Calculating Stock Quotes

What is unique about the "I" hides itself exactly in what is unimaginable about a person. All we are able to imagine is what makes everyone like everyone else, what people have in common. The individual "I" is what differs from the common stock, that is, what cannot be guessed at or calculated, what must be unveiled, uncovered, conquered.

And back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence. 4

The individual "I" is what differs from the common stock, that is, what cannot be guessed at or calculated, what must be unveiled, uncovered, conquered.

Consider brokerage and taxes while calculating profit and loss:-

If you can distill the essence of GE's stock behavior over the past twenty years, then you can apply it to financial engineering. You can estimate the risk of holding the stock over the next twenty years. You can estimate how many shares of the stock to buy for your portfolio. You can calculate the proper value of options you want to trade on the stock.

it is not a calculated risk if you haven’t calculated it.

In the name of speed, Morse and Vail had realized that they could save strokes by reserving the shorter sequences of dots and dashes for the most common letters. But which letters would be used most often? Little was known about the alphabet’s statistics. In search of data on the letters’ relative frequencies, Vail was inspired to visit the local newspaper office in Morristown, New Jersey, and look over the type cases. He found a stock of twelve thousand E’s, nine thousand T’s, and only two hundred Z’s. He and Morse rearranged the alphabet accordingly. They had originally used dash-dash-dot to represent T, the second most common letter; now they promoted T to a single dash, thus saving telegraph operators uncountable billions of key taps in the world to come. Long afterward, information theorists calculated that they had come within 15 percent of an optimal arrangement for telegraphing English text.

Intrinsic Value Calculations for Stocks are only for a selected few. It is boring, mundane hard work. For everyone else who wants to make money, there is the 'Greater Fool Theory', and it also works remarkably well in the real world. You may not believe it, but there always exists a bigger or greater fool willing to pay a higher price.

What is unique about the "I" hides itself exactly in what is unimaginable about a person. All we are able to imagine is what makes everyone like everyone else, what people have in common. The individual "I" is what differs from the common stock, that is, what cannot be guessed at or calculated, what must be unveiled, uncovered, conquered.

Every separate economic agent maintains a stock of money that corresponds to the extent and intensity with which he is able to express his demand for it in the market. If the objective exchange-value of all the stocks of money in the world could be instantaneously and in equal proportion increased or decreased, if all at once the money-prices of all goods and services could rise or fall uniformly, the relative wealth of individual economic agents would not be affected. Subsequent monetary calculation would be in larger or smaller figures; that is all.

If you are going to use probability to model a financial market, then you had better use the right kind of probability. Real markets are wild. Their price fluctuations can be hair-raising-far greater and more damaging than the mild variations of orthodox finance. That means that individual stocks and currencies are riskier than normally assumed. It means that stock portfolios are being put together incorrectly; far from managing risk, they may be magnifying it. It means that some trading strategies are misguided, and options mis-priced. Anywhere the bell-curve assumption enters the financial calculations, an error can come out.

While some methods of calculation find that cancer and its patients take up too many resources, from another angle, cancer patients are cash cows. Each cancer patient generates millions of dollars in revenues. If one wonders why we would extend the life of a pancreatic patient for a dozen days with a $16,000 drug, let’s remember that this money does not evaporate after twelve days; it continues to circulate in stock prices, salaries, and smaller crumbs of an infinitely profitable cancer pie. Just as the demon of communism justified the proliferation of a lucrative nuclear industry, so cancer fills the core of so many economies that if a cure were to be found, the economy might just crash.

A 1997 study of the consumer product design firm IDEO found that most of the company’s biggest successes originated as “combinations of existing knowledge from disparate industries.” IDEO’s designers created a top-selling water bottle, for example, by mixing a standard water carafe with the leak-proof nozzle of a shampoo container. The power of combining old ideas in new ways also extends to finance, where the prices of stock derivatives are calculated by mixing formulas originally developed to describe the motion of dust particles with gambling techniques. Modern bike helmets exist because a designer wondered if he could take a boat’s hull, which can withstand nearly any collision, and design it in the shape of a hat. It even reaches to parenting, where one of the most popular baby books—Benjamin Spock’s The Common Sense Book of Baby and Child Care, first published in 1946—combined Freudian psychotherapy with traditional child-rearing techniques. “A lot of the people we think of as exceptionally creative are essentially intellectual middlemen,” said Uzzi. “They’ve learned how to transfer knowledge between different industries or groups. They’ve seen a lot of different people attack the same problems in different settings, and so they know which kinds of ideas are more likely to work.” Within sociology, these middlemen are often referred to as idea or innovation brokers. In one study published in 2004, a sociologist named Ronald Burt studied 673 managers at a large electronics company and found that ideas that were most consistently ranked as “creative” came from people who were particularly talented at taking concepts from one division of the company and explaining them to employees in other departments. “People connected across groups are more familiar with alternative ways of thinking and behaving,” Burt wrote. “The between-group brokers are more likely to express ideas, less likely to have ideas dismissed, and more likely to have ideas evaluated as valuable.” They were more credible when they made suggestions, Burt said, because they could say which ideas had already succeeded somewhere else.

