Archive - 2015

1
2014 Investment Report: Dare to Believe?
2
Will Aggressive Speculators Abandon Stocks?
3
High Corporate Margins Unsustainable and Will Lead to a Crash

2014 Investment Report: Dare to Believe?

Looking back on 2014, people are going to say it was a great year to be an investor. They won’t remember how uncertain the journey felt right up to the last day of a year that saw the S&P 500 close at a record level on 53 different days. Think back over a good year in the market. Was there ever a time when you felt confidently bullish that the markets were taking off and delivering double-digit returns? I know I didn’t.

The Wilshire 5000–the broadest measure of U.S. stocks and bonds—finished the year up 13.14%, on the basis of …

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Will Aggressive Speculators Abandon Stocks?

A key driver of rising stock prices is the psychology of aggressive speculators. They act as pioneers to push up prices and frequently take on far too much risk with high risk, junk quality, small cap stocks that are in highly cyclical industries like oil. In late 2014 some of these stocks plummeted 50%, a few are down 75%. Since aggressive speculators often use margin that means some could have been completely wiped out in terms of their equity in the worst performing stocks. As the markets shifts from high risk stocks as the fastest appreciating to just a few …

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High Corporate Margins Unsustainable and Will Lead to a Crash

Regarding the question “are stocks overpriced?” the topic usually is debated around the concept of sustainable corporate profit margins. High corporate profits are really the only good defense of the bulls’ opinion. If today’s record high corporate profit margins are sustainable then stocks may only be modestly overvalued. On the other hand, if today’s margins are going to revert to the mean, which is typical for corporate profit margins, then stocks need to go down 50% to reach equilibrium. Mean reversion of profits may be a lumpy experience where they stay high for some time and then suddenly fall as …

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