $10 billion from its operations while dividend payments hit a new record of $6.74 billion. 

    This year, Coca Cola has got back $3.4 billion through dividends and distributed stock worth $233 million. Yes, it is lower than for the same period last year due to several factors and the dividend increase of 3% may not be so visible. But the stock has had a great play in 2019 with a return of over 16%. So, what do you think, is Coca Cola overvalued? We think it isn’t. The company has a great product portfolio that could boost sales. So, KO could be one of the best investments in the next year since, as we can see, there is still a lot of potentials. Maybe the better question could be is Coca Cola undervalued rather that is Coca Cola overvalued stock. 

    Coca Cola through the history

    After 133 years of existing Coca Cola isn’t a woman-body-shaped-bottle. More about the company you can find in its fresh statements updated for Q3 earnings result for 2019. 

    The Coca-Cola Company is an American corporation established in 1892. It is primarily recognized as a producer of a sweetened carbonated beverage. It is a global brand not only the US trademark. The company is also focused on producing and sells soft and citrus drinks. Its product portfolio consists of more than 2,800 products available all over the world. That makes it one of the largest beverage producer and seller in the world and, also, one of the biggest corporations in the US. The company is headquartered in Atlanta, Georgia.

    Almost 55% of its sales come from carbonated soft drinks. The rest 45% goes to juice, dairy, tea, coffee, etc. The interesting part is that Coca Cola is a market leader in almost all of these areas selling its products through over 28 million customer stores.

    Speaking about its stock, Coca Cola could be everything but not overvalued. Moreover, it is a growing brand after 133 years. And the company still has great ambitions to meet consumers’ demands. Respect.

    And don’t be worried if this famous producer is able to meet them. Despite the increasing competition, the company has transformed into an asset-light company. It manages to improve supply chains and modernize its packagings, the concentration of sugar and modern tastes. 

    Don’t ask is Coca Cola overvalued. It isn’t.

    Bottom line

    Coca Cola is consumer staples stocks. It provides goods that people need on a daily basis. That fact makes it an excellent investment in practically every economic condition exceptionally winning during economic slowdowns. People will always need these products no matter what economic or financial status is or if there is inflation or market downturns. The whole industry’s total return in 2019 was 27.3%. Compare this data with the 12-year average annual return of 10.4% and you will understand why it is still a good investment choice. Yes, it is 3% points below the S&P 500. Nevertheless, if the market gets rough, and especially if we will face the market correction, this industry will shine.

    In the face of this context, Coca Cola is one of the best consumer staples stocks to buy in 2020. This pick should be proficient if the market is turbulence in 2020.

    So, KO could be a good addition to investors’ portfolios.

  • The Average Stock Market Return

    The Average Stock Market Return

    The Average Stock Market Return
    The stock market average return of 10% is exactly that – an average, while the returns for any particular year may be lower or higher.

    The average stock market return was about 10% annual for the past almost 100 years. But when we take a look at any year particularly we could notice that the returns weren’t always average. And that is the truth about the average stock market return, it is average rarely.

    Historical data shows the average stock market return is 10% but when you look at year-to-year it can vary. For example, this rate should be reduced by inflation. Inflation can vary too let’s say from 2% to 3% which is a regular rate. 

    But when we talk about investing and investors we usually think about long-term investments. To be honest, the stock market likes long-term investors. They are keeping their investments five or more years.

    Keep in mind: the stock market’s returns aren’t average and could be far from average. For example, over the past 80 years, you could find that the average stock market return was from 8% to 12% only several times. Due to the volatility of the stock markets, most of the time the average stock market return was higher or lower. So, returns can be positive even when the market is volatile but the average stock market return will not rise every year. Sometimes it will be lower sometimes higher.

    What is the average stock market return? 

    The average stock market return actually is about 7%. If we take into account the periods of highs, for example, the 1950s the returns were up to 16%. But we had the negative returns of 3% in the 2000s.

    For example, from 1998 to 2018, we had an average stock market return of 6.88%. The lower return came from the enormous loss in the market in 2008. 

    But, over the last 50 years, the average stock market return was 10.09%.

    The stats may help here, the Dow Jones – by May 25, 2018, the average annual return was 5.42%. On January 6, 2012, a 25-year period ended with an average return of 7.55% per year. But if we look at data from the beginning of 20 century, the average stock market return was around 4.3% respectively.