Each woman was valued at 150 pounds of tobacco, which was the same price exacted from Jane Dickenson when she eventually purchased her freedom. Not surprisingly, then, with their value calculated in tobacco, women in Virginia were treated as fertile commodities. They came with testimonials to their moral character, impressing on “industrious Planters” that they were not being sold a bad bill of goods. One particular planter wrote that an earlier shipment of females was “corrupt,” and he expected a new crop that was guaranteed healthy and favorably disposed for breeding. Accompanying the female cargo were some two hundred head of cattle, a reminder that the Virginia husbandman needed both species of breeding stock to recover his English roots.37 Despite

Even if index numbers cannot fulfill the demands that theory has to make, they can still, in spite of their fundamental shortcomings and the inexactness of the methods by which they are actually determined, perform useful workaday services for the politician. If we have no other aim in view than the comparison of points of time that lie close to one another, then the errors that are involved in every method of calculating numbers may be so far ignored as to allow us to draw certain rough conclusions from them. Thus, for example, it becomes possible to a certain extent to span the temporal gap that lies, in a period of variation in the value of money, between movements of Stock Exchange rates and movements of the purchasing power that is expressed in the prices of commodities.

Discussing the Russian campaign two years later, Napoleon admitted ‘that when [I] got to Moscow, [I] considered the business as done’.24 He claimed he could have stayed in the well-stocked city throughout the winter had it not been for the burning of Moscow, ‘an event on which I could not calculate, as there is not, I believe, a precedent for it in the history of the world. But by God, one has to admit that showed a hell of a strength of character.’25 Although the part of the city that survived the fire was large enough for winter cantonments, and some supplies were found there in private cellars, it was not remotely capable of wintering an army of over 100,000 men for half a year. There was not enough fodder for the horses, campfires had to be built of mahogany furniture and gilded window-frames, and the army was soon subsisting off rotten horseflesh.26 In retrospect it would have been better for the French had the whole city been razed to the ground, as that would have forced an immediate retreat.

To oversee all the details yourself in person; to be at once pilot and captain, and owner and underwriter; to buy and sell and keep the accounts; to read every letter received, and write or read every letter sent; to superintend the discharge of imports night and day; to be upon many parts of the coast almost at the same time—often the richest freight will be discharged upon a Jersey shore;—to be your own telegraph, unweariedly sweeping the horizon, speaking all passing vessels bound coastwise; to keep up a steady despatch of commodities, for the supply of such a distant and exorbitant market; to keep yourself informed of the state of the markets, prospects of war and peace everywhere, and anticipate the tendencies of trade and civilization—taking advantage of the results of all exploring expeditions, using new passages and all improvements in navigation;—charts to be studied, the position of reefs and new lights and buoys to be ascertained, and ever, and ever, the logarithmic tables to be corrected, for by the error of some calculator the vessel often splits upon a rock that should have reached a friendly pier—there is the untold fate of La Prouse;—universal science to be kept pace with, studying the lives of all great discoverers and navigators, great adventurers and merchants, from Hanno and the Phoenicians down to our day; in fine, account of stock to be taken from time to time, to know how you stand.

