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Accountability, in investment log, 183
Addictive behavior, 150–155, 163–167, 169–174
Alcoa, 131
Anheuser-Busch, 194
Apple, 104, 131–133, 143, 187, 191
Are Investors Reluctant to Realize Their Losses (Odean), 168–169
Argus, 103
Assets
on balance sheet, 52–54
Auto industry, 90, 101, 118, 121, 131, 193
Average volume, 69
Balance sheet, 51–59
data components, 52–54
ratios based on, 55–59
using for investment decisions, 55–59, 61–62
Behavioral finance, 23–30, 149–174
addictive behavior and, 150–155, 173–174
behavioral selling, 97–107
brain and, 153–154, 166, 167, 169
complexity assumption, 27–28
gambler’s effect, 163–167, 169–172
identifying behaviors, 150–153, 154–155, 157–159
investor sense of inadequacy, 28–29
key point about market psychology, 104–107
overconfidence, 155–156, 159–162, 167–168, 179–181
overoptimism, 155, 156–157, 159–162, 167–168
panic in, 109–121
practicing behaviors, 157–159
realization of loss, 168–173
risk assumption, 29–30
time limitations on self-sufficiency, 30
volume trends, 70
wealth assumption, 24–27
Benchmarks, Standard & Poor’s 500
Index (S&P 500), 6, 8–11, 14, 197–198, 200, 209–210
Beta
defined, 71
limit-order trading and, 144
as news service homepage metric, 71–72
situational trading and, 83, 84
BHP Billiton, 202–203
Biotechnology sector, 115–117, 192–193, 203–204
Bonds, 205
Bottom-line numbers, 43, 48, 68–69, 83, 84–85
Breiter, Hans C., 163
Buffett, Warren, 3, 13, 21, 33, 35, 78–79, 94, 109, 149, 195
Bull market, 31–32, 198, 210–212
Buy-and-hold strategy. See Long-term investing
Buy low, sell high strategy, 115–119, 124, 133–134
Carhart, Mark, 9–10
Cash
on balance sheet, 52–53
from financing activities, 61
from investing activities, 61
in new concept of diversification, 205
from operating activities, 60, 61, 89
Cash flow, 40, 51–52, 59–62, 86, 87, 89
Chevron, 203
Cloud computing, barriers to entry, 130–131
CNN, 20
Coca-Cola, 203
Commissions, of money managers, 7–8, 9
Complexity assumption, in behavioral finance, 27–28
Costco, 139
Cost of goods sold (COGS), 42
Costs, on income statement, 41–42
Current liabilities, 54
Current ratio, 58–59
Customer relationships, 91–92
Cyclic companies, 194
Daily Finance, 56
Daily volume, 69
Day trading, 29
beta and, 71–72
limit-order trades versus, 144–145
poker compared with, 166, 172–173
short interest and, 76–78, 198
Debt-to-assets ratio, 58, 62, 89
Dendreon, 115–117
Department of Corrections, Kentucky, 105, 151–153, 154, 173, 182
DFA Commodity Strategy, 197–198
Di Chiara, Gaetano, 153
Diversification, 195–207
conventional approach to, 197–201, 211–212
customizing approach to, 205–207
versus market downturn, 196–197
nature of, 195–196
new concept of, 198–200, 201–207
Domash, Harry, 66
Dot-com bubble, 14–17, 19, 31, 113–114, 160, 209, 211
Dow Jones Industrial Average (DJIA), 32, 111–114, 135
Drug addiction, 105, 151–153, 154, 173
Earnings, 123–136
announcements and, 118, 121, 124
event-driven approach and, 123–124
expectations for, 31, 41, 124, 125–128, 132, 133–134, 145
in ten-ten-to-ten system, 186–191
trends of, 124
Earnings per share (EPS), 43, 68–69
earnings growth in value investing, 89
enterprise value and, 72–73
forward P/E ratio and, 74
PEG ratio, 76
eBay, 67–69
Economic outlook, 13–22
illogical/unexplainable trends and, 115–119
mind-set of investors, 13–14
predicting future trends, 13–14, 20–22
for present and future, 13–14
