New Column up at (01/03/08)

Thursday, January 03, 2008 | 10:00 AM

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



13 Things You Wish You'd Known in 2007
Barry Ritholtz,  1/2/2008 2:11 PM EST

Thursday, January 03, 2008 | 10:00 AM | Permalink | Comments (10) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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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.


Posted by: michael schumacher | Jan 3, 2008 10:08:00 AM

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