some small counting house on the coast, in some Salem harbor, will be fixture enough. You will export such articles as the country affords, purely native products, much ice and pine timber and a little granite, always in native bottoms. These will be good ventures. To oversee all the details yourself in person; to be at once pilot and captain, and owner and underwriter; to buy and sell and keep the accounts; to read every letter received, and write or read every letter sent; to superintend the discharge of imports night and day; to be upon many parts of the coast almost at the same time—often the richest freight will be discharged upon a Jersey shore;—to be your own telegraph, unweariedly sweeping the horizon, speaking all passing vessels bound coastwise; to keep up a steady despatch of commodities, for the supply of such a distant and exorbitant market; to keep yourself informed of the state of the markets, prospects of war and peace everywhere, and anticipate the tendencies of trade and civilization—taking advantage of the results of all exploring expeditions, using new passages and all improvements in navigation;—charts to be studied, the position of reefs and new lights and buoys to be ascertained, and ever, and ever, the logarithmic tables to be corrected, for by the error of some calculator the vessel often splits upon a rock that should have reached a friendly pier—there is the untold fate of La Prouse;—universal science to be kept pace with, studying the lives of all great discoverers and navigators, great adventurers and merchants, from Hanno and the Phoenicians down to our day; in fine, account of stock to be taken from time to time, to know how you stand. It is a labor to task the faculties of a man—such problems of profit and loss, of interest, of tare and tret, and gauging of all kinds in it, as demand a universal knowledge. I have thought that Walden Pond would be a good place for business, not solely on account of the railroad and the ice trade; it offers advantages which it may not be good policy to divulge; it is a good port and a good foundation. No Neva marshes to be filled; though you must everywhere build on piles of your own driving. It is said that a flood-tide, with a westerly wind, and ice in the Neva, would sweep St. Petersburg from the face of the earth. As this business was to be entered into without the usual capital, it may not be easy to conjecture where those means, that will still be indispensable to every such undertaking, were to be obtained.

Everybody wished to confess, not to admit anything. The sins they remembered, before the end of the world, were general rather than particular. Nobody even knew how to tell the time. Banks of computers around the planet were predicted to crash when the end of the millennium arrived. All the machinery dependent on electronic calculation would go: jumbo jets and atomic power plants, satellites and radio stations, nuclear submarines beneath the ice caps and the stock exchange in New York. Each sin demanded to be told to its full extent before the day arrived. The culprits counted them out one after the other, arriving at a total just as if they were finding the sums of the cents in their hands. But there was no simple way to measure sin.

because there is no such thing on Wall Street as too many acronyms, became known as the SIP. The thirteen stock markets piped their prices into the SIP, and the SIP calculated the NBBO. The SIP was the picture of the U.S. stock market most investors saw. Like a lot of regulations, Reg NMS was well-meaning and sensible. If everyone on Wall Street abided by the rule’s spirit, the rule would have established a new

One of the critical questions of our day is, how long will the earth’s stock of coal supply our needs? Experts earnestly discuss the extent of the coal deposits, and calculate the date at which the stock of coal will be exhausted. A far more momentous question is, “How long will the world’s stock of sympathy hold out?

Over the next six months, we discovered the company had been pursuing deals in an ad hoc, opportunistic way, struggling in four key areas: identifying which companies to acquire, performing due diligence on these companies, calculating their value, and integrating acquisitions into our business. Taking stock of our deficits led us to a powerful, four-step model for pursuing M&A,

Three-Step Risk Management Step 1: Determine your maximum dollar risk for the trade you’re planning (never more than 2% of your account). Calculate this before your trading day starts. Step 2: Estimate your maximum risk per share, the stop loss, in dollars, from your entry. I will explain later in this book what the stop loss should be depending upon which specific strategy you are planning to trade. Step 3: Divide “1” by “2” to find the absolute maximum number of shares you are allowed to trade each time. To better illustrate this, let’s return to the example of MOH from a few pages back. If you have a $40,000 account, the 2% rule will limit your risk on any trade to $800. Let’s assume you want to be conservative and risk only 1% of that account, or $400. That will be Step 1. As you monitor MOH, you see a situation develop where the VWAP Strategy (see Chapter 7) may very well work in your favor. You decide to sell short the stock at $50, and you want to cover them at $48.82, with a stop loss at $50.40. You will be risking $0.40 per share. That will be Step 2 of risk control. For Step 3, calculate your share size by dividing “Step 1” by “Step 2” to find the maximum size you may trade. In this example, you will be allowed to buy a maximum of 1,000 shares. In this case, you may not have enough cash or buying power to buy 1,000 shares of MOH at $50 (because you have only $40,000 in your account). So instead you will buy 800 shares or, perhaps, even 500 shares. Remember, you can always risk less, but you are not allowed to risk more than 2% of your account under any circumstance.