    On the other hand, the S&P 500 index had average returns from 1957 through the end of 2018 about 7.96%. But, the average annual return from its inception in 1926 through the end of 2018 was about 10%. Last year, 2019 was great with a return of 30.43%. If we include dividend reinvestment, the S&P 500 return was 33.07%.

    How to calculate the average return on stocks?

    The average return on your stocks’ portfolio should reveal to you how well your investments have run in a particular period. This can also help you to predict future returns. Remember, this measure isn’t the annual compound growth rate.

    So, to calculate the average return on stocks you will need to calculate the return for each period. The next step is to add returns together and divide the result by the number of periods. That’s how you will get the average stock return.

    Calculate the average rate of return

    Firstly, what is the average rate of return?
    It is the percentage rate of return that is expected on an investment but compared to the initial cost. 

    The formula is quite simple. Divide the average annual net earnings after taxes or return on the investment to get the average annual net earnings and then display in percentage.

    The average rate of return formula = (Average Annual Net Earnings – Taxes) / Initial investment x 100%

    Here is the explanation of what we did:

    Firstly, determine the earnings from stock for a particular period, let’s say 10 years. Now, you have to calculate the average annual return. Do that by dividing the total earnings after 10 years by the number of years.

    Further, if you have a one-time investment, find the initial investment in the stock. If you want to calculate for regular stock investments, take the average investment over life.

    And finally, divide the average annual return by initial investment in the stock. 

    Also, you can do all of this and get the same result if you divide the average annual return by average investment in the stock but expressed in percentage.

    Let’s take the example of a stock that is likely to generate returns of 10% per year after taxes and for a period of 3 years.

    The initial investment       $10.000
    First-year’s net earnings   $1.000
    Second-year net earning  $2.100
    Third-year net earnings    $3.310

    Use formula

    The average rate of return formula = (Average Annual Net Earnings – Taxes) / Initial investment x 100%

    After 3 years your initial investment will be increased by 64% or you will have $6.420 more in your account.

    What does this mean for investors?

    As always, computing dividends is important and you have to account for them. If you reinvested received dividends, even better. That’s compounding on compounding!

    The truth be told, those who have stayed invested in stocks have largely been rewarded.

    The understanding of the concept of the average rate of return is important because investors make decisions based on the possible amount of return expected from an investment. Based on the average rate of return, you can decide will you enter into an investment or not. Moreover, the return is used for ranking the stocks and ultimately you will choose per the ranking and include them in the portfolio.

    In a few words, the higher the return, the better is the stock.

    But let’s examine one different case of the average stock market return. 

    Let’s say your initial investment is also $10.000 but (this isn’t easy to say) in the first year you lost 20% of the initial investment. That’s bad news. But in the second year, you gained 20% of the initial investment. Oh, how nice it is!

    Yes, nice but your gain is zero.

    (-20+20) = 0

    What do you think? Do you still have your $10.000? Things never move in that way.

    Here is why.

    When you lose 20% of your initial investment you ended up with $8.000. Right? That amount became the amount of your investment. On that amount, you gained 20% or $1.600. So, after two years you have $9.600 in your hands and you are short for $400 compared to your initial investment of $10.000. You lose money and your return isn’t zero. Your return is minus and you will need more gains in bigger percentages to cover that loss.

    The stock market average return isn’t misleading. That is how you have to calculate it.

    Or to calculate CAGR.

    Bottom line

    This means that investors MUST have a financial plan and investing strategy.
    There are no guarantees for big gains in the stock market and never were. The average return of 7% or 10%  is great if you are a long-term investor. It is reasonable to expect a good return on the current stock markets if you reduce your enthusiasm when the good times come.
    That’s nice, you’re making money. But, when stocks are jumping, remember that not so good time may come. Especially keep this in your mind over the bull market cycle.
    You can get the average return only if you buy and hold but not if you trade frequently. Even a few percent per year can produce nice gain over the years.

  • What to Expect From the Stock Market in 2020?

    What to Expect From the Stock Market in 2020?

    What to Expect From the Stock Market in 2020?
    Create portfolios that will work no matter what the next year is going to bring. The recession will come or not, but your investments have to be protected. 

    By Guy Avtalyon

    What to expect from the stock market in the year ahead? The stock market could correct itself during the early days of 2020. But, despite some dark predictions, the stock market may keep rising over the long run.
    This is the last day (at the moment of writing) of the year during which the market was so unpredictable. At least, it was surprising.
    For example, Uber’s IPO was followed by fanfare, and what happened? Great disappointment.
    But many other stocks hit their highest-ever highs and quickly dropped to the lowest lows. The only truth in the stock market is that there will always be shocks. 