Education, investment log and, 184
Emerging markets, 204
Emotions. See also Panic; Value investing
attachment to investments, 110–111
financial decisions and, 7–8, 23, 28, 98–102
identifying, 120
influences on, 3–4
investment log and, 182–184
Employment trends, 18–20, 90–91, 207
Enterprise value, 72–73
Equity, on balance sheet, 54
Equity markets. See Stock market
Europe, debt crisis in, 111–112, 113, 135
Event-driven approach, 123–124
Executive changes, 92–93
Exit strategy, 161, 172–173, 201–202
Expectations, 31, 41, 124–134, 145
forward P/E ratio and, 74–75
for momentum stocks, 125–131
for value stocks, 132
Expedia, 130–131
Extraordinary expenses, 42
Exxon, 203
Facebook, 16
Fear. See also Panic
expressing in market, 120
identifying in market, 120
Fees, of money managers, 7–8, 9
Fidelity, 25
Finances
assumptions regarding investing, 23–30
learning from mistakes, 12, 178–184
taking control of, 3–6, 11, 23–30, 79–80, 93–94
technology advancements and, 11
Financial news providers, 63–80
homepage metrics, 64–72
other metrics, 72–79
Financial sector, 106–107
in recession of 2008-2009, 5, 9, 10, 31, 53–54, 100–101, 102, 113–114, 178–182, 210, 212–213
Fire Your Stock Analyst (Domash), 66
Fisher, Phillip, 51
Flat market, 10, 18, 20–21, 196, 198–205, 206–207, 210–212
Flea markets, 34–37
Ford Motor Company, 90, 101, 118, 193
Foreign index funds, 204
Forward P/E ratio, 74–75
401(k) plans, average size, 25
Fox, 20
Franklin, Benjamin, 209
Free cash flow, 60
Fundamental analysis, 39–49, 51–62. See also Limit-order trading; Value investing
balance sheet and ratios, 40, 51–59
event-driven approach versus, 123–124
income statement and ratios, 40–49
industry comparisons, 44–45, 55–57, 62
nature of, 39–40
news providers for, 45, 56–57, 63–80
price-to-earnings (P/E) ratio, 67–69
statement of cash flow and ratios, 40, 51–52, 59–62
stock metrics in. See Stock metrics unmeasured fundamentals, 89–93
using for investment decisions, 45–47, 55–59, 61–62, 81–94, 125–136
for value investing, 88–89
variations in, 110
Gambler’s effect, 163–167, 169–172
General Motors, 101, 118, 121, 131, 193
GeoCities, 15
Global Crossing, 14
Global economy, 18, 111–112, 113, 135, 199, 207, 213
Goals, 82–89
of investors, 9–11, 61–62, 82–83, 85–89, 139, 156
of limit-order trading, 143–144
of situational trading, 82–85
of value investing, 61–62, 88–89, 156
Goldman Sachs, 100–101
Good-till-cancelled (GTC) limit orders, 139
in dot-com bubble, 15
limit-order trading and, 139, 140–144, 178–180, 181
Greece, debt crisis in, 111–112, 113
Green Mountain Coffee Roasters, 135
Groupon, 130–131
Growth signals, 41
Harley Davidson, 133–136
Hedge funds, 78
Hewlett-Packard, 132
High-profile investors, ownership data, 78–79
Hirsch, Jeffrey A., 180
Homepage metrics, 64–72
Housing
in recession of 2008-2009, 9, 17, 31, 53–54, 101
trends for housing industry, 20–21
Huntington Bancshares, 100–101, 104, 106–107
Icahn, Carl, 78–79
Income statement, 40–49
nature of, 40
quarterly progress, 47–48
ratios based on, 43–45
using for investment decisions, 45–47
Index chasing, 9–10, 11. See also Standard & Poor’s 500 Index (S&P 500)
Index Funds (Hebner), 210, 211
Industry comparisons, 44–45, 55–57, 62
Initial public offering (IPO) market, 159–162, 167
Institutional investors, 21, 66, 78, 161
Intel, 98
Intelligent Investor, The (Graham), 33
Internet
barriers to entry, 130–131