Come on, I mean it, tell me, how does it work?' said Maxentius-Drontio. 'I am interested, and not just because I am bored.' 'Hmm, calculating potential for targeted, induced social embarrassment.' The magos stopped, stock-still. Something clicked in his chest. 'Risks acceptable. Bond with me. Pass me that size nine molecular manipulator, please, in order to initiate emotional pairing,' said Fe.

A glance through recent newspaper headlines (see, for example,Globe and Mail, August 17, 1995: A2; Vancouver Sun,August 16, 1995: A1) indicates that not much has changed since 1995. Overfishing and depleted stocks have increased tension among the users, and one group in particular, a relatively powerless group holding only 3 percent of the salmon quota, has been particularly targeted by the commercial interests—the aboriginal fishers. The rationale for doing so may be to shirk responsibility for years of overfishing, greed, poor management and bungling DFO officials. It is much easier and convenient to blame a group that has already been effectively blamed in the past and stereotyped as plunderers. Perhaps the proper word to describe the calculated attacks on the aboriginal fishery is racism, pure and simple.

Lynch calculated each potential stock’s P/E-to-growth ratio (or PEG ratio) and would buy for his portfolio only those stocks with high growth relative to their P/Es. This was not simply a low P/E strategy, because a stock with a 50 percent growth rate and a P/E of 25 (PEG ratio of ½) was deemed far better than a stock with 20 percent growth and a P/E of 20 (PEG ratio of

P/E is a company’s “price to earnings ratio.” Let's say that a company's stock trades for $100 and that the company has earnings per share (EPS) of $6.50 over the last 12 months. We can calculate a trailing ("last 12 months") P/E ratio for that stock by simply dividing the stock price ("P") by the EPS ("E"), so 100/6.50 equals about 15. We can say that this stock has a TTM P/E (trailing 12 months price to earnings ratio) of 15. Historically that is a pretty good average P/E for a stock or for the stock market as a whole.

Our study of the various methods has led us to suggest a foreshortened and quite simple formula for the valuation of growth stocks, which is intended to produce figures fairly close to those resulting from the more refined mathematical calculations. Our formula is: Value = Current (Normal) Earnings × (8.5 plus twice the expected annual growth rate) The growth figure should be that expected over the next seven to ten years.

What is unique about the I hides itself exactly in what is unimaginable about a person. All we are able to imagine is what makes everyone like everyone else, what people have in common. The individual I is what differs from the common stock, that is, what cannot be guessed at or calculated, what must be unveiled, uncovered, conquered.

Not only did this gain Sharpe his PhD, but it eventually evolved into a seminal paper on what he called the “capital asset pricing model” (CAPM), a formula that investors could use to calculate the value of financial securities. The broader, groundbreaking implication of CAPM was introducing the concept of risk-adjusted returns—one had to measure the performance of a stock or a fund manager versus the volatility of its returns—and indicated that the best overall investment for most investors is the entire market, as it reflects the optimal tradeoff between risks and returns.

Thus this matter of choosing the “best” stocks is at bottom a highly controversial one. Our advice to the defensive investor is that he let it alone. Let him emphasize diversification more than individual selection. Incidentally, the universally accepted idea of diversification is, in part at least, the negation of the ambitious pretensions of selectivity. If one could select the best stocks unerringly, one would only lose by diversifying. Yet within the limits of the four most general rules of common-stock selection suggested for the defensive investor (on pp. 114–115) there is room for a rather considerable freedom of preference. At the worst the indulgence of such preferences should do no harm; beyond that, it may add something worthwhile to the results. With the increasing impact of technological developments on long-term corporate results, the investor cannot leave them out of his calculations. Here, as elsewhere, he must seek a mean between neglect and overemphasis.

Arbitrages: The purchase of a security and the simultaneous sale of one or more other securities into which it was to be exchanged under a plan of reorganization, merger, or the like. Liquidations: Purchase of shares which were to receive one or more cash payments in liquidation of the company’s assets. Operations of these two classes were selected on the twin basis of (a) a calculated annual return of 20% or more, and (b) our judgment that the chance of a successful outcome was at least four out of five. Related Hedges: The purchase of convertible bonds or convertible preferred shares, and the simultaneous sale of the common stock into which they were exchangeable. The position was established at close to a parity basis—i.e., at a small maximum loss if the senior issue had actually to be converted and the operation closed out in that way. But a profit would be made if the common stock fell considerably more than the senior issue, and the position closed out in the market. Net-Current-Asset (or “Bargain”) Issues: The idea here was to acquire as many issues as possible at a cost for each of less than their book value in terms of net-current-assets alone—i.e., giving no value to the plant account and other assets. Our purchases were made typically at two-thirds or less of such stripped-down asset value. In most years we carried a wide diversification here—at least 100 different issues.