    Okay, that year is behind us so let’s take a look at what to expect in the stock market for 2020.

    The stock market will rise more

    The stock market boomed in 2019. The S&P 500 recorded a gain of 29.2% in 2019. Some analysts already told us the market will be down in 2020 but, to be honest, they could be wrong. Since the stock market rose over 20% in 2019 it is more likely in 2020 to see even greater returns than it was in the previous year.

    What you have to do? the answer is simple. If you had good returns in 2019 and your investment portfolio was doing well, just stay with it. Why would you change the winners? 

    But…

    Nothing related to the stock market is for sure and forever. There is always something to worry about. It’s our money. If you hold cash and not invest in stocks or somewhere else, your money will go anyway. So, don’t be frightened, come back to the market, and invest smartly. The year ahead could be promising. Build your portfolio, mix the assets, and avoid emotions. Yes, the stock market could be more volatile in the next year could since 2019 was much less volatile than the prior year.

    Some unpleasant occasions may arise over the coming year. 

    Firstly, in January due to the January Effect. What is this? The January effect is an increase in stock prices during that month. But is a seasonal increase. Usually, In December,  the stock market records an increase in buying, and the stock price is dropping. In January, stock prices will increase as always. 

    In fact, the January effect is a theory and calendar-related effect. Some small caps could be affected more than any other. But according to history, it was a case until several years ago. Since then, markets seem to have adjusted for it.

    What to expect from the stock market 

    The stock market is pretty much unpredictable, we can only guess. Maybe the right question is what to expect from the investors. So far the majority showed spectacularly bad timing when it comes to stocks. They are selling and buying at the wrong time. Many of them are selling just before rallies or accumulate stocks when they have to sell. 

    If you believe that the market is increasing and that it is a predominant trend, adjust your portfolio for the ups and downs in 2020. But it is the same as always. Your actions will depend on what your expectations are toward the stock market in the next year. Maybe, you will invest more money when the markets are more volatile with the expectation that pullback is temporary, who knows?

    The value stocks will come back

    Yes, stocks are growth or value type. Growth stocks are so attractive and popular. Everyone is talking about them, they are in the headlines, media are paying a lot of attention to them and burn our brains too. The whole world is watching the stocks of Amazon, Facebook, Uber, and many others because the growth stocks are giving great returns, they are well-known companies, famous brands.

    On the other side, we have value stocks. They are mostly companies form the utility industry, or energy or something else less attractive. Such stocks don’t have spectacular prices, the companies are not fast-growing. 

    Yes, the growth stocks are performing better results in growing markets but the value stocks will always do better in down markets.

    To be told, the growth stocks are increasing their value year-to-year and some experts are expecting a reversal in 2020. So, growth stocks may change their prices and decrease.

    A diversified portfolio will be helpful as always. If you hold any of these great players just sell part of it if you follow the experts’ estimations. At least, your portfolio will be less volatile.

    What to expect from the stock market: The bear market is coming for sure

    This prediction was wrong for many prior years. But, maybe the next year may confirm market bears’ expectations. We have a bull market and it showed a great strength over the year. It was faced with a yield curve inverted, trade war, Brexit, the possibility of a recession. Well, to add more pain into your lives, the bull market has to end at some point. Some experts expect that 2020 is that time.

    So, what investors have to do is to hedge the risk and take some profit, of course. As the market motto advises “you will never go broke taking profits.” Maybe it is really time to take some profit from your investment. If you believe the downturn in the stock market will come for sure, be ready to reinvest big gains. What different could you do when the important selloff comes in 2020?

    Will the recession surely come?

    Recession is an element of any business. So, we can expect it to come at any time, sooner or later. It may happen in 2020 or 2021 or 2022, literally anytime. Many circumstances have an influence on it, we are witnesses of some, that’s true. 

    Investors shouldn’t adjust their portfolios based on guessing. However, it is smart to analyze your allocation. Maybe some stocks are out of balance. Let’s say you wanted to hold 50% in stocks but you noticed that suddenly you hold 70%. That would be a clear sign that is clever to exit some positions. Just adjust your portfolio with your risk tolerance and investment goals.

