New Column up at TheStreet.com (01/03/08)

RealMoneyThe new Real Money column mentioned yesterday has been moved to the free TheStreet.com site.

For some reason, its been retitled: 13 Things You Wish You’d Known in 2007. I much prefer the educational spin of yesterday’s title, Lessons From 2007: A Baker’s Dozen, although I have to admit its kinda clunky as far as titles go.

I listed the 13 bullet points yesterday, here’s a flavor of two of them — one technical, one fundamental:

 

4. Day-to-day stock action is mostly noise:

This is blasphemy to some people, but it’s true. Markets eventually get pricing right, but the key to understanding this is the word "eventually."

Over the shorter term, markets frequently under- or overprice a stock before settling into the right approximation of value. This process typically occurs over broad lengths of time. Unfortunately, that doesn’t stop some rather suspect interpretations of what these short-term movements mean. I look at these tea readings as Rorschach tests, revealing more about the speaker than they do about the subject.

Case in point: the homebuilders. It seemed that every time there was even the slightest uptick in the group, some bozo would declare that the bottom of the real estate cycle was in. Indeed, every dead-cat bounce or short squeeze was trotted out as proof positive that the housing problem was over. Only it wasn’t, and the homebuilders cratered some 70% off their highs. You don’t need to be a technician to know this: The little squiggles on the chart mean a whole lot less than the big squiggles do."

5. P/E matters less than you think:

One of the things I heard a lot this year was "I (dis)like this stock because it has a (high)low P/E." News flash: P/E ratios alone tell you very little about a stock’s future prospects.
If that sounds like blasphemy, please look at a few examples: Google, Apple and Mosaic (MOS) all sported high P/Es at the beginning of the year. Their stocks have done splendidly. On the other hand, back in January, retailers, financials and homebuilders all had reasonably cheap P/Es. (How’d they do?)

It helps if you think of P/Es not as a photo but as video. The direction matters more than the mere number: Were P/Es likely to come down as sales ramped up? Or were P/Es modest because they were at the top of a profit cycle, and were likely to fall? The answer to these questions explains the difference between the winners and losers.

The rest of the column is filled with other such wit and wisdom . . .

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Source:

13 Things You Wish You’d Known in 2007
Barry Ritholtz
TheStreet.com,  1/2/2008 2:11 PM EST    http://www.thestreet.com/s/13-things-you-wish-youd-known-in-2007/newsanalysis/investing/10396669.html

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What's been said:

Discussions found on the web:
  1. michael schumacher commented on Jan 3

    OT:

    ECB commenting on it’s M3 supply increase and the problems of a lowering bias:

    ECB said Thursday that annual money-supply growth was unchanged in November at the previous month’s record of 12.3%. But the more closely watched three-month moving average, which irons out some of the monthly fluctuations, expanded at an annual rate of 11.9% in the September-November period compared to the August-October increase of 11.7%.
    Those rates tower over the 4.5% reference target for the three-month moving average of M3 that the ECB considers compatible with price stability.
    “Continued double-digit money supply and bank lending growth rates are clearly an obstacle to lower ECB policy rates,” said BNP Paribas chief euro-zone economist Ken Wattret.
    For the ECB, it means that its effort to steer inflation back down to its policy goal of just below 2% might be hard without some radical monetary tightening.

    You can bet that our M3 (no longer published IMO) is MUCH HIGHER.

    Ciao
    MS

  2. zero529 commented on Jan 3

    I like how they tacked this on at the end (in the same font, to make it look like Barry’s words):

    “P.S. Yours FREE — Cramer’s new bestseller, Stay Mad for Life.
    Jim Cramer has written a complete guide that’s a must-read regardless of your age or level of financial sophistication. If you’ve yet to achieve independent wealth, take this first step now and click here for Jim’s new book.”

    Someone needs to be yelled at for that.

  3. v commented on Jan 3

    BR, I’m certain you’re as big a fan of constructive criticism as I am. Also, before I state my small criticism, I just want you to know that I find your work outstanding. And that I might have a man crush on you. Please BR, you know you are flattered.

