Forgot your password?
The Graham Investor Blog
The latest marketing hype to hit my mailbox comes from a newsletter called 1-2-3 Trader and purports to have cracked "Wall Street's Da Vinci Code". The blurb reads somewhat breathlessly like the Dan Brown Novel - the protagonist here being a fellow named Stanton, a former Wall Street Insider (funny how they're always former Wall Street Insiders?) - whose 25 year quest to crack the "code" has taken him all over the world. The blurb brags:
"I’ll show you how to use the same cash-cranking “code” Wall Street’s super-elite have quietly used for years.
Over the next 5 minutes you’ll discover a simple way to consistently put obscene amounts of fast-cash in your pocket… starting just days from now.
Sound good? Great"
Probably. Trouble is, it also sounds too good to be true. And it'll set you back a rather hefty $1400, even after discounts. But if you read between the lines you can tell it's nothing new. After all, there's nothing much new under the sun in investing, only recycled stuff. And most people can probably figure it out themselves. Let's see if we can.
Wall Street Analysts seem to be focused on Earnings, Earnings Estimates, and Earnings Reports - sometimes obsessively so. It's often hard for investors to understand why; surely there are other factors such as sales growth, cash flow, return on equity, etc?
There are indeed but, to understand why EPS gets such a huge focus, we have to pay attention to how the Wall Street Analyst bandwagon works. In general, analysts are assigned to industry sectors and their opinions and recommendations are published monthly or quarterly. In turn, these opinions and recommendations bring in sales for their firms' retail brokerage arms. If an analyst becomes bullish on a stock, or bearish, the firm's retail brokerage arm will generally push the opinion - recommendation or otherwise - to the firm's clients and advise them to buy or sell accordingly.
What a difference a little patience makes! Despite the market drop of the last few months, the GI portfolio is actually up since we last posted an update in May 2007. The so-called subprime crisis took the DOW down from a high of over 14000 to a low of under 12500 in just one month between mid-July and mid-August.
A recent, lengthy email that hit our inbox promised that an "Extreme Value" retirement plan which uses a "unique and little-known investment strategy" would double or triple our money with low risk.
Intrigued, yet suspecting this was another bit of marketing hype, we read the entire email thoroughly word for word over and over again because sometimes this gives insights into the strategy being employed.
One stock being touted in the email as the "85% Blue Chip Bond" is (courtesy of a Google search) almost certainly Home Depot (HD). On Home Depot's website, a press release states:
We added Webex Communications (WEBX, Quote, News) to the GI portfolio on 05/12/2005 at $22.87. Some background to the actual purchase can be found here.
Today, Webex was bought out by Cisco Systems (CSCO) for $3.2billion.
The news sent Webex's stock soaring 22.03% to close at $56.38.