Here’s how to calculate the dividend yield of a stock: Take the annual dividend payment ($1.56 in this case) and divide it by the current price of the stock ($41.55). In this case, that gives you 0.03754513, or 3.75%. 3.75% is Coke’s current dividend yield.

Most institutional investors in the early 1970s, on the other hand, regarded business value as of only minor relevance when they were deciding the prices at which they would buy or sell. This now seems hard to believe. However, these institutions were then under the spell of academics at prestigious business schools who were preaching a newly-fashioned theory: the stock market was totally efficient, and therefore calculations of business value—and even thought, itself—were of no importance in investment activities. (We are enormously indebted to those academics: what could be more advantageous in an intellectual contest—whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?)

As one factor, Graham had this concept of value to a private owner-what the whole enterprise would sell for if it were available. And that was calculable in many cases. Then, if you could take the stock price and multiply it by the number of shares and get something that was one-third or less of sellout value, he would say that you've got a lot of edge going for you. Even with an elderly alcoholic running a stodgy business, this significant excess of real value per share working for you means that all kinds of good things can happen to you.

To fill this gap in the capital market, Davis and Rock set themselves up as a limited partnership, the same legal structure that had been used by a short-lived rival called Draper, Gaither & Anderson.[18] Rather than identifying startups and then seeking out corporate investors, they began by raising a fund that would render corporate investors unnecessary. As the two active, or “general,” partners, Davis and Rock each seeded the fund with $100,000 of their own capital. Then, ignoring the easy loans to be had from the fashionable SBIC structure, they raised just under $3.2 million from some thirty “limited” partners—rich individuals who served as passive investors.[19] The beauty of this size and structure was that the Davis & Rock partnership now had a war chest seven and a half times larger than an SBIC, and with it the ammunition to supply companies with enough capital to grow aggressively. At the same time, by keeping the number of passive investors under the legal threshold of one hundred, the partnership flew under the regulatory radar, avoiding the restrictions that ensnared the SBICs and Doriot’s ARD.[20] Sidestepping yet another weakness to be found in their competitors, Davis and Rock promised at the outset to liquidate their fund after seven years. The general partners had their own money in the fund, and thus a healthy incentive to invest with caution. At the same time, they could deploy the outside partners’ capital for a limited time only. Their caution would be balanced with deliberate aggression. Indeed, everything about the fund’s design was calculated to support an intelligent but forceful growth mentality. Unlike the SBICs, Davis & Rock raised money purely in the form of equity, not debt. The equity providers—that is, the outside limited partners—knew not to expect dividends, so Davis and Rock were free to invest in ambitious startups that used every dollar of capital to expand their business.[21] As general partners, Davis and Rock were personally incentivized to prioritize expansion: they took their compensation in the form of a 20 percent share of the fund’s capital appreciation. Meanwhile, Rock was at pains to extend this equity mentality to the employees of his portfolio companies. Having witnessed the effect of employee share ownership on the early culture of Fairchild, he believed in awarding managers, scientists, and salesmen with stock and stock options. In sum, everybody in the Davis & Rock orbit—the limited partners, the general partners, the entrepreneurs, their key employees—was compensated in the form of equity.

what is unique about the 'I' hides itself exactly in what is unimaginable about a person. All we are able to imagine is what makes everyone like everyone else, what people have in common. The individual 'I' is what differs from the common stock, that is, what cannot be guessed at or calculated, what must be unveiled, uncovered

