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Post by Ozarks Tom on Jul 4, 2021 23:31:11 GMT
Like everyone, I've been watching the stock market break new records month after month, even through all the lock downs, supply chain disruptions, and the overall economy going South.
Watching this economic anomaly that common sense says shouldn't be happening I'm reminded of something I witnessed back in the '70s.
I had a side gig as a used car wholesaler. I'd buy a few rust free Dallas cars and haul/towbar them down to Corpus Christi where every car was rusted out and make a few hundred bucks on each. Since I had the State used car license I met a lot of dealers, both wholesalers and retailers. Most times they were both.
Where I was working out of my back pocket, they all had bank "floor plans", where the banks basically gave them a credit line to buy inventory.
I knew a half dozen wholesalers/retailers that had a scam going. One would buy an old $1000 car at the auction, take it to a buddy and say "if you'll give me $1200 today, tomorrow I'll give you $1400 for it, then you buy it for $1600, and I'll buy it for $1800. The car might retail for $2000, so the last guy would put it on his lot and try to sell it.
Well, over time those lots started filling up with full retail cost cars, but the profits had already been paid/absorbed by the banks. Lots of short term thinking on the dealers' parts.
The banks finally caught wind to the multi-transfers, called the notes, and file criminal charges against the dealers. I personally knew four dealers who went to prison for bank fraud. Oh, they'd offered to let me in on this "money making" deal, but I passed.
How does this apply to the stock market continually going up? I'm just guessing here, but I see it like this. It doesn't take any phone calls or three martini lunches among the execs at the huge banks and hedge funds, it doesn't even take a wink and a nod. They all know the Fed is basically giving away money, so they're playing the car wholesaler game.
Chase might buy a million of a stock today, and BOA will buy a million and a half of that stock tomorrow. Then Chase buys two million the next day. Hey, it's only the Fed's money. Hedge funds are in on the game too, why not buy Walmart today if you know another hedge fund will pay more for it tomorrow?
The problem is, unlike the banks being defrauded, the Fed knows full well what's going on. They don't want to stop it, the banks are "too big to fail", the Fed can put out statements saying they're handling the economy wonderfully pointing out the stock market, and besides, when was the last time anyone heard of the CEO of a major bank going to jail?
It used to be investors considered the Price to Earnings (P/E) ratio before buying a stock. The P/E ratio of the listed stock exchange companies is currently absurd by historical measure.
The stock market is hollow, there's nothing to justify pricing, just "Good Ol' Boys" stuffing money in their Cayman Island bank accounts fast as they can.
Anyway, that's my take on it.
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Post by farmrbrown on Jul 5, 2021 1:44:17 GMT
That was one of the major lessons about the stock market my Granddad taught me on his knee. P/E ratios, what they meant and why they ARE important no matter WHAT the new whiz kids today may tell ya. Another strange thing that happened back then (the late 70's) was an economic phenomenon my dad had said was impossible because it violated the "laws" of economics. Inflation, Interest Rates and Unemployment ALL went up. Historically only 2 out of 3 can go one way.....the 3rd one goes the opposite direction. He didn't live to see that but I remembered his words and thought "Hmmmmmm.......somethin' funny is going on here!" I think it's good to live thru strange times - it helps to keep your head on straight when others are losing theirs.
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Post by woolybear on Jul 5, 2021 13:24:30 GMT
farmrbrown, there was a formula that my fil taught me a long time ago for figuring the P/E ratio. Would you happen to know of such a formula, and if so could you explain it in simple terms for a person who hates/despises math and numbers?
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Post by wildhorseluvr on Jul 5, 2021 14:13:54 GMT
farmrbrown , there was a formula that my fil taught me a long time ago for figuring the P/E ratio. Would you happen to know of such a formula, and if so could you explain it in simple terms for a person who hates/despises math and numbers? Attachment Deleted
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Post by joebill on Jul 5, 2021 15:58:14 GMT
"I think it's good to live thru strange times - it helps to keep your head on straight when others are losing theirs" You can feel free to enjoy my portion of it. I think I'll just go ahead and pout ....Joe
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Post by farmrbrown on Jul 6, 2021 6:52:03 GMT
farmrbrown , there was a formula that my fil taught me a long time ago for figuring the P/E ratio. Would you happen to know of such a formula, and if so could you explain it in simple terms for a person who hates/despises math and numbers? The formula itself is pretty basic. P/E is Price (per share) -divided by- Earnings (per share) corporatefinanceinstitute.com/resources/knowledge/valuation/price-earnings-ratio/You should be able to find those numbers on every stock. In fact the P/E was always listed too, but that was when we used to look it up in the newspapers, lol. I've heard a LOT of mumbo jumbo over the years about P/E but never doubted my GD's wisdom. He probably had a 50 year track record and one that Warren Buffet would envy, even if the total numbers weren't the same. Granddad started with a 3rd grade education followed by WWI and the Great Depression. It wasn't easy to FIND a dollar or two left over on payday back then, lol. Anyhow, he said the "sweet spot" was about 12 for a company's P/E. You'll find numbers all over the board now, but there are many reasons for that - most of them aren't good either. If the P/E got over 20, he didn't like that. It meant the company was more interested in THEIR profit and not to paying good dividends to the shareholders. That was important to him because he wanted a good income AFTER he retired - those quarterly dividends. He beat the odds on Social Security by living until 94 but I'm sure his checks were still small - a few hundred dollars or less. So he knew that would never do for his old age. If the P/E dropped below 8 or so, that was a company struggling to make any profit and everyone else in the Market knew it too! There were a few times he'd invest in an up and coming company IF he knew they had a good idea, or good resources they sank their money in and would pay off soon. That's where your own research makes all the difference. He liked utilities for his bread and butter - Gas, Oil, Electricity, Communications. Steady, always paid dividends and EVERYBODY tries to keep their lights on!
