Rule #1 Finance Blog
how to invest
ARE ADDITIONAL METRICS NECESSARY?
A good question put forward by Lee:
Hi Phil,
In some of the follow ups to the homework analysis of various companies, some additional metrics have been suggested. Specifically:
- Total Market Capitalization and Market Cap divided by last years revenue (a sort of PE on the revenue side). The idea being that stocks with inflated market cap don’t have as much upside.
- Institutional Ownership (% of company owned). I think the idea is that the technical indicators only work well if a significant part (> 50% say) of the company is actively owned and traded by the big players.
I was wondering your opinion on these metrics, and perhaps others that are good to look at before taking a position.
regards,
– lee r.
My response:
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
CTSH: GOOD NEWS, OR BEAR TRAP?
Here's an interesting question:
Phil:
Most days I am so thankful that I went to that "Get Motivated" Seminar in Cleveland and heard you speak on investing because I did not understand it at all and you gave me a direction to go. After that I got your book when it came out, read it at least six times (I'm a slow learner), convinced my brothers to join me in getting an Investools account, and I have been paper trading since May.
However, there are days I think, "What did I get myself into?" I'm not embarrassed to admit (yes I am) that I'm feeling a bit overwhelmed because there is so much information out there about investing and trading when you start looking for it. Investor's Business Daily, Wallstreet Journal, CNBC, Motley Fool, PBS Nightly Business Report, theStreet.com, Jim Cramer's radio and TV show, etc. I get a headache trying to make sense of all the things I hear and read. To that one might say, "Just focus on following the Rule Number One way of investing." I'd like to, but being so new at this I'm afraid I'm going to miss something! I can't believe I'm the only one who feels this way.
That said, it is pretty cool following the arrows and knowing that you got out of Panera well before it tanked! I do think this is an excellent time to be learning to invest.
So here is my question:
I got my last green arrow for Cognizant Technology Solutions Corp. (CTSH) last Friday and I bought a position on Monday. They are releasing earnings this Wednesday. Is it more likely that:
a) The stock price has moved up over it's 30 day moving avg because of good news coming out when earnings are released.
b) Crafty institutional investors are ready to spring a bear trap by "pushing" the price over the 30 day moving avg, getting more investors to buy, and then selling short when bad earnings news is released.
or
c) Dude, you are thinking way too much about this. Get in when the arrows are green and get out when they turn red.
Thanks for the insight!
Dean
RIT – Rule #1 Investor in Training
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
RULE #1 QUESTION OF THE WEEK: TWO GREENS OR THREE?
Here's a quick, general Q&A about the Tools. Q: OK… Say I’ve done all of my homework, found a wonderful company. I look at the charts and have…
Here's a Guitar Center followup from Jonathan:
OK Phil Town
Here's a little more on guitar center. When I dug into the cash flow I found where in 05 they spend 74 million from cash on additional inventory for the new stores. Is it good for them to spend the cash on that, or should they be getting that money from somewhere else?
Anyway, when I added the capital expenditures back into the cash flow numbers things got a lot better. So much so that I question doing this right.
They also talk in the reports and conference calls that I listened to that the cash flow in general has been up and down due to aggressive expansion. And they want to expand even more than ever before in 06, so I would guess that the cash flow numbers are going to continue to be all over the place.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
MORE ON CHIPOTLE (HOW TO REQUEST FINANCIAL DATA FROM A COMPANY)
Here's another update from Lee re: his Chipotle research:
Thanks for the feedback as always, Phil Town. Here's what I'm up to.
I requested the information from Chipotle Investor Relations (email below). I also looked at McDonald's annual report, since they are/were a major investor. Chipotle was part of "McDonald's Ventures", along with Boston Market. So, a way for McDonald's to use their money in other segments of the market.
A recent announcement said that McDonald's is ending some benefits to Chipotle (as planned) because their ownership is decreasing. This has apparently pushed the stock down, but I view it as good news. Just waiting for the green arrows now at a lower price.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
QUESTION OF THE WEEK: STICKER PRICE ALL-TIME HIGH
This week's question comes from Jerry in Orange Beach, Alabama: Q: Is it unsual for the Sticker Price of a stock to be higher than it has ever…
A bunch of you have written in about Claire's jewelry store (CLE), so here's a homework for you, from Meg.
Dear Phil Town,
First off, geez this is fun! I've enjoyed trying to find wonderful companies so much, my husband has taken to calling it my version of Internet porn – addictive. 😉
Here's my homework for your perusal:
Meaning – My eight-year-old thinks it is the coolest store EVER. She managed to make a $20 gift card to Claire's last over a hour of browsing their wares, and the salespeople are always nice to their pint-size diva-in-training customers. Plus, their knack for catering to this customer has been around longer than I care to admit; I got my ears pierced at Claire's on the 13th birthday.
Moat – Brand, baby – practically every mall everywhere, including a growing international base.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Here's Part 2 of Lee's Chipotle (CMG) Homework. My comments are at the end.
Hi Phil Town,
(I apologize up front for the length of this — edit at will.)
First, here are a couple of recent articles on Chipotle:
1. Investor's Business Daily recently wrote a piece (6/30/06).
Points of interest from this article:
- Profit grew 199% from 2004 to 2006
- McDonald's now owns less that 60% and will be fully divested by year end (I wonder if this selling has kept downward pressure on the stock).
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
A few days ago, Monk brought up some interesting observations about YHOO and Intangibles in the Comments.
Our exchange is useful enough that I decided to reprint it here.
Monk's comment:
As a new student of all this, I agree that Intangibles do make this process all the more scary. I agree that GOOG has a low percentage of Intangibles, and that may have been a bad example. By my read, YHOO on the other hand seems to have a lot more Intangibles percentage than you came up with. From Morningstar's site, under the balance sheet for 2005, YHOO had a Total Equity of 8566.4 and Intangibles of 3430.2. Am I reading it wrong?
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
QUESTION OF THE WEEK: WHEN A COMPANY RESTATES ITS FINANCIALS
Q: If a company has had to restate its financial condition, is that a red flag? I looked up a company called Acme United Corp (ASE), and noticed…