By now, though, it had been a steep learning curve, he was fairly well versed on the basics of how clearing worked: When a customer bought shares in a stock on Robinhood — say, GameStop — at a specific price, the order was first sent to Robinhood's in-house clearing brokerage, who in turn bundled the trade to a market maker for execution. The trade was then brought to a clearinghouse, who oversaw the trade all the way to the settlement. During this time period, the trade itself needed to be 'insured' against anything that might go wrong, such as some sort of systemic collapse or a default by either party — although in reality, in regulated markets, this seemed extremely unlikely. While the customer's money was temporarily put aside, essentially in an untouchable safe, for the two days it took for the clearing agency to verify that both parties were able to provide what they had agreed upon — the brokerage house, Robinhood — had to insure the deal with a deposit; money of its own, separate from the money that the customer had provided, that could be used to guarantee the value of the trade. In financial parlance, this 'collateral' was known as VAR — or value at risk. For a single trade of a simple asset, it would have been relatively easy to know how much the brokerage would need to deposit to insure the situation; the risk of something going wrong would be small, and the total value would be simple to calculate. If GME was trading at $400 a share and a customer wanted ten shares, there was $4000 at risk, plus or minus some nominal amount due to minute vagaries in market fluctuations during the two-day period before settlement. In such a simple situation, Robinhood might be asked to put up $4000 and change — in addition to the $4000 of the customer's buy order, which remained locked in the safe. The deposit requirement calculation grew more complicated as layers were added onto the trading situation. A single trade had low inherent risk; multiplied to millions of trades, the risk profile began to change. The more volatile the stock — in price and/or volume — the riskier a buy or sell became. Of course, the NSCC did not make these calculations by hand; they used sophisticated algorithms to digest the numerous inputs coming in from the trade — type of equity, volume, current volatility, where it fit into a brokerage's portfolio as a whole — and spit out a 'recommendation' of what sort of deposit would protect the trade. And this process was entirely automated; the brokerage house would continually run its trading activity through the federal clearing system and would receive its updated deposit requirements as often as every fifteen minutes while the market was open. Premarket during a trading week, that number would come in at 5:11 a.m. East Coast time, usually right as Jim, in Orlando, was finishing his morning coffee. Robinhood would then have until 10:00 a.m. to satisfy the deposit requirement for the upcoming day of trading — or risk being in default, which could lead to an immediate shutdown of all operations. Usually, the deposit requirement was tied closely to the actual dollars being 'spent' on the trades; a near equal number of buys and sells in a brokerage house's trading profile lowered its overall risk, and though volatility was common, especially in the past half-decade, even a two-day settlement period came with an acceptable level of confidence that nobody would fail to deliver on their trades.

Instead, calculate a stock’s price/earnings ratio yourself, using Graham’s formula of current price divided by average earnings over the past three years.

Carefully avoided in many scientific discussions, conferences, government reports, and papers is the issue of human population. Indeed, in many conferences it is deemed to be a subject that is out of bounds. Rising numbers of people, and their desire for higher standards of living, put increasing demands on natural resources. More people are chasing a fixed or declining stock of reef resources: the area of the planet on which coral reefs can grow is limited, after all. In one sense it is really that simple. Some places have a human population doubling time of only 15 years, which reflects medical advances and its highly desirable accompaniments such as increased survival of people, especially infants. However, this means that current scientifically calculated solutions for a particular section of reef shoreline, for example, are negated when the population doubles. Thus the solution is no longer a scientific one, but has become largely a social and political one, and one of planning or zoning reefs and other resources as noted above. Human numbers are a part of the equation, and if we ignore any part of an equation then we cannot solve it.

What is going to make you really wealthy is your personal traits – your ability to have ‘faith’ in your calculations, your ‘self-confidence’ to stay invested and invest more when everyone is selling, your ‘guts’ to sell when the market is peaking everyday and everyone in the media is talking about buying more, your conviction to overcome greed and to exit a stock when your targets are met, your astronomical patience to wait for the right opportunity to buy, and many more such human traits, none of which are easy to implement.

I also like to look for growth stocks, where the float is less than 20% of the total number of shares outstanding. The “float” is simply the number of shares of a stock that are actually available for trading. To calculate the float, you just take the total number of shares outstanding and subtract all closely-held shares (those held by founders, employees, and original investors that are locked up and thus unable to be traded).

OptimalF is the already mentioned optimal investment factor that Zorro has calculated from the balance curve of the backtest, using the Ralph Vince algorithm.