dot-com bubble and, 14–17, 19, 31, 113–114, 160, 209, 211
initial public offering (IPO) market of 2011 and 2012, 159–161, 167
social media and, 16–17, 130–131, 159–161, 167
Investment log, 182–184
iPhone, 104
Jacobs, Bradley, 92–93
JA Solar Holdings, 64–65
Johnson & Johnson, 203
Kaufman Brothers, 103
Kentucky Department of Corrections, 105, 151–153, 154, 173, 182
Knutson, Brian, 154–155
Kroger, 91–92
Lacy, Sarah, 16
Learning Company, The, 15
Liabilities, on balance sheet, 54
Limit-order trading, 137–147. See also Value investing
day trading versus, 144–145
goal of using, 143–144
good-till-canceled (GTC) limit orders, 139
in Google, 139, 140–144, 178–180, 181
limit order, defined, 139
multiple limit orders, 146
using limits, 139, 141–144, 145–147
Little Book of Behavioral Investing, The (Montier), 168–169
Long-term investing, 86–88. See also Fundamental analysis; Value investing
buy-and-hold strategy in, 29–30, 86–88, 210
concerns of, 87
goals of, 82–83
Long-term liabilities, 54
Lynch, Peter, 63, 81, 163, 185
Mad Money (TV program), 196
Market capitalization (market cap), 65–66
defined, 65
enterprise value and, 72–73
forward P/E ratio and, 74–75
as news service homepage metric, 65–66
price/sales ratio and, 75–76
small-cap value in new concept of diversification, 203–204
value stocks and, 131–133
Mattel, 15
Mistakes, learning from, 12, 178–184
Momentum stocks, 113–114, 125–131
Dendreon, 115–117
nature of, 120
trends and, 117–119
volume and, 69–71
Money managers
compared with car salesmen, 6–8
conventional approach to diversification, 197–201, 211–212
fees and commissions of, 7–8, 9
investor loyalty to, 5–7, 28–29
personal relationships with, 4–6
seeking help from, 26–27
Standard & Poor’s 500 Index (S&P 500) as benchmark, 6, 8–11, 14, 197–198, 200, 209–210
Montier, James, 168–169
Mutual funds. See also Diversification
average 401(k) balance, 25
ownership data, 78
Nasdaq Index, 15
Negative reinforcement, 19, 99–101
News providers. See Financial news providers
Nonrecurring items, 42
Nucleus accumbens, 153–155
Occupy Wall Street movement, 18, 213
Odean, Terrance, 168–169
Once You’re Lucky, Twice You’re Good (Lacy), 16
Operating cash flow, 60, 61, 89
Operating margin, 44–49
Options strategies, 76–78, 192
Overconfidence, 155–156, 159–162, 167–168, 179–181
Overoptimism, 155, 156–157, 159–162, 167–168
Ownership, 78–79
Panic, 109–121
European debt crisis, 111–112, 113, 135
event-driven approach and, 123–124
expressing in market, 120
identifying in market, 120
momentum stocks and, 113–114
U.S. credit rating downgrade, 112, 135
Patience, 29, 35–36, 142, 181–182
PEG ratio, 76
Penny stocks, 65–66
Pension funds, 78
Performance. See also Stock price
of money managers, 5–10, 113–114
Standard & Poor’s 500 Index (S&P 500) as benchmark, 6, 8–11, 14, 197–198, 200, 209–210
Pets.com, 15
Phillip Morris, 194
Positive reinforcement, 19, 98–99, 150–151
Prefrontal cortex, 154
Pretax income, 43
Price. See Stock price
Price/sales ratio, 75–76, 126–127, 129, 140
Price-to-earnings (P/E) ratio, 67–69
defined, 67
earnings-per-share (EPS) and, 68–69
forward P/E ratio, 74–75
initial public offering (IPO) market of 2011 and 2012, 160–161, 167
momentum stocks and, 126–127, 129
as news service homepage metric, 67–69
PEG ratio, 76
situational trading and, 83, 84
in ten-ten-to-ten system, 186–191
Profit margin, 43–49
nature of, 43–44
in value investing, 89
Profit maximization, 19, 21–22