    We all know that the stock market forecasts are useless. No one can predict how the market will perform. But still, we click on them to see and compare them with our opinions. The reduction of difficulties is in the essence of human nature.
    However, investing in the stock market certainly includes difficulties and risks. Seeking out for expert opinions about what to expect from the stock market in 2020 can be the wrong way to lessen risks or uncertainty.
    Investors must do their own examination. If you think the crypto will go up, just buy some of them or parts of them, or if you think Uber is a great investment, just buy some shares of it. A small portion will be quite enough notwithstanding that experts are expecting a big increase.

    One is a-hundred-percent sure, you will make at least one mistake. Take it as certain. But that’s life and also, that’s investing, be prepared for that.
    Just do your best to secure your right calls overpass your wrong ones. 

    Happy New Year!

  • Stock Market Correction – The Storm Is Coming

    Stock Market Correction – The Storm Is Coming

    Stock Market Correction – The Storm Is Coming
    A lot of mergers and acquisitions, drop trade investment and lack of business trust indicate a coming stock market correction Bear in mind that markets will not disappear, so you can get back 

    By Guy Avtalyon

    The dark sign of an upcoming stock market correction might be when the companies are buying back their stocks and use them for buying other companies. In this example, the stocks are used as currencies. We can see that so many companies are doing exactly that. Further, we are witnesses of a lot of mergers and acquisitions. The companies are uniting to survive something. But what? What they are expecting?

    Is the logical answer that they are expecting stock dumping and the stock market correction?

    Some analysts say YES.

    The first sign of possible stock market correction they see in companies buying other companies, in mergers with rivals and financed by shares exchange is the signal that the market is close to the end of its bullish period. The opposite opinion befalls when the companies invest in new activities, new operations, development. That would be a good signal for the stock market. But when the companies are using their own shares to buy growth it only can be a sign of the lost confidence.

    Yes, the economy runs in cycles. The sunny days will always follow after rainy days. But we have to be worried when the economy’s condition pattern indicates the coming storm just as we are in a hurry when the real storm is coming.

    How to manage the stock market correction?

    A stock market correction is an alarming condition but quite normal. Some might be surprised, but it is a sign that the market is healthy. Well, in most cases.

    How could we know that the stock market correction is coming? When the stock prices are dropping 10% or higher from their most current peak but not more than 20%. In such a case, we would have a bear market.

    Firstly, don’t try to “time the market.” Avoid swing trading even though trading the ups and downs may give you some profit but for a short while. Many investors are trying to avoid losses by putting money in some other investments where they think there is a better possibility of profiting. 

    Most people lose money by trying to move their money around to participate in the ups and avoid the downs. This is a documented behavior studied by academics around the world. The field of study is called behavioral finance. That is a behavioral bias.

    Our two cents

    When you build your investment portfolio it should be based on knowledge and your education, not on prejudices. It is normal to expect that for every quarter of the year, you will have some negative returns. Tn order to lessen those negative returns or to control them you have to have a diversified portfolio. That means you need to combine your investments. Pick a mix of assets that have more potential for upsides and fewer chances for high returns because that means less risk.

    During the market correction, savvy investors have more discipline, less fear, and stay with their investing playbook. Don’t trade at those times because you may catch larger losses. Behind these words lies the stats, you can easily check it.

    Follow the old Wall Street pattern: Never catch a falling knife.

    Be mentally prepared

    A market crash may happen. When? It doesn’t matter. You have to be mentally prepared for that because the markets are unpredictable and it had happened before. Yes, we all like to be rich even on the paper and it’s really hard to chew a big bite. And the stock market correction is just that – a big bite. Some investors might feel fears, be frightened, and start selling their stocks at the worst time.  

    If you are a long-term investor type, you must have trust that the stock market will adjust eventually. 

    Corrections can last from several days to months or longer but the last mentioned are rare. Remember, a correction may damage your investment for short, but it is a great opportunity for adjusting overvalued stocks. So, buying opportunities are undoubted. So, just keep adding stocks to your investment portfolio while others are selling in a panic.

    Can we predict a stock market correction

    Nope. No one can predict a stock market correction. They aren’t predictable. Moreover, they can be generated by different matters. For example, we know the Great Recession has erupted on the housing bubble. But we know that after everything was finished. But predicting the main cause of the next correction just isn’t possible.

    What we know for sure comes from research. According to one conducted on the example of the Dow Jones, the average correction lasted about 72 trading days or three and a half calendar months. And the correction is when the overall stock prices drop more than 10% and if the decline of more than 20% it is a so-called market crash. That’s all.