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Post by woolybear on Jul 6, 2021 12:57:36 GMT
farmrbrown, THANK YOU info is now on a sticky note on the monitor so I can reference it.
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Post by farmrbrown on Jul 6, 2021 13:30:38 GMT
farmrbrown , THANK YOU info is now on a sticky note on the monitor so I can reference it. If you want to see an extreme example of using P/E to evaluate a company, check out Tesla's numbers for the last 10 years. Then you'll see why you shouldn't trust the salesmen of the world for investment advice. www.macrotrends.net/stocks/charts/TSLA/tesla/pe-ratio
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Post by willowgirl on Jul 6, 2021 14:21:29 GMT
In researching IPOs, I'm seeing some companies that make me question whether they're worth the price reflected in their IPO. For instance, one that I researched recently was Mr. Car Wash. I calculated that each of the company's outlets had to be worth roughly $1 million in order to reflect the value of the IPO. Now, I don't know whether their properties are owned or leased, and certainly there is some value to the automated equipment used, but a full-service car wash is also a labor-intensive business and labor costs are going up. So .,.. I dunno. I passed on that one, but shares went up by 46% in the first day of trading. Seems bubble-ish to me.
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Post by Deleted on Jul 9, 2021 0:15:24 GMT
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Post by farmrbrown on Jul 9, 2021 1:46:08 GMT
Uh oh...... No, I hadn't seen that, but after reading the link it sounds even worse than the headline. If y'all have SHTF plans, time to get started putting them in action.
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Post by tarbe on Jul 9, 2021 2:02:43 GMT
Ever since I saw 7 figures disappear in the oil patch during the Zero's tenure, I cannot get myself to buy equities.
Anyone want to know how to make a small fortune?
Start with a large fortune!
That's my story and I'm sticking to it!
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Post by Ozarks Tom on Jul 9, 2021 2:11:02 GMT
@wvfarmgirl, They need cash, and need it now. I went through something similar in '79 when the Fed increased the reserves banks had to have on hand from 5% to 10% and my bank called my note without telling me. I'd just deposited over $50,000 that week, and they swept every penny without my knowledge, making my weekly payroll bounce.
My suggestion to anyone who has a checking/savings account with Well-Fargo to move that money NOW, it's susceptible to the terms of most credit lines, which is that they're (in the small print) "demand notes". That means they don't have to give you notice, just clean out your accounts.
This is a different situation from '79, but the unspoken message is the same.
A couple highlights from my experience: My banker wouldn't take my calls when one of my carpet layer's check bounced, coward. I had a couple CDs in my wife's name they couldn't touch with the same bank, and when she went down to cash them out she had to have a bank officer initial the transaction. My long time banker came over and said "you know, you really should put that money toward the note", to which she said something I can't repeat here. She got a security guard to escort her and $40,000 in cash to her car, while on the way out giving the banker the bird.
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Post by farmrbrown on Jul 9, 2021 3:35:55 GMT
@wvfarmgirl , They need cash, and need it now. I went through something similar in '79 when the Fed increased the reserves banks had to have on hand from 5% to 10% and my bank called my note without telling me. I'd just deposited over $50,000 that week, and they swept every penny without my knowledge, making my weekly payroll bounce. My suggestion to anyone who has a checking/savings account with Well-Fargo to move that money NOW, it's susceptible to the terms of most credit lines, which is that they're (in the small print) "demand notes". That means they don't have to give you notice, just clean out your accounts. This is a different situation from '79, but the unspoken message is the same. A couple highlights from my experience: My banker wouldn't take my calls when one of my carpet layer's check bounced, coward. I had a couple CDs in my wife's name they couldn't touch with the same bank, and when she went down to cash them out she had to have a bank officer initial the transaction. My long time banker came over and said "you know, you really should put that money toward the note", to which she said something I can't repeat here. She got a security guard to escort her and $40,000 in cash to her car, while on the way out giving the banker the bird. I 'like' a lotta posts and we all have mentioned an even better category that doesn't exist. This would be "Printed out and framed"
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Post by Jolly on Jul 9, 2021 13:40:31 GMT
People invest differently now, than they did 75 years ago. Most people today invest for growth. It's how you turn those big profits. Or sometimes, losses. But yesterday's folks had a keen eye for dividends. Stable companies that paid dividends, come hell or high water. Families with old money that want asset preservation, like dividends.
You know, there are a few companies that have paid dividends almost since inception. And even during the Great Depression. Some of those companies:
1. Coca-Cola 2. Exxon-Mobil 3. Procter & Gamble 4. PPG 5. Stanley Black&Decker
Just a thought, and worth exactly what you paid for it...
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