Progression, in investment log, 184
Quarterly progress, 47–48
Quest for Alpha, The (Swedroe), 9–10
Ramsey, Dave, 177
Ratio analysis. See Fundamental analysis
Realization
difficulty in realizing loss, 168–173
nature of bubbles and, 15
Recession of 2008–2009
auto industry in, 101
financial sector in, 5, 9, 10, 31, 53–54, 100–101, 102, 113–114, 178–182, 210, 212–213
housing crisis and, 9, 17, 31, 53–54, 101
impact on investors, 5–6, 9, 14, 17–20, 209
negative reinforcement and, 19, 99–101
unemployment rate and, 18–20
Rediff, 16
Relationships, 91–92
Renren, 16
Retained earnings, 54
Retirement investments
average 401(k) balance, 25
for individuals nearing retirement, 32, 209
recession of 2008–2009, 17
Return on assets, 55–57
Return on equity, 55–57
Revenue
price/sales ratio and, 75–76
revenue growth in value investing, 89
Risk, 29–32
buy-and-hold strategy versus, 29–30, 210
of investing, 30–32
lack of patience and, 29
limiting, 31
overconfidence and, 155–156, 159–162, 167–168, 179–181
overoptimism and, 155, 156–157, 159–162, 167–168
quick gains and, 159–162
short interest and, 76–78, 192
stock price and, 65–66
Rogers, Will, 39
Ruiz, Miguel Angel, 23
Sears, 48
Seasonal peaks, 48
Secular companies, 194
Securities and Exchange Commission (SEC) website, 78
Selling, 97–107
in buy low, sell high approach, 115–119, 124, 133–134
difficulty in realizing loss, 168–173
exit strategy and, 161, 172–173, 201–202
as potential opportunity, 98–102
price movement and, 97–98
Selling, general and administrative expenses (SG&A), 42
Short interest ratio, 76–78, 192
Short-term investing, 29–30
concerns of, 86
nature of, 85–86
situational trading versus, 85–86
Sirius XM, 64–65
Situational trading
concerns of, 83–85
defined, 83
goals of, 82–85
as percentage of total trading, 85
poker compared with, 166, 172–173
short-term investing versus, 85–86
Size of company. See also Market capitalization (market cap)
stock price and, 66
Smoking, 150
Social media, 16–17, 130–131, 159–161, 167
Sorkin, Andrew Ross, 17–18
Spectrum Pharmaceuticals, 192–193
Speculation, 101
SPYs, 11
Standard & Poor’s 500 Index (S&P 500) as benchmark, 6, 8–11, 14, 197–198, 200, 209–210
SPYs, 11
Statement of cash flows, 59–62
sources of cash flow, 60–61, 86
types of cash flow, 60
using for investment decisions, 61–62, 86, 87
Stock analysts, 66, 103–104, 127–128
Stock market. See also Stock metrics; Stock price
assumptions regarding investing, 23–30
bull markets, 31–32, 198, 210–212
day trading. See Day trading
dot-com bubble and, 14–17, 19, 31, 113–114, 160, 209, 211
economic outlook and, 21–22
expectations and, 31, 41, 74–75, 124–134, 145
initial public offerings (IPOs), 159–162, 167
nature and performance of, 4
news providers. See Financial news providers
Occupy Wall Street movement, 18, 213
predictions regarding, 23–24
realization of loss in, 168–173
recession of 2008-2009 and. See Recession of 2008-2009
risk and. See Risk
situational trading. See Situational trading
Standard & Poor’s 500 Index (S&P 500) as benchmark, 6, 8–11, 14, 197–198, 200, 209–210
swing trading, 29, 71–72, 76–78
working with flat market, 10, 18, 20–21, 196, 198–205, 206–207, 210–212
Stock metrics, 63–80. See also Stock metrics
enterprise value, 72–73
float, 76
forward P/E ratio, 74–75
market capitalization. See Market capitalization (market cap)
momentum stocks and. See Momentum stocks
news service homepage metrics, 64–72
ownership, 78–79