    For whom the market correction matters?

    Stock market correction matters for short-term traders. If you stay focused on the long term you will survive anyway. When correction occurs those who’ve adjusted their trading as the short term or those who have leveraged their account with the use of margin, should be worried.

    Traders that used margin had bigger losses during the market downturn. Also, active traders had increasing costs united with their losses during the correction. Holding long-term investment was the best way to survive the stock market correction. At least such investors had a peaceful life.

    Don’t be afraid of a stock market correction. It is usually a great time to buy high-quality companies at a lower price. So, you can add stocks to your portfolio for long-term investments, even the one that previously appeared to be a bit too pricey. Also, a market correction is a good time to examine again what you hold. Sell your position only if you see that your investment, but each in your portfolio, couldn’t meet the cause of keeping it.

    A stock market correction doesn’t need to be terrifying.  If you don’t want to taste it, it is best to stay away from investing in the stock market. Instead, stick with safe investments. 

    Keep your balance.

  • A Good Entry Point, the More Chances of Profit

    A Good Entry Point, the More Chances of Profit

    A Good Entry Point, the More Chances of Profit
    The entry point is very important and can determine the end of your trade both in losses or in profits.

    Having a good entry point is the first round in reaching a prosperous trade.
    What is the entry point? It is actually the price investors have to pay to buy/sell a stock. The exit point, on the other hand, represents the price at which investors exit the trade with loss or in profit.

    While the entry point has been extensively examined from the divergence/convergence aspect, the exit point has not got full attention.

    Why is that? Well, exits may have hidden tendencies.  

    But let’s stay on a good entry point.

    Traders’ successes or failures depend a lot on trade entries. One wrong entry can destroy your trading, for example. Yes, traders are using stop-loss to lessen the risk in case the market makes big moves.
    But let’s talk about how the risk-reward potential can be enhanced by a better trade entry.

    First of all, never enter the trade when the market is near to extreme highs or lows from the recent position. That fault may ruin your trade.
    We already have seen traders that decided to enter the trade when the trend broke the final high with the hope that the stock price will continue running up.
    That was the wrong decision because when the price reaches its highs, in most cases the only way it can go further is down. The price will drop into the previous range. So, you will make a loss.
    The reason behind this is that markets never move in one direction forever. Especially after the trend reaches extreme highs and lows. If you place the entry point when the trend reaches the highest, it will always result in losses.
    But if you like to take more risks in trading you can do that but be sure where you want to set the stop-loss to lower your losses when exiting the trade.
    The wrong entry may occur if you are trying to enter the trade at the point where a large move is, but you are not sure what caused this move is. The direction may shift quickly in the opposite direction and your trade will end in losses.

    Reversal strategy for a good entry point

    Some traders like to set entry using reversal strategy. What does that mean?
    In this entry strategy, the traders are taking the trade with the hope that the market will make changes its trends. They are using pivot point levels, so-called Fibonacci levels. This entry is useful only when the market isn’t trending in an obvious, clear direction.
    Don’t use this in all trading.

    The real role of a good entry point

    The role of a good entry point is to allow you to identify high probability trades. You need the confirmation that you have an edge by reducing emotions.
    You need a trading strategy that makes sense and where you can execute entry orders with confidence. It is very important and your good entry point should provide you that. Otherwise, it isn’t good.
    Eventually, with a good entry point, you are more likely to enter the profit target or stop-loss. And the chance to look for other opportunities is here also.
    A good entry will help you to repeat your trades and increase your advantage. But don’t be too focused on your entry point. Overoptimizing is never good.

    Bottom line

    A good entry point is very important for the success of your trade. But the exit point is what will control your profit. So, you will need to optimize it. To be honest, the best way is backtesting and finding out what works best for you. There are two ways to do that. You can use complicated calculations, charting, etc. or you can use Traders Paradise’s unique and simple app for optimizing your exit strategy. It’s up to you. 

    Remember, all is important. But as you can see, you can enter the trade in many situations but you can end your trade with only two: profit or loss.

    Trading is a game, you have to make the best move at the right moment.