    Anyway, on with the slight criticism:

    >> After Apple dropped its price 33% on its new iPhone, recent purchasers of the $599 version yelped loudly. Apple offered a $100 Apple store gift certificate to ease the sting. Everyone was more or less happy. << I think everyone will be more happy once the class-action lawsuit gets settled. It's not like APPL gave consumers their money back; they gave them a $100 dollar store credit coupon. Um, what can one buy at the APPL store for less than $100? (And, no, the credit does not apply to iTunes.) Furthermore, in addition to Stevie slashing the price, he has the (real internet capable) 3G version coming out soon. Making the 2G look like vaporware. In any case, I know you're not on APPL's payroll (I kid, I kid), but you are a self-described ardent fan of its products (some more than others). In the end, I just think it looks like a bit of stretch to say that APPL wasn't deliberately screwing its customers on this issue.

  4. v commented on Jan 3

    MS: Solid ECB find bro! You don’t have to answer this, but doesn’t this mean the ECB is basically handcuffed in the near term as they will not cut rates, but also will not raise rates as the other major central banks (Fed, BOC, BOE) have already cut and will likely cut more?

    Also, I wonder how many traders are banking on a 50 basis point cut (@Fed)? Um, they’re going to be sorely disappointed. In the near term at least.

  5. dblwyo commented on Jan 3

    That’s a very good Baker’s Dozen of painful rules-of-thumb. Hopefully more people will pay attention and start applying them now. In fact a really useful exercise would be to take your rules and Kass’s surprises, bump them together and ask how one is positioned. If you don’t mind, to your advice about sectors and fundamentals I’d add what is this investment likely to do in this emerging economic environment, then sector, then fundamentals, then technical and sentiment. All in all just excellent.
    My own end-of-year summary on the outlook for the economy, housing and the credit markets as well as some pointers on fundamental analysis of businesses is here:
    We Can See Clearly Now: http://tinyurl.com/ytoo87
    The key point is that most of what went wrong this year was predictable and predicted at this time last year yet it was almost entirely ignored. That’ll probably be repeated this year but shouldn’t be. BtW – the theme graphic is the Hindu deity Ganesha , the god of obstacles. Also the deva of wisdom and intelligence :). Which applies to your and Doug’s work.
    Gracias.

  6. luker commented on Jan 3

    “independent wealth” is that like a fool and his money!!!! what a giggle when the ad bums garble a cliche to non sequiter status….

  7. michael schumacher commented on Jan 3

    v-

    Well I wouldn’t automatically think that the ECB is handcuffed into doing nothing because our own Fed had several months of inflation indicating data and chose to not raise rates and left them alone (earlier this year). So they know what they HAVE to do…..doing it is a completely different story…

    When you have the Kudlow’s and Cramer’s of the world calling for interest rate cuts each and every time we get a normal correction (some would still question the normalcy of any drop with a market that is supplied with fresh cash EVERYDAY refuses to have a real correction)

    The only way to fix the current problem is to raise rates and eliminate the TED spread. OR are we just going to fake it and continue to pander to the bank’s by making more cash available to them so that we can do this all over again???

    I hope not….

    Ciao
    MS

  8. luker commented on Jan 3

    Nice column, BUT to have BAC as your example of “smart money” ?????? Oh yes, the big banks have shown how clever they can be.
    LOL.

  9. mark stotko commented on Jan 3

    Barry,
    love the housing uptick example
    you think BOZO will still let you back on his show ?

  10. Moti commented on Jan 14

    Well, I started writing for TheStreet.com now and my LinkedIn showed me your blog so I followed and I’ll read your full column later. It seems we share an affinity to not accepting “common wisdom” as such but looking at what really drives things.

    Great analogy about the photo vs. video for P/E issues. In general people tend to not understand change well, which is why calculus is so problematic to many ;-)

    As for your title – my editor tells me they choose titles based on the science and art of optimizing it to internet searches, so it might be less witty, but will draw more readers. They can afford witty titles on the “for pay” side but not on the free side of life ;-) Oh, and if you can drop some names to which tickers can be added, so much the better.

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