Thanx Greg. Put in layman's term for us (like me) who need that. Listening on TV is too fast for my brain to absorb what their saying, and some of them use big words to feel "bigger" and they miss the true explantion/meaning to their audience...
For you I should have done all this on a chalk board....
It's true though Greg, you do have a knack for sharing fundamentally sound information on this subject in a way that makes sense to people without compromising the important details.
I'm confident your thread has/will indirectly create an unbelievable amount of wealth for the guys in this community. Truly an award-worthy contribution. Keep it up!
PEG Ratio is another good and easy way to see how a company is valued, especially smaller faster growing ones. I stay below 2.0 in just about all cases. A couple good explanations:
Since we just talked about stock splits and high P/E ratios - and whether or not EARNINGS were important etc....
NetFlix (NFLX) just split it's stock 7 for 1 - meaning for each share you owned - you'd now own 7 times as many -- but that also divides the price by 7 as well.
They had an EXTREMELY high P/E.... IIRC -- 181 !!! Which is just a WOW number.
But let's remember how it got that kind of a P/E... It's because people (buyers) have very high expectations for GROWTH of the business and therefore the EARNINGS.
THEIR EARNINGS just announced today after the close - which beat the street estimates... and they added 3 million new subscribers in the quarter....
The stock spiked after hours by 10%.
Now - let's also take into account that everyone that owned the shares... now has 7 times MORE shares in their accounts! Sometimes - people sell off some of the shares and we know what happens when there's more sellers than buyers... you see a price drop. BUT --- the split is supposed to drive demand from the smaller investor who's willing to pay (in this case) $100 a share versus $700 a share. So perhaps there's buyers coming in, to acquire new shares of the stock. Who the heck knows.
I'll tell you what I do.... I never trade *buy or sell - a stock based on a perceived or announced split. Splits in themselves do not add value. They might temporarily drive some excitement - but that's usually short lived.... In the long run - we want to INVEST in companies that we think will do well going forward. End of story.
I have a significant portfolio -- and I own a whopping 100 shares of NFLX (now it's 700).... because while I think it's a growth story -- it doesn't pay me a dividend - AND more importantly - the AIR / FROTH / PE will come down far faster than it goes up when they have 180 ish P/E!!!! These stocks work when they're working -- and they really really stink up the joint if they so much as whisper that their growth is slowing or their earnings aren't up to snuff.
If you go back a couple years in this thread --- You've heard me REPEATEDLY state something along the lines of "if your grocery store clerk is telling you about all the money they're making" -- or "if you turn on the talking heads - and all they're talking about every day is..." RUN!! Run away from whatever it is they're talking about as fast as you can!
How many remember the ENDLESS ---- GOLD bugs....
Okay pull up a FIVE YEAR chart of GLD -- a gold ETF.... Then add the QQQ (basically the NASDAQ) and the SPY (the DOW)....
So -- as I always point out in this thread -- I'm trying to give people food for thought... using real life examples - of which - in order to demonstrate what I'm talking about... it helps to use "an" example. In this case we're going to use Chevron (CVX).
Gas and Oil are in the tailspin of too much product - not enough usage. So it's a war on prices. This is a CLASSIC example of when there's too much of something - the price will reflect that. The old "more sellers than buyers". What happens when it's the reverse? Prices go UP. Given the worlds oversupply of crude oil right now - the US is in a battle of supply against the other producing countries. They'll give their's away in an effort to crush our producers. THEY only have one thing to sell (export).... their lives depend on the price of crude. Tough for them.
So more importantly - let's talk about DIVIDENDS. The dividend on CVX is up to 4.8%!! WHY?? Because the price of the stock has dropped some 22% year to date -- and 33% in the last 12 months!! As the price of the shares decline - the dividend PERCENTAGE goes up. This is fantastic IF and AS LONG AS they can remain profitable and continue to pay out the same dividend!!!
We discussed the P/E of some of the high fliers! Some are 181 ish and higher - or in the 40's and 50's!!! What's CVX at....... 9.7
What I'm pointing out here is the RELATIONSHIPS of these numbers. I'm not saying to buy CVX or any other stock... It's just a learning "item". We don't often get a chance to see this kind of phenomenon in such a short time span!
I picked on CVX -- because typically I like infrastructure plays over say - a producer. The producer has to get his product to market. As do other producers - so I like guys that pump it thru pipes to the other guy (the refiner). But when you see a CVX - which is a producer and a refiner go "on sale" - I start to watch. Remember that we don't want to try to catch a falling knife.... time to sit back - put something on your radar - and let it play out. But opportunity usually comes following the old "blood in the streets" scenario! When NOBODY wants to own something --- that's usually a good time to pick away at it. The world will continue to burn up oil and gas.... and as economies around the world stabilize (as ours has) and demand picks up... there CAN BE opportunity.
I'd like to see CVX get down to where the ratio is like 5% dividend or maybe even a little more... 5.5% or so would be OMG.... At that point I'll start picking at it. LOL
To me - it's like the housing market.... the guys that are killing it now - are the guys with the balls to have bought when nobody in their right mind was willing to buy a house! Now those people wished to hell they had bought a dozen of them!! LOL
Think long term! You might get killed for awhile - but if the dividend payout is worth it - it can work out nicely.
REMEMBER -- I'm not saying to buy "X" or "Y" or "Z" ---- I'm saying to be looking for opportunity and then have the balls to take advantage of it.
I'd like to see CVX get down to where the ratio is like 5% dividend or maybe even a little more... 5.5% or so would be OMG.... At that point I'll start picking at it. LOL
And BP is at 6.6%... just saying.
__________________
Michael
Plano, TX
1968 Barracuda Notchback
Brian Hobaugh SCCA National Tour June 2014
First Hemi 'Cuda Convertible Ever Built
Short clips: Goodguys Pleasanton autocross and pit videos
Linear Mode