  • Superstition In the Stock Market May Lead You to Lose the Shirt

    Superstition In the Stock Market May Lead You to Lose the Shirt

    Superstition In the Stock Market
    Stevie Wonder wrote in his famous song:
    Very superstitious
    Writing’s on the wall
    Very superstitious
    Ladder’s about to fall
    Thirteen-month-old baby
    Broke the looking glass
    Seven years of bad luck
    Good things in your past

    Superstition is so live in the stock market that you can barely believe. Imagine that it is Friday 13, just like it was in April, September, and December this year. Some people, especially scientifically-minded, would roll the eyes. But, despite the fact that Friday 13th is just a day in the calendar and it may occur several times in one year, some investors truly believe that it is a bad-luck day. 

    When enough investors share this foolish belief, stock prices can be changed but not in the investors’ favor.

    But do superstitions really affect the stock markets? 

    Some studies revealed that people are more risk-averse when thinking about Friday13.
    One study from 2005 discovered that hesitation to do business on this day ends in a loss for the US economy of almost $900 billion. Does this scare affect stock prices? Believe or not, yes.

    First superstition: Friday 13th

    According to a study, returns on Friday 13th are lower compared with other days.

    This Friday 13th effect was broad spread among numerous investors until 1980 but has disappeared. The reason is simple: automated trading erased the “Friday 13th effect”. 

    But it so funny to talk about Wall Street superstitions. So let’s proceed.

    Superstition In the stock market No2: Did you know anything about the witching hour?

    Several years ago I found an article written by the man who worked as a broker on Wall Street. I am sorry, I didn’t remember his name. But what I remember is the witching hours are between 2 and 3 PM. Superstition linked to this part of the day (notice, it was on a daily base) was related to market close. If the market sold off at that time, it was a sure sign that the market will be closed on a positive mark. In that interval, from 2 to 3 PM, he and his colleagues were maniacally buying stocks. Just to provide a stronger close.  

    It worked until it didn’t. They didn’t leave the stats.

    Superstition In the Stock Market No3: Sell on Rosh Hashanah and buy on Yom Kippur

    The superstition works like this: on Rosh Hashanah, which is the first day of Jewish New Year investors should sell some of their positions and buy them back on Yom Kippur. This year Rosh Hashanah began on the evening of Sunday, September 29 and ended on the evening of Tuesday, October 1. 

    Do you believe that this trade works? Well, yes. More often than not. But for Jewish. Maybe you should try to sell some of your positions on January 1 or on Christmas or on Islamic New Year. In 2020 it will begin in the evening of Wednesday, August 19 and ends in the evening of Thursday, August 20

    But I am not so sure, dates may vary. 

    Chinese new year will begin on Saturday, January 25, 2020. 

    Did you know that for one part of Orthodox the New Year actually begins on January, 14? Confused? It is just a calendar. But if it works for Jewish why it doesn’t work for others? There is no reason. The only thing to consider is, do you have to trade according to the Jewish calendar or you can use any.

    What I learned during my life is: about superstition and taste is worthless to argue. Take it or leave it.

    Superstition No 4: Super Bowl theory

    This theory goes that the Dow Jones will have a good year if a National Football Conference (NFC) team wins the Super Bowl. But if the American Football Conference (AFC) team wins it will end the year lower.

    For those with a lack of knowledge about American football, the American Football Conference (AFC) and National Football Conference (NFC) are parts of the National Football League (NFL). Honestly, European football is simpler. 

    From 1967 to 2003 this superstition showed it was accurate 68%.  Several years in a row AFC teams were winning the Super Bowl and that was a period of economic growth, but who cares?

    Let’s ask the stats.

    It was 1967 when one AFC team won the first Super Bowl. During the following period, AFC teams have won 11 times, if you check the stock market result you will be surprised. In 6 of those 11 years, the stock market was dropped. On the other side the stats aren’t so favorable, NFC won Super Bowl more than 30 times and Dow Jones didn’t advance in each of them.

    October Effect

    This one is a bit harder to rebut. 

    The October effect is a market anomaly. The stocks tend to decrease during October. Honestly, it is mainly a psychological effect rather than a real wonder. The stats show something different than this theory. 

    But…

    October has this reputation thanks to Panic in 1907, Black Monday, Black Tuesday and Black Thursday in 1929, and Black Monday in 1987.

    Black Monday, 1987 that happened on October 19. The Dow fall 22.6% in one day. It was possibly one of the most unlucky days for investors and the stock market. 

    Despite the scary title, this effect is not statistically exact. From a historical view, October has seen the end of bear markets more than it witnessed the beginnings. But, investors see this month as dangerous and they are selling, and that sentiment creates possibilities to buy on the other side. So, superstition or not, while one sees the end, the other will see the beginning.

