Random Thoughts on Investing – December 2011

3 days until Christmas! I still got a ton of gifts to pack. Anyways……….

Once again, we’re back with the Random Thoughts on Investing series! I have a lot of thoughts to share, but since each of these thoughts aren’t long enough to devout to individual posts, I’ve grouped them all below. Enjoy reading!

A funny thing about investing.

In other industries, the harder you work, the more you want to make money, the more money you will make, because you have that drive to suceed. Not so with investing. Let me tell you a quick story. I have a friend, and he just came back from a 2 month vacation in China. He spent a total of $30,000 on that trip. So he comes back, and has a burning desire to make $30,000 off of the commodities market (he’s a gold trader). And within 3 weeks, he loses 30% of his portfolio.

Investing is a very peculiar job, career, or industry, whatever you’d like to call it. The more you want to make money, the more likely you won’t be making money. This is because of a simple mathematical formula. The greater your desire to make $ off the financial markets = less patience. Less patience = making more irrational decisions = losing money.

The difference between tops and bottoms.

The way the market forms at the top of a bull market is far different from the way markets form at the bottom of a bear market.

Tops are high volatility, and often form a heads-and-shoulders. Tops usually stay up there for a long time.

Bottoms are low volume trades, very fast, V-shaped recoveries.

Find what works for you.

This sounds very simple, and it is. Find what kind of an investor you are. My method probably won’t work for you, because the right investment method depends on a lot of factors. 1 – How much money do you have? 2 – What is your personality? What are your character traits? Are you very patient? Do you just want safety? Then you should just check the latest CD rates.

Honestly, the only way you’ll be able to find what works for you is to test things out.

One thought on “Random Thoughts on Investing – December 2011”

  1. I would like to bring to everybody’s attention that invests in value stocks. Their is one overwhelming fact when it comes to value investing and that is you must buy decent companies with very low price to sales ratios to have a high probability of making a lot of money buying value stocks their is no other way believe me. And what is a very low price to sales ratio. First let me explain very clearly to everyone what a low price to sales ratio is. The price to sales ratio is the market cap of a stock compared to the sales that the company of the stock does on a annual basis. In other words the company I talk about below has a market cap’ which is all the shares of the company issued and outstanding of just eight billion dollars. But the comapny does fiftyfive billion dollars in annual sales. In other words the market is valuing bunge at just eight billion dollars but the company does fiftyfive billion dollars in annual sales get the idea. Ok one other thing never forget this warren buffett could never have made the enormous returns buying value stocks unless he was buying value stocks with very low price to sales ratios period’ and I am almost certain if you asked him he would totally agree. Bear in mind I would not say something that I cannot back up believe me. I will give an example of a company of really decent quality that I consider really undervalued. The company is Bunge Limited symbol {BG} engages in the agriculture and food businesses worldwide. The stock currently trades around 59 dollars a share. I think the stock could easily get to 450 dollars a share over the next five years. Yes you heard it right four hundred and fifty dollars a share. Assuming their are not stock splits. And what do I base this on If the companies profit margain expands from around 1.75% to 4% over the next five years and if the sales of the company expand from 54 billion to 85 billion thats growth of about 7 or 8 percent a year and if the companies stock than trades at a price earnings ratio of about 20. That would put the price of the stock at 450 dollars a share. It could even be more than 450 dollars a share if you reinvest your dividends the company pays a dividend also if the company does a share buyback this could increase the value of the stock even more. Keep in mind that their are stocks that are popular that trade at much higher price earnings ratios than 20 times earnings one example is whole foods market it currently trades at 35 times earnings. Also keep in mind that bunge is a company of really decent quality not at all a high risk stock. It has the potential to leave a company like Mcdonald’s in the dust. I understand your skepticsm if you are reading this but go to any stock broker or financial planner CPA that knows how to value stocks and they will confirm everything that Im saying here.

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