Pro-risk, aggressive investors, for example, should be expected to make more than the index in good times and lose more in bad times. This is where beta comes in. By the word beta, theory means relative volatility, or the relative responsiveness of the portfolio return to the market return. A portfolio with a beta above 1 is expected to be more volatile than the reference market, and a beta below 1 means it’ll be less volatile. Multiply the market return by the beta and you’ll get the return that a given portfolio should be expected to achieve, omitting nonsystematic sources of risk. If the market is up 15 percent, a portfolio with a beta of 1.2 should return 18 percent (plus or minus alpha). Theory looks at this information and says the increased return is explained by the increase in beta, or systematic risk. It also says returns don’t increase to compensate for risk other than systematic risk. Why don’t they? According to theory, the risk that markets compensate for is the risk that is intrinsic and inescapable in investing: systematic or “non-diversifiable” risk. The rest of risk comes from decisions to hold individual stocks: non-systematic risk. Since that risk can be eliminated by diversifying, why should investors be compensated with additional return for bearing it? According to theory, then, the formula for explaining portfolio performance (y) is as follows: y = α + βx Here α is the symbol for alpha, β stands for beta, and x is the return of the market. The market-related return of the portfolio is equal to its beta times the market return, and alpha (skill-related return) is added to arrive at the total return (of course, theory says there’s no such thing as alpha). Although I dismiss the identity between risk and volatility, I insist on considering a portfolio’s return in the light of its overall riskiness, as discussed earlier. A manager who earned 18 percent with a risky portfolio isn’t necessarily superior to one who earned 15 percent with a lower-risk portfolio. Risk-adjusted return holds the key, even though—since risk other than volatility can’t be quantified—I feel it is best assessed judgmentally, not calculated scientifically.

Reconstructing family life amid the chaos of the cotton revolution was no easy matter. Under the best of circumstances, the slave family on the frontier was extraordinarily unstable because the frontier plantation was extraordinarily unstable. For every aspiring master who climbed into the planter class, dozens failed because of undercapitalization, unproductive land, insect infestation, bad weather, or sheer incompetence. Others, discouraged by low prices and disdainful of the primitive conditions, simply gave up and returned home. Those who succeeded often did so only after they had failed numerous times. Each failure or near-failure caused slaves to be sold, shattering families and scattering husbands and wives, parents and children. Success, moreover, was no guarantee of security for slaves. Disease and violence struck down some of the most successful planters. Not even longevity assured stability, as many successful planters looked west for still greater challenges. Whatever the source, the chronic volatility of the plantation took its toll on the domestic life of slaves. Despite these difficulties, the family became the center of slave life in the interior, as it was on the seaboard. From the slaves' perspective, the most important role they played was not that of field hand or mechanic but husband or wife, son or daughter - the precise opposite of their owners' calculation. As in Virginia and the Carolinas, the family became the locus of socialization, education, governance, and vocational training. Slave families guided courting patterns, marriage rituals, child-rearing practices, and the division of domestic labor in Alabama, Mississippi, and beyond. Sally Anne Chambers, who grew up in Louisiana, recalled how slaves turned to the business of family on Saturdays and Sundays. 'De women do dey own washing den. De menfolks tend to de gardens round dey own house. Dey raise some cotton and sell it to massa and git li'l money dat way.' As Sally Anne Chambers's memories reveal, the reconstructed slave family was more than a source of affection. It was a demanding institution that defined responsibilities and enforced obligations, even as it provided a source of succor. Parents taught their children that a careless word in the presence of the master or mistress could spell disaster. Children and the elderly, not yet or no longer laboring in the masters' fields, often worked in the slaves' gardens and grounds, as did new arrivals who might be placed in the household of an established family. Charles Ball, sold south from Maryland, was accepted into his new family but only when he agreed to contribute all of his overwork 'earnings into the family stock.' The 'family stock' reveals how the slaves' economy undergirded the slave family in the southern interior, just as it had on the seaboard. As slaves gained access to gardens and grounds, overwork, or the sale of handicraft, they began trading independently and accumulating property. The material linkages of sellers and buyers - the bartering of goods and labor among themselves - began to knit slaves together into working groups that were often based on familial connections. Before long, systems of ownership and inheritance emerged, joining men and women together on a foundation of need as well as affection.

The Dark Cloud Is the memory bank you have which time does not seem to heal Is the speed with which you block men who lie that they care about how you feel Is the questioning of where society is going and whether our icy coldness will lead us to complete destruction Is the stock market obsession some of us have and how we crave calculated instruction

To simplify Markowitz’s model, Sharpe stipulated one fundamental underlying factor—the return of the overall stock market—and instead calculated the variation of individual securities relative to this, rather than each security relative to each other. In his formula, it was given the Greek letter beta. So if Coca-Cola’s shares rise by 0.8 percentage points for every 1 percent the broader stock market climbs, it has a beta of 0.8. If a racier stock gains 2 percent, it has a beta of 2. Higher-beta stocks are more volatile, and should therefore offer greater returns than steadier, lower-beta securities. And thus beta became the lingua franca for the returns of the stock market as a whole, while “alpha” later emerged as the term for the extra returns generated by a skilled investor.