    Bottom line

    Irrationality and superstition in investing will always cause lower returns. Traders, whether they admit it or not, are superstitious. Some will have a happy pen, the other lucky shirt or underwear (hard to believe), some will have some other talisman. Superstition in the stock market is broad spread.

    Luckily, many investors and traders are devoted to science, education, and knowledge. 

    As Stevie Wonder wrote: 

    When you believe in things
    That you don’t understand,
    Then you suffer,
    Superstition ain’t the way

    Happy trade!

  • Three Best Stocks to Buy In 2020

    Three Best Stocks to Buy In 2020

    Three Best Stocks to Buy In 2020
    2019 is almost done, so it is time to think about where to invest next. These three stocks could be the top stock picks to buy in 2020.

    By Guy Avtalyon

    It is always hard to point three best stocks to buy or pay attention to, but the next year could be really challenging. Firstly, this year that is almost ending, was extremely exciting in the stock market. While some economists and analysts predicted market crashes and economic downturns, crisis, and inflation, the others claimed totally opposite. 

    The facts are, over this year the stocks boosted prices to the levels we could see only several times in history. 

    Our opinion, at Traders Paradise, is the next year could be even more volatile than this one. So, we paid a lot of our attention to pick three best stocks to buy in the next year.

    First of all, we had to examine which stocks will have a possibility to grow but also, stability too. Thousands of stocks are trading on the stock markets but we wanted to find the very best stocks able to generate massive gains. Matching these two criteria wasn’t so easy but we pick them. Here are the three best stocks to buy in 2020. Our opinion is based on news available about these companies and their stocks.

    Trading stocks based on news

    Walt Disney (NYSE:DIS)

     

    The market cap $268 billion
    Current price $148.46

    Three Best Stocks to Buy In 2020

    No, we didn’t pick Walt Disney company among three of the best stocks to buy in 2020 from sentimental reasons. Instead, we did it based on the fact that this company generated almost $70 billion of revenue over the last fiscal year. 

    It’s marvelous to imagine how this all empire is founded by Walt Disney, started from a small studio in 1922 and a secondhand movie camera. With his brother, Roy,  Walt created Oswald the Lucky Rabbit. After that, the new character was born. A lively, dynamic, and a naughty mouse called Mickey. It was planned to create only two movies with Mickey Mouse but Disney created at least 25 but Mickey appeared in at least 130.

    Today, Walt Disney (NYSE: DIS) has a valuable group of entertainment franchises. The great revenue for the company comes from TV networks, movies, Hulu, merchandise, and theme parks. Disney’s ideas have delivered shareholders a bunch of money. 

    Disney’s studios’ solely generated an awesome $11 billion in revenue in fiscal 2019, which is an 11% increase from the last year. The company’s Board of Directors announced this summer a semi-annual cash dividend of $0.88 per share.

    The most interesting part with DIS, the stock is more popular with time. So, the stock will likely continue to hit new highs and generate satisfying returns. Traders Paradise thinks that DIS is a good mid and long-term investment. 

     

    Fortinet, Inc. (FTNT)

     

    The market cap of $18.1 billion
    Current price $107.24

    Fortinet, Inc. (FTNT)

    Fortinet, Inc. is a provider of network security devices and Unified Threat Management network security solutions covering enterprises, service providers, and government entities.  Its shares attempted to break out on December 13 but closed just below the entry.

    The estimated earnings growth rate is 31% for this year.

    For the current quarter, Fortinet estimates revenue from $595 million to $610 million. The analysts’ estimated $584.7 million in sales. It’s easy to explain why this stock takes place among the three best to buy in the next year.

    Fortinet FTNT also announced the acquisition of SOAR provider CyberSponse but for an unrevealed amount.

    CyberSponse is Fortinet Security Fabric’s partner for some time and this acquisition will support Fortinet sin its security operations especially in incident response capabilities. This covers Fortinet’s offerings FortiAnalyzer, FortiSIEM, and FortiGate.

     

    AstraZeneca PLC (AZN)

     

    The market cap of $130 billion
    Current price $49.31

    Three Best Stocks to Buy In 2020

    AstraZeneca (AZN, $49.32) is a biopharmaceutical company based in the UK.

    It is focused on treatments in oncology, cardiovascular, renal, respiratory, and others. It has a lot of approved drugs. But the main advantage comes from a 155 trial-stage treatments, and nine new molecular testings in late-stage.

