Warren Buffett’s investing strategy is simple: find companies worth investing in forever. Buffett has been quoted as saying he likes to buy stock in businesses that are, “so wonderful an idiot can run them.”  On paper it seems like a simple enough strategy. But for value investors, trying to imitate the world’s third-richest man (with a net worth of $72.7 billion) can lead to a pretty steep price tag.  Let me explain. Take a look at the top five stocks in Warren Buffett’s portfolio through his holding company Berkshire Hathaway, Inc. (NYSE: BRK-A). Each company, and the industry… Read More

Warren Buffett’s investing strategy is simple: find companies worth investing in forever. Buffett has been quoted as saying he likes to buy stock in businesses that are, “so wonderful an idiot can run them.”  On paper it seems like a simple enough strategy. But for value investors, trying to imitate the world’s third-richest man (with a net worth of $72.7 billion) can lead to a pretty steep price tag.  Let me explain. Take a look at the top five stocks in Warren Buffett’s portfolio through his holding company Berkshire Hathaway, Inc. (NYSE: BRK-A). Each company, and the industry they operate it, is easily recognizable. Here’s the problem though: Buffett’s popularity and well-known admiration for each of these stocks has led to fairly high valuations. I came to this conclusion by looking at the five-year price/earnings-to-growth, or PEG, ratio of each of these stocks. A PEG ratio takes into account a company’s current price-to-earnings ratio in relation to its projected earnings growth over the next five years. A ratio near or below one is considered fair value and greater than one is overvalued. Buffett’s top five holdings generated a ratio of 2.5. That… Read More

Over the past five years, the United States economy has been on the mend. So why is there still a pervasive sense that we’re stuck in the mud? Perhaps it’s because our economy has expanded at a 2.2%-to-2.4% rate in each of the past three years. That seems downright anemic compared to economic growth rates seen in prior decades. Yet every spring, economists sing the same refrain: “This is the year we’ll finally reach 3% GDP growth, and the economic recovery will finally feel real.” This year began with a similar refrain. According to a Wall… Read More

Over the past five years, the United States economy has been on the mend. So why is there still a pervasive sense that we’re stuck in the mud? Perhaps it’s because our economy has expanded at a 2.2%-to-2.4% rate in each of the past three years. That seems downright anemic compared to economic growth rates seen in prior decades. Yet every spring, economists sing the same refrain: “This is the year we’ll finally reach 3% GDP growth, and the economic recovery will finally feel real.” This year began with a similar refrain. According to a Wall Street Journal survey conducted in January, economists looked into their crystal balls and once again predicted a 3% economic growth rate this year. (That article suggested that the economy grew 2.6% last year, but that figure has been subsequently ratcheted down to 2.4%.) “The plunge in energy prices provides big dividends to consumers and businesses,” said Bernard Baumohl, chief global economist of the Economic Outlook Group to the WSJ at the time. Here’s the problem: any sort of oil-related dividend is nowhere to be found. Consider this recent sampling of economic data points: — Revolving credit (which mostly reflects credit… Read More

For novice investors it’s always the hardest part: where do you begin? But it’s not only novice investors that have this problem. No matter where an investor falls on the learning curve, it’s tough to know what stock to buy, which strategy to pursue or which retirement account to use. Even the basics can be overwhelming for somebody new to the market. Should you invest in a Roth IRA, Traditional IRA, Simple IRA, SEP IRA, Uni-401(k), Mutual Funds, ETFs, stocks, bonds? The list goes on… Investors are literally inundated with options. And if you go to a financial advisor, most… Read More

For novice investors it’s always the hardest part: where do you begin? But it’s not only novice investors that have this problem. No matter where an investor falls on the learning curve, it’s tough to know what stock to buy, which strategy to pursue or which retirement account to use. Even the basics can be overwhelming for somebody new to the market. Should you invest in a Roth IRA, Traditional IRA, Simple IRA, SEP IRA, Uni-401(k), Mutual Funds, ETFs, stocks, bonds? The list goes on… Investors are literally inundated with options. And if you go to a financial advisor, most require at least $50,000 and can charge outrageous fees. Most investors start out with a few hundred bucks and stuff it in a savings account, earning next to nothing, simply because they don’t know what else to do with it. #-ad_banner-#These were the shoes Matthew Michaels, a young father who works here in the StreetAuthority office, was in when his grandparents gave his two young daughters money for Christmas last year. At first, he figured he’d use the money to buy more diapers and onesies, but after talking it over with his wife, they decided to invest it for their… Read More

