How PEG Ratio Can Find Value

June 22, 2015 // 0 Comments

Price/earnings to growth ratio is one of the valuation metrics we employ at Ignore the Market.  We use PEG in conjunction with P/E and P/S (both compared to company and industry averages).  We like PEG because it is a valuation method that attempts to justify price based on anticipated growth.  If a company is growing at a healthy rate, it may justify the investment even if the P/E is outside our normal comfort zone.  If two companies have the exact same P/E, would not the one with the faster growth rate be more attractive assuming all other metrics are the same? According to Wikipedia, PEG was first developed by Mario Farina who described it in his 1969 book A Beginner’s Guide to Successful Investing in the Stock Market.  This book is out of print and I was unable to acquire even a used copy.  Investopedia, however, credits Jim Slater with developing the PEG ratio.  Slater founded an investment firm in …[Read More]

Ignore This Post

June 21, 2015 // 0 Comments

Despite reams of research showing timing the market is a fool’s game, plenty of seemingly intelligent market experts continue to recommend investors do just that.  The latest tripe for you to ignore comes from Ian Spreadbury, who manages bond funds for Fidelity. Spreadbury recently stated that “Systemic risk is in the system and as an investor you have to be aware of that.”  He recommends investors pull out of the stock and bond markets, and instead hold precious metals, cash in bank accounts, and even keep physical cash on hand. The event that Spreadbury believes will cause markets to crash is elevated global debt, specifically mortgage debt, which has reached dangerous levels.  Booming debt levels have been spurred on by the extended low interest rate environment.  Canada looks to be in worse shape than the U.S.     In America, it seems student debt must be putting a crimp on consumer spending, not to mention impacting one’s ability to save, invest, …[Read More]

Is Another Market Crash Imminent?

June 19, 2015 // 0 Comments

Ignore the Market was founded on the belief that an investor should ignore broad market moves, whether they be daily, weekly, or monthly, or whether they are up or down.  But not only should an investor ignore the market, they should ignore market prognosticators who clog our media with daily forecasts of pending doom and gloom. Some of these forecasts will eventually be right, but enough are wrong that trying to craft an investment strategy based on so called expert predictions is a fools game. Today’s crystal ball reading is presented by Dr. Ron Paul on CNBC.  His major thesis is that the Federal Reserve has created a “horrendous bubble” which will result in a correction of “greater than 10%.”  This prediction is not hard to make as the market has routinely corrected in excess of 10% every 2-3 years over the past century.  Paul adds “They (investors) have gained confidence that the Fed will not allow the market to drop.”  While I …[Read More]

Is it Possible to Beat the Market?

June 16, 2015 // 0 Comments

A recent article on contends that it is “tough to beat the S&P 500”.  “just 20 percent of mutual funds that pick U.S. stocks beat their main benchmarks in 2014, while 21 percent topped the indexes in the five years ended Dec. 31. (If you widen the time frame to 10 and 15 years, the winners rise to 34 percent and 58 percent, respectively). Unsurprisingly, investors have thus moved money to low-cost funds that mimic indexes.” –  One reason cited in the article for the superiority of the S&P 500 index is due to the criteria used for adding and removing companies.  “The median stock removed from the S&P 500 has negative earnings growth in the preceding three and five year periods. The earnings growth of the companies added to the index was not only much superior to the companies removed but also much higher than those companies already in the index.” – Morgan Stanley research via If the S&P 500 …[Read More]

Why You Shouldn’t Fear a Bear Market

June 14, 2015 // 0 Comments

Bear Market:  “A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows.” – Investopedia While no specific definition exists for how far securities must fall to be considered bear market territory, most investors consider a drop of 20% on the major indexes to indicate we have encountered the bear.  History The last major correction, from 2007 to 2009, during what many call the great recession, was a whopping 56.8% decline in the S&P 500 index. Since 1900, bear markets have occurred about every 3.5 years on average, with the average duration coming in at 367 days.  It has now been over six years since the 2007-2009 crash bottomed and began to recover.  Does this mean we are due?  Not necessarily.  Some bear market intervals are significantly longer than the average.  13 years passed between the …[Read More]

Do Active Traders Outperform Buy and Hold?

June 11, 2015 // 0 Comments

“We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.’” – Warren Buffett   Buy and hold has been a much criticized investment strategy since the market collapse that began in October 2007, and picked up speed in the summer of 2008, not bottoming out until February 2009.  Total losses for the S&P 500 exceeded 50%.  Many people today still talk about how they were wiped out in the crash, but was it the market that wiped them out, or their submission to fear and ignorance.  I use the term ignorance not to be insulting, but in the true sense of the word that they simply did not know severe downturns happen, but the market always recovers. Had someone simply held their investments through the the most recent bear market and not added to their portfolio, they would have recovered all of their principle by March …[Read More]

Low Debt Levels are Key to Surviving Tough Times

June 10, 2015 // 0 Comments

American politicians have campaigned for decades on the promise of energy independence, now that it is more or less here, many companies involved in the extraction and production of petroleum products are feeling the pain.  An increase in pumping has resulted in high inventory levels, and as a result a rapid drop in oil prices.    Low prices have upended the economic model, eliminating the need for much of the drilling and pumping capacity, resulting in a dramatic drop in rig count. “Rigs engaged in exploration and production in the U.S. totaled 894 for the week ended May 8, 2015. This was down by 11 from the previous weeks rig count and indicates the lowest level in almost 6 years… the current nationwide rig count is now less than half of the prior-year level of 1,855. It rose to a 22-year high in 2008, peaking at 2,031″…  – Zacks     Fewer rigs means fewer oil field workers.  Many high …[Read More]

How Price to Sales Ratio Avoids Accounting Tricks

June 9, 2015 // 0 Comments

A recent article by the Associated Press asserts that more and more businesses are using accounting gimmickry to boost profits. “An analysis of results from 500 major companies by The Associated Press, based on data provided by S&P Capital IQ, a research firm, found that the gap between the “adjusted” profits that analysts cite and bottom-line earnings figures that companies are legally obliged to report, or net income, has widened dramatically over the past five years.  At one of every five companies, these “adjusted” profits were higher than net income by 50 percent or more. Many more companies are in that category now than there were five years ago. And some companies that seem profitable on an adjusted basis are actually losing money.” – AP   Price to earnings ratio is one of the longest standing and respected methods to identify value, but as the AP pointed out, it can be easily manipulated. One of the biggest scams in history, …[Read More]

Why Coal is Not a Dead Investment

June 9, 2015 // 0 Comments

Some are calling it the beginning of the end of coal.  President Obama’s EPA has launched an all-out assault on CO2 emissions, with coal plants dead in the crosshairs as some of the largest producers.