    Among its leading products are several cancer drugs. For example, Tagrisso is approved in 87 countries, and it is AstraZeneca’s best-selling drug. This particular product generated $2.3 billion in sales over the first 9 months of this year. It is 82% growth in the past 12 months in sales and represents 13% of the company’s annual revenue. 

    AZN stands out among the three best stocks to buy in 2020.

    The company recorded strong growth in China. Over the first 9 months this year, the company had $3.7 billion in revenues. That was 30% more than in the same period last year. AstraZeneca should work well in the next year.

    Trading stocks right now

    Here are the three best stocks to buy in 2020, that Traders Paradise thinks will shine. Some of them are typical defensive stocks able to resist possible recession. Some have characteristics that could shield them from trade turbulence. But all of them deserve a place in stock portfolios in the next year.

    For the stock market, 2019 was a fantastic year. The S&P 500 rose by almost 25%. The tech sector has done especially well.  But it’s not the time for complacency. Soon, 2019 will be over and all eyes will be on the year ahead. 

    So, it’s time to start watching some of the best stocks to buy in 2020.  With that in mind, we are suggesting you three best stocks that may be top stock picks to buy in 2020.
    Just follow the trading stocks rules.

     

  • Tellurian Inc – Large Reward But With High Risk

    Tellurian Inc – Large Reward But With High Risk

    Tellurian Inc - Large Reward But With High RiskEven without a product and with big risk, this stock could generate a large reward.

    By Guy Avtalyon

    Tellurian Inc trades on the NASDAQ under the ticker symbol TELL.
    The large rewards always come with risks. So, if you want to make a big profit be prepared to take a big risk. But a smart investor can assume where the potential traps may occur.

    Tellurian stock is such potential. 

    This is the natural gas company but without the product yet. Instead, it has plans to make the Driftwood export terminal and Driftwood pipelines. Tellurian, a natural gas company based in Texas, owns and manages the LNG processing and export facility through its wholly-owned subsidiary Driftwood Holdings.

    The U.S. Federal Energy Regulatory Commission issued the final environmental impact statement for the LNG project in January and granted authorization to build and operate the LNG facility along with the pipeline in April this year. Tellurian Inc. is building the terminal that will be able to export up to 27 million, 600.000 tonnes of LNG per year to customers.

    This project is still in the early stages of development, but it’s where investors see the final achievement of Tellurian’s potential. For example, India’s Petronet signed a memorandum of understanding with the LNG and took a stake in the project. Its expectation is to get five million metric tons of LNG per year.

    On December 13, the stock traded at $6.57.

    Tellurian Inc - Large Reward But With High Risk

    The analysts’ forecasts range from $6.00 to $20.00 with average expectations for Tellurian’s share price to reach $12.33 in the next twelve months. This implies the potential for the stock price to increase by 87.7% from the current price which is $6.56 today, December 16. 

    Tellurian Inc stock is likely a very good long-term investment. 

    Based on analysts’ estimates investors may expect an increase up to $11 over the next 5 years and also, the revenue to be about 70%. If you invest $10.000 today, your investment will be over $17.000 worth at that time.

    Where is the risk with Tellurian Inc stock?

    Investing in the company without the product is a big risk. Tellurian isn’t an exception. There is a risk but this company can easily be one of the few where the risk pays off.

    Tellurian Inc (NASDAQ: TELL) published its quarterly earnings results on Wednesday, November, 6th. The company reported $0.18 earnings per share for the quarter, while analysts’ consensus estimates were $0.13 by $0.05. Tellurian Inc reported revenue of $9.34 million, while analysts expected $13.60 million. Also, the company had a negative return on equity of 57.16% and a negative net margin of 677.62%.

    Why buy this stock? 

    The 50-day moving average for the TELL stock price trend is bearish. Currently, the stock price is decreasing from 50 SMA. 

    The company showed a return of 10.50% from the beginning of this year. The stock dropped for the last three days after a significant increase. 

    As we said, there is a lot of drawbacks with this stock but at the same time a lot of possibilities. Risk provides a profit. Maybe you just have to leave the comfort zone. But be careful and trade smart.

     

    You can test as long as you want. The app is easy to use and all data is accurate. You just have to enter your exit strategy (stop-loss and take-profit levels) and the app will show you how it was executed in the last 7 days, 3 months, and one year. The ability to check your exit strategy will help you to significantly decrease the risk and make a profit.

    That’s the end of every good trade!