April will be the 70th month of economic expansion for the United States. That seems like a long amount of time, but it’s not abnormal. The last three expansions in the United States lasted an average of 95 months, with the longest lasting 10 years. Using recent history as a guide, we can estimate how far away we are from the next recession (about two years based on the average expansion length). But we have no way of knowing if our current expansion will end before then or maybe set a new record. Not even economists know when we’ll transition… Read More

April will be the 70th month of economic expansion for the United States. That seems like a long amount of time, but it’s not abnormal. The last three expansions in the United States lasted an average of 95 months, with the longest lasting 10 years. Using recent history as a guide, we can estimate how far away we are from the next recession (about two years based on the average expansion length). But we have no way of knowing if our current expansion will end before then or maybe set a new record. Not even economists know when we’ll transition from one phase into the next. In fact, economists generally don’t know that we’re even in a recession until 6-12 months after it begins. Knowing that we’re most likely nearing a later stage of our expansion, my focus has turned to what comes next. More specifically, I want to know whether the companies I’m investing in are prepared for the end of this expansion. #-ad_banner-#While it’s not possible to know when the next recession will start, we can work around that by investing in companies that perform well during both feast and famine. If a company… Read More

Slumping oil prices are crushing profits across the energy sector. And it won’t be long before the sector’s weakest players are forced to take drastic action in an attempt to survive. (My colleague Joseph Hogue touched on this theme last month.) There are currently several hundred distressed energy companies, most of which are smaller, highly-leveraged shale drillers. Some of these firms have perhaps three-to-six months of solvency remaining. Thus, by summer, we should begin seeing a spike in asset sales, restructurings and other cash-raising maneuvers as cash balances dry up. #-ad_banner-#Mergers and acquisitions, or M&A, is especially popular in these… Read More

Slumping oil prices are crushing profits across the energy sector. And it won’t be long before the sector’s weakest players are forced to take drastic action in an attempt to survive. (My colleague Joseph Hogue touched on this theme last month.) There are currently several hundred distressed energy companies, most of which are smaller, highly-leveraged shale drillers. Some of these firms have perhaps three-to-six months of solvency remaining. Thus, by summer, we should begin seeing a spike in asset sales, restructurings and other cash-raising maneuvers as cash balances dry up. #-ad_banner-#Mergers and acquisitions, or M&A, is especially popular in these situations. Simply put, weaker firms are more likely to pull through if they combine forces with a competitor or are bought out by one of the stronger industry players. As struggling energy companies increasingly opt for M&A, they’ll need investment banking expertise to shepherd them through the process. A top energy industry advisor: Evercore Partners, Inc. (NYSE: EVR). While the name may not be as well-recognized as those of huge rivals like The Goldman Sachs Group, Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS), Evercore has an impressive track record. The firm was among the bankers involved in the high-profile… Read More

As a rational investor, I understand that sentiment and irrational expectations can impact the market over extended periods of time. When this happens, I focus on the longer-term picture in order to retain conviction in my positions. But sometimes the market gets so disconnected from reality that I can’t help but wonder whether a significant change in asset prices is imminent. In these instances, which I believe is happening now, I take short-term, contrarian positions. #-ad_banner-#Even if I am early to the party and lose money on the position over a few months, I am positioned to win big when… Read More

As a rational investor, I understand that sentiment and irrational expectations can impact the market over extended periods of time. When this happens, I focus on the longer-term picture in order to retain conviction in my positions. But sometimes the market gets so disconnected from reality that I can’t help but wonder whether a significant change in asset prices is imminent. In these instances, which I believe is happening now, I take short-term, contrarian positions. #-ad_banner-#Even if I am early to the party and lose money on the position over a few months, I am positioned to win big when the bubble bursts. Unlike past bubbles in the stock and real estate markets, a new bubble is emerging in the fixed-income markets.   Take My Money, Please Switzerland recently became the first country to sell 10-year Treasuries at a negative yield. In effect, investors are paying the Swiss government to hold their money for ten years and asking nothing in return. Do investors really expect rates to go nowhere for the next decade? If that were not enough to signal something terribly wrong in the world of fixed-income, then consider this. The 10-year U.S. Treasury bond yields… Read More

I bet you made a few New Year’s resolutions at the start of 2015. In fact, I’ll do you one better — I bet your resolution was to either eat better or exercise more. I’m no psychic, but studies show those are the two most common New Year’s resolutions. Aside from health and fitness though, the Journal of Clinical Psychology notes that financial resolutions rank No. 3 on the list of the most popular promises people make to themselves each year. Sadly though, the journal also notes that only 8% of people are successful in achieving them. Most fail fairly… Read More