price/earnings to growth ratio (PEG ratio), 76
price/sales ratio, 75–76, 126–127, 129, 140
price-to-earnings (P/E) ratio. See Price-to-earnings (P/E) ratio
stock price, 64–65
in taking control of finances, 79–80
value stocks and. See Value investing
volume, 69–71
Stock price. See also Valuations
analyst reports and, 103–104
buy price in limit-order trading, 141, 146–147
company performance versus, 100–101, 102–104
as event-driven, 123–124
goal price in limit-order trading, 141–143, 146
in limit-order trading, 137–147
long-term investing and, 87–88
myths concerning, 65–66
as news service homepage metric, 64–65
penny stocks and, 65–66
reasons for changes in, 98–102
risk and, 65–66
size of company and, 66
Standard & Poor’s 500 Index (S&P 500) as benchmark, 6, 8–11, 14, 197–198, 200, 209–210
supply and demand in, 97–98
in ten-ten-to-ten system, 186–191
in value investing, 120
Supplier relationships, 91–92
Swedroe, Larry, 9–10
Swing trading, 29
beta and, 71–72
short interest and, 76–78
Technology sector. See also Internet value investing and, 131–133
Telecommunications sector, 66, 70, 102–104, 106, 193, 204
Ten-ten-to-ten system, 186–191
Time requirements
for investing, 30
for limit-order trading, 141–143, 146
Timing, for buy low, sell high approach, 115–119, 124, 133–134
Too Big to Fail (Sorkin), 17–18
Top-line numbers, 41, 48, 83, 84–85
Trader markets, 77–78
Trading activity, 183
Trends. See also Momentum stocks
cyclic versus secular companies, 193–194
earnings, 124
forward P/E ratio, 74–75
housing industry, 20–21
illogical/unexplainable, 115–119
impact of executive changes, 92–93
relationships, 91–92
volume, 70
Trust, in money managers, 5–6, 7, 28–29
Trust-fund babies, 25
Twitter, 16
United States
credit rating downgrade, 112, 135
global economy and, 18, 111–112, 113, 135, 199, 207, 213
Valuations. See also Stock price
dot-com bubble and, 14–17, 19, 31, 113–114, 160, 209, 211
perceptions and price relationship, 102–104
price-to-earnings (P/E) ratio, 67–69
profit maximization and, 21–22
recession of 2008–2009 and. See Recession of 2008–2009
Value/growth, 203
Value investing, 33–36. See also Behavioral finance; Fundamental analysis; Limit-order trading
announcements and, 118, 121, 124
buying stocks that are trading higher, 121
buy low, sell high approach in, 115–119, 124, 133–134
challenges of, 35–36
compared with job interview, 213–214
complexity assumption and, 27–28
concerns of, 89
defined, 33–34
exit strategy in, 161, 172–173, 201–202
in flea markets and yard sales, 34–37
fundamental analysis in, 88–89. See also Fundamental analysis
Google and, 139, 140–144, 178–180, 181
Harley Davidson and, 133–136
illogical/unexplainable trends and, 115–119
inadequacy feelings and, 28–29
investment log in, 182–184
losses following earnings reports, 121
new concept of diversification, 198–200, 201–207
patience in, 35–36, 142, 181–182
power of, 27–28
practicing behaviors related to, 157–159
research in, 34–35
risk assumption and, 29–32
stock price in, 120
success factors for, 35
ten-ten-to-ten system, 186–191
time requirements, 30
wealth assumption and, 24–27
Vendor relationships, 91–92
Volatility. See Beta
Volume
defined, 69
as news service homepage metric, 69–71
situational trading and, 83, 84
Wealth assumption, in behavioral finance, 24–27
Wren, Scott, 196–197
XPO Logistics, 92–93
Yahoo, 15
Yahoo! Finance, 45, 56, 64, 73, 75
Yandex, 16
Yard sales, 34–37