What are the chances of being born?
Why I Invest In US Stock Market?
Deutsche Bank shares have hit their lowest level since the mid-1980s. When an institution like this is in trouble, the markets can easily enter panic mode on contagion fears.
This is a perfect example of how risky big banks are and why they usually have low PE ratios. Due to the complexity of their business, you never know where a black swan might emerge from (black swan – an event that deviates from what is normally expected and is extremely difficult to predict). Shares of DB were trading above $100 per share prior to the financial crisis and strongly above $50 afterward until several black swans hit it.
The latest bad news came from the Department of Justice and its proposed $14 billion settlement for DB's trading activities in the financial crisis which DB's CEO rejected. On top of such—and other scandals—in June 2016, the International Monetary Fund issued a warning that DB appears to be the most important net contributor to systemic risks. The same report states that the largest German banks and insurance companies are highly interconnected which explains why the complete European market moves in line with bad news for DB.
But all of the above was well known before this Monday when DB stock fell 7%. The most recent fall was influenced by the German Chancellor's words that it will not bail out DB in case of trouble. DB quickly replied that it did not ask nor it will be needing government aid, but the damage was done.
Apart from the insight of how risky banks are, what can also be understood from the story above is how dependent markets are on government and financial institutions. Last Wednesday, the FED didn't increase interest rates which pleased the markets but as soon as the weekend came, markets fell as the German government said that it will not bail out DB.
Investors will be better off avoiding such artificial markets as sooner or later those markets return to normalcy, or worse. As they are artificially inflated, when the strong government hand removes itself, panic will kick in and send asset prices to artificially low levels like they were in 2009.
On Monday, the DAX index (Germany) fell by 2.29%, and the S&P 500 also fell more than 0.8%. It's clear that some contamination is unavoidable. But this has much larger implications than just a daily drop in stock prices. The economies are interconnected and trouble in one bank, like the Deutsche Bank, can be a trigger of systemic risks. Therefore, even if the U.S. economy does well and the FED does everything right, there is always the risk of contamination from Europe.
What should you do when the risks seem to be everywhere? The world will continue to spin even if there is a recession or a bankrupt financial institution. Demand for commodities will grow alongside global population growth, and the best companies will find a way to reach their customers. Two things are important: find good companies that will do well in any environment, and have some cash available that will give you the opportunity to buy when things get cheap.
As Friday closed, the downturn has resulted in the SP500 closed -2.45% and DJIA -2.13% snapping a 2.5 month streak of days without a drop greater then 1%. VIX raised 40%, sharpest rise since the after Brexit.
The hedge I posted early is actually in profit tho I wish it didn't.
Last night I had a few messages, notifying me while I was watching a movie ( American Ultra ) a good movie by the way. That was how I knew about the drop. My passive approach doesn't keep me up all night, however I took at the markets and responded individually.
I looked around for news, no news that actually really meaningfully mentioned the real reason for the drop. Yes there are lots of news, filter out the crap. The drop is a healthy drop. It's normal when people start profit taking after such a long run up. It's normal and it shouldn't affect you. It should only affect you if you are gambling and not investing. Instead I open a new position on Accenture, a company that has been on my watchlist and reached my entry price.
Have a good weekend, in Singapore it's going to be long weekend, don't worry so much.
There are a lot of different ways to analyze a stock. For example, you can focus on the stock's price movement from one period of time to another, over time, to identify patterns and likely reversal points. You can pay attention to the flow of supply and demand for a company's shares in the marketplace to determine whether buying or selling exerts more influence on the stock's price direction. You can expand your view to focus on the market as a whole to try to determine whether investors are generally buying stocks in one industry over others right now, or use global, national and regional economic data to help measure the overall health of the market.
There is value in all of these methods, but we believe that the proper place to begin your analysis is by looking at the business that underlies the stock you're considering for an investment. This is a process generally known as fundamental analysis, because it focuses on what the company is doing, week by week, month by month, quarter by quarter, and year by year, to generate revenue, manage costs, forge a profit, and find ways to expand the business.
Earnings and revenues are perhaps the two most basic elements of fundamental analysis. They are naturally among the first things that any investor should make sure to pay attention to.
I believe that the most important aspect of a company's earnings and revenues reports comes in the pattern they establish over time. SEC regulations require that stocks listed on U.S. exchanges report quarterly and annual results. Financial websites like reuters.com, finance.yahoo.com, and others, compile these results and make them easy for any investor to review and analyze.
Under ideal circumstances, both earnings and revenues should be seen to increase on both a quarterly and annual basis. I also prefer to see earnings growing slightly faster than revenues as an indication the company maintains strict cost controls. Keep in mind, however, that deviations from the ideal are not always indications of problems, but should be used to help generate questions and dig deeper for more insight. One of the most common examples of this is when revenues grow over a period of time, but earnings do not. Increasing revenues are a positive, but the fact the company failed to increase profits as well could be attributed to several factors. Has management failed to contain spending properly, or are they perhaps investing in research, development or acquisitions that have temporarily curbed their profit profile? Earnings and Revenue Growth is an excellent way to judge that.