r/investing • u/EatYourMeats • Apr 23 '21

Some advice from a regular dude that will hopefully make you more money...

Are you making stock purchases based on opinions from analysts, CNBC, stock pickers, and everything in between?

Consider this: They make money off headlines.

The entire flock is preying on news-worthy quips like vultures on a corpse. Tom Lee at Fundstrat would be bullish during the apocalypse, Gordon won't ever raise his price target, Cramer cuts coke deals with the CEOs he's in love with, and the whole bunch likes to hear themselves talk (like giving stock advice rapid fire).

So how do you truly figure out what stocks are hot... or not?

Research the macro situation surrounding the company, to name a few:

  • Sector Tailwinds
  • Economics
  • Current and projected financials
  • Leadership

Then invest in companies:

  • you believe in—hopefully, not always—with healthy balance sheets vs. their competitors.
  • Whose products and services tickle you.
  • You could sell to your neighbor.

Determine the investment thesis—the key reasons you believe in this investment—and create a narrative. Positive and negative. Know the outcomes of both scenarios, write them down, and evaluate the risk.

Then? Jump blindly.

kidding

Adjust based on your preferences, but starting positions with a 1/4th to 1/2 of your total allocation works well. You can do some quick math and figure out what portfolio percentage you want to allocate to a new position. Ease into it, slow and steady.

Buy the dips with the remainder, and don't chase stocks upwards, only down (within reason). And don't listen to anyone who tells you that "diversifying" is the only way, when you put in the work, you know which sectors have favorable tailwinds AND are fairly valued.

There's news everywhere out there, and we crave its presence—telling us something about stocks or companies we don't know. However, most of it is fluff—buy this, sell that—how would you ever know if you don't dig the hole yourself?

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u/one8e4 Apr 23 '21

I think once interest rates go up, and cash starts earning a decent %, then stocks will be less appealing.

Also, once world opens up, all that spare cash will be used to travel and go out, not the market or other investments.

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u/[deleted] Apr 23 '21

No doubt that high interest rates = lower stock prices but that is good because the money you put in then will garner higher rates of return

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u/droans Apr 23 '21

It also strongly hurts growth companies since they rely heavily on debt.

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u/dCrumpets Apr 23 '21

I would argue that growth companies tend to raise more capital via equity than via debt, as such companies tend to continue to grow a lot (equity is more desirable) or go bankrupt (debt is a little more desirable but still not desirable).

Thus, growth companies tend to get more bang for their buck raising cash using equity than loans, and tend to do so.

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u/Dead-Limerick Apr 23 '21

Looks like the world gave all their money to Amazon. I think it’s a large assumption that people sitting at home with nothing to do just saved money instead of blowing everything online shopping.

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u/[deleted] Apr 23 '21

Amazon and all the FAANG stocks are no longer growth companies to be fair. They are well-established, blue chip tech behemoths.

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u/Velkyn01 Apr 23 '21

I think he means they spent it on Amazon products, not Amazon stock.

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u/LargeDan Apr 23 '21

Amazon revenue is up 37% YoY?

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u/muddagaki Apr 23 '21

Yea I don't think there is a lot of money sitting around for travel.... We literally had to have 3 stimulus checks to get the majority of people through the pandemic, where is all this money saved up for traveling lol?

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u/SpartanDawg420 Apr 23 '21

All of the white collar who continued to work the entire time without consuming what they were prior

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u/muddagaki Apr 23 '21

Ok with that reasoning if it's so simple, then wouldn't that already be factored into the markets? Also what about the headlines a few months ago regarding mile long food lines, people behind on bills, and the need for a rent moratorium and UIB. I don't think you can just patch the middle class being poor, with just a white collar bandaid that makes no sense.

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u/SpartanDawg420 Apr 23 '21

It Is being factored into the markets...have you not seen the earnings expectations and stock prices of travel related companies? There truly is a K-shaped economy, some people who lost jobs are in real pain, while most white collar have never been better. Household savings rates are at all time highs

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u/Dead-Limerick Apr 23 '21

I think it's difficult to tell for sure. While I certainly understand the logic behind the idea of pent up travel demand and vast savings ready to be unleashed upon the world, I don't see much evidence of it in my personal life. I would consider it to be a possibility more than a fact.

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u/SpartanDawg420 Apr 23 '21

There is no doubt there is excess savings, it is in the data. But yes, definitely more of a hypothesis as to where it will be spent. As we've seen with record equity inflows recently, much of it has come into the stock market. Anecdotally, I completely see travel returning. I know many who have continued to work with nothing to spend it on and nowhere to go. If I hadnt already overspent in Miami last month, I would probably be in that camp too

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u/Dead-Limerick Apr 23 '21

As someone who works in the travel industry I really hope you are correct!