I bet you made a few New Year’s resolutions at the start of 2015. In fact, I’ll do you one better — I bet your resolution was to either eat better or exercise more. I’m no psychic, but studies show those are the two most common New Year’s resolutions. Aside from health and fitness though, the Journal of Clinical Psychology notes that financial resolutions rank No. 3 on the list of the most popular promises people make to themselves each year. Sadly though, the journal also notes that only 8% of people are successful in achieving them. Most fail fairly quickly. I bring this up to ask an important question — one that I’ve never asked my readers before… Are you investing enough? It’s an honest question. And you needn’t undergo some sort of financial crash diet to figure it out. All you really need is a basic household budget and a little time around the kitchen table with the people in your life who spend your money. Budgets, I’ve noticed, are like balance sheets in one regard: they scare people silly. See it’s not the list of expenses that makes people uncomfortable; it’s the “other” number that makes… Read More

Many oil explorers and producers (E&P) are on the precipice right now. Years of high oil prices have led to a bonanza of land grabs and acquisitions despite premium valuations. Companies took on high levels of debt, reasoning that the revolution in U.S. production would mean cash flows could easily cover the interest. But now that oil prices have been cut in half, nearly $11.6 billion of that debt could be at risk of default. This earnings season, companies are expected to announce major changes to their capital spending plans to control the cash bleed while analysts continue… Read More

Many oil explorers and producers (E&P) are on the precipice right now. Years of high oil prices have led to a bonanza of land grabs and acquisitions despite premium valuations. Companies took on high levels of debt, reasoning that the revolution in U.S. production would mean cash flows could easily cover the interest. But now that oil prices have been cut in half, nearly $11.6 billion of that debt could be at risk of default. This earnings season, companies are expected to announce major changes to their capital spending plans to control the cash bleed while analysts continue waiting for a sign that the energy market has bottomed. All the uncertainty means high risk for investors… but also the potential for high returns for the companies that can survive until energy prices recover. #-ad_banner-#I am not naive enough to try calling a bottom in energy prices, but with this option trade, I don’t have to. In fact, today’s trade can give you the opportunity to minimize risk and amplify any potential returns, all while preserving capital if the trade doesn’t work out. Don’t Gamble With Your Money… Use Options to Minimize Risk and Preserve Capital The E&P space… Read More

Dear Readers, Before we get to the Market Outlook, I want to share a short but important document with you. It contains the track record of a trading prodigy who averaged 56.8% returns with an average holding period of just 27 days. It may sound too good to be true, but it’s not. This fact sheet, which takes no more than a few minutes to read, will tell you everything you need to know about his unique strategy — and how you can get his next eight trades without making any long-term commitment. … Read More

Dear Readers, Before we get to the Market Outlook, I want to share a short but important document with you. It contains the track record of a trading prodigy who averaged 56.8% returns with an average holding period of just 27 days. It may sound too good to be true, but it’s not. This fact sheet, which takes no more than a few minutes to read, will tell you everything you need to know about his unique strategy — and how you can get his next eight trades without making any long-term commitment. Get the facts here. Sincerely, Frank Bermea Publisher, Profitable Trading   One recurring theme within what has otherwise been a lackluster 2015 thus far for the U.S. stock market is its ability to quickly recover from the brink of a corrective decline. We saw this phenomenon again last week as all major indices finished in the black. They were led by the tech-heavy Nasdaq 100, which edged below key underlying support levels a week earlier. On the sector front, last week’s advance was led by… Read More

#-ad_banner-#The rapid surge in the dollar has thus far had little impact on the stock market. But it soon will.  In the upcoming earnings season, you’ll be hearing a lot about how many companies in the S&P 500 are having a tough time racking up sales in their foreign subsidiaries. And when you consider that few expect the dollar to pull back any time soon, this trend is likely to persist for at least the rest of 2015.  As we’ve noted in the past, larger companies tend to have much greater global exposure than smaller companies. And in the face… Read More

#-ad_banner-#The rapid surge in the dollar has thus far had little impact on the stock market. But it soon will.  In the upcoming earnings season, you’ll be hearing a lot about how many companies in the S&P 500 are having a tough time racking up sales in their foreign subsidiaries. And when you consider that few expect the dollar to pull back any time soon, this trend is likely to persist for at least the rest of 2015.  As we’ve noted in the past, larger companies tend to have much greater global exposure than smaller companies. And in the face of rising global sales challenges, you would think large cap stocks would be losing favor. Yet the S&P 500 has actually outperformed the Russell 2000 (a small-cap index) over the past 13 months. The simple explanation: global uncertainty tends to lead to a “flight to quality” as larger companies are generally seen as safer investments. Yet as Q1 earnings season will likely show, these aren’t “quality” times for big companies.  That’s why I am focusing my research these days on small-cap stocks. A number of individual stocks in the Russell 2000 are now trading far from their 52-week high,… Read More