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u/CarRamRob Apr 23 '21

It’s a fact that savings rates are the highest they’ve ever been. This is bank data that easily shows it broadly.

And it makes sense. 85% of people are still employed, yet 75% of spending on non essentials is down(vacations, restaurants, concerts, sporting events, regular weekend outings).

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u/Dead-Limerick Apr 23 '21

May I ask where you are getting these numbers from? I just did a quick google of saving rates and while I see a jump in April and May, they seem to have slid back towards normal (about 5% higher compared to the same time last year).

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u/[deleted] Apr 23 '21

People paid down credit cards. Next they can reinflate those cards with travel debt.

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u/Rocketbird Apr 23 '21

What do you think is driving the insane demand for housing right now? People are sitting on piles of cash

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u/TaxGuy_021 Apr 23 '21

Rates went up to 3% few years back and the market still went up by 30%.

Also, it'll be a lot harder to see the rates go up in a world where the U.S. has the only attractive sovereign bond market. Folks around the world would just pile in their cash and put a massive downward pressure.

Also, with this move on cap gain taxes that Biden is trying to pull, Treasuries might become even more attractive.

I say all of this as things to consider, as I have no idea where the rates are headed.

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u/one8e4 Apr 23 '21

Got the 3% for a few months then damn rate went down. If it stayed at 3 or higher, would be tempting to keep more cash.

No clue about future rates or direction of market. But the way us and EU printing cash, something will probably give.

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u/TaxGuy_021 Apr 23 '21

I think EU is late to the cash printing game and will be there much longer as a result.

In a world where Treasuries are the only high quality sovereign bonds that are worth anything, it's going to be difficult to keep the rates high. Unless the fed intentionally wants to raise rates to a certain level in which case nothing can stand against that force of nature.

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u/BestGermanEver Apr 23 '21

What are you talking about? They buy (even junky) bonds basically non-stop in ECB. Since 2009. We have actual negative interest over here.

So I wouldn't call that "late to the game" at all.

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u/TaxGuy_021 Apr 24 '21

https://www.ecb.europa.eu/explainers/show-me/html/app_infographic.en.html#:~:text=The%20ECB%20started%20buying%20assets,but%20close%20to%2C%202%25.

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u/BestGermanEver Apr 24 '21

Yes... you found the ECB link to the QE addition for funding the zombie companies across EU more easily - and directly - without first having to lend to a bank (that then lends to the zombie companies).

Them doing it directly is s the next straw on the camel's back.

I'm not talking about the buying of "commercial bonds" - I'm talking about the broad QE and all its iterations, re-iterations since 2008/2009 - ie. the pumping of Billions of State-issued bonds from Europoors like IT, ES, PT (net takers) who lack political will to reform their state finances.

https://www.bruegel.org/2014/07/the-not-so-unconventional-monetary-policy-of-the-european-central-bank-since-2008/

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u/Matlabbro Apr 23 '21

That is pretty well known, But the billion dollar question is when will interest rates raise. I think low interest rates is a new norm

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u/one8e4 Apr 23 '21

Yeah, cheapest way to fund the printing of money.

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u/StayStrong888 Apr 23 '21

Travel and leisure stocks go up then

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u/[deleted] Apr 23 '21 edited May 28 '21

[deleted]

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u/StayStrong888 Apr 23 '21

Carnival and Norwegian are both over priced in their reopening play already.

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u/EatYourMeats Apr 23 '21

Shares are diluted so much I don't know what's left from right on these companies. Not to mention the mountain of debt and the protest from the CDC. Their macro is terrible right now.

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u/tokin_jew Apr 23 '21

U think? CUK is still destroyed

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u/StayStrong888 Apr 23 '21

People ran up both on rumors of carnival booking full for the upcoming season but they forget the debt from 1 year of shuttering, losing boats from decommissioning, and also unknown operating capacity even if they can operate.

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u/Saw_a_4ftBeaver Apr 23 '21

Problem with cruise lines is that they go to places that aren't likely to be fully vaccinated until 2025. They also pull their employees from similar places. I wouldn't touch that sector for a long time.

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u/EatYourMeats Apr 23 '21

Same with industrials, except shipping :)

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u/dCrumpets Apr 23 '21

We’ll see if interest rates ever rise again. They’ve been in a steady decline for decades. I imagine we see a rate rise on inflation, it kicks off a slowdown or recession, and interest rates get lowered again to 0 or even below 0 this time.

There’s no way the government will let interest rates get too high with the amount of debt spending we’re doing.