In the most sweeping of material calculations, it was estimated that the Allied assault on shipping and the bombing campaign against the home islands destroyed one-quarter of the country’s wealth. This included four-fifths of all ships, one-third of all industrial machine tools, and almost a quarter of all rolling stock and motor vehicles. General MacArthur’s “SCAP” bureaucracy (SCAP, an acronym for Supreme Command[er] for the Allied Powers, was commonly used to refer to MacArthur’s command) placed the overall costs of the war even higher, calculating early in 1946 that Japan had “lost one-third of its total wealth and from one-third to one-half of its total potential income.” Rural living standards were estimated to have fallen to 65 percent of prewar levels and nonrural living standards to about 35 percent.16

According to Knapp, whether or not the actual, physical money stuff in circulation corresponds to this “imaginary money” is not particularly important. It makes no real difference whether it’s pure silver, debased silver, leather tokens, or dried cod—provided the state is willing to accept it in payment of taxes. Because whatever the state was willing to accept, for that reason, became currency. One of the most important forms of currency in England in Henry’s time were notched “tally sticks” used to record debts. Tally sticks were quite explicitly IOUs: both parties to a transaction would take a hazelwood twig, notch it to indicate the amount owed, and then split it in half. The creditor would keep one half, called “the stock” (hence the origin of the term “stock holder”) and the debtor kept the other, called “the stub” (hence the origin of the term “ticket stub.”) Tax assessors used such twigs to calculate amounts owed by local sheriffs. Often, though, rather than wait for the taxes to come due, Henry’s exchequer would often sell the tallies at a discount, and they would circulate, as tokens of debt owed to the government, to anyone willing to trade for them.15

Note that investing, according to Graham, consists equally of three elements: you must thoroughly analyze a company, and the soundness of its underlying businesses, before you buy its stock; you must deliberately protect yourself against serious losses; you must aspire to “adequate,” not extraordinary, performance. An investor calculates what a stock is worth, based on the value of its businesses. A speculator gambles that a stock will go up in price because somebody else will pay even more for it. As Graham once put it, investors judge “the market price by established standards of value,” while speculators “base [their] standards of value upon the market price.”2 For

Hence, after this foreshortened discussion of the major considerations, we once again enunciate the same basic compromise policy for defensive investors—namely that at all times they have a significant part of their funds in bond-type holdings and a significant part also in equities. It is still true that they may choose between maintaining a simple 50–50 division between the two components or a ratio, dependent on their judgment, varying between a minimum of 25% and a maximum of 75% of either. We shall give our more detailed view of these alternative policies in a later chapter. Since at present the overall return envisaged from common stocks is nearly the same as that from bonds, the presently expectable return (including growth of stock values) for the investor would change little regardless of how he divides his fund between the two components. As calculated above, the aggregate return from both parts should be about 7.8% before taxes or 5.5% on a tax-free (or estimated tax-paid) basis. A return of this order is appreciably higher than that realized by the typical conservative investor over most of the long-term past. It may not seem attractive in relation to the 14%, or so, return shown by common stocks during the 20 years of the predominantly bull market after 1949. But it should be remembered that between 1949 and 1969 the price of the DJIA had advanced more than fivefold while its earnings and dividends had about doubled. Hence the greater part of the impressive market record for that period was based on a change in investors’ and speculators’ attitudes rather than in underlying corporate values. To that extent it might well be called a “bootstrap operation.” In

As the modern era came into being, the avarice of the usurer was supplanted by interest in the broader and more abstract sense of a share or stake. This new concept of interest was ethically wide-ranging: it ‘came to cover virtually the entire range of human actions, from the narrowly self-centered to the sacrificially altruistic, and from the prudently calculated to the passionately compulsive’.49 The seventeenth-century English statesman and philosopher Lord Shaftesbury summed up the new thinking with his comment that ‘Interest governs the World.’50 In his Fable of the Bees (1714), Bernard Mandeville exposed the paradox at the heart of the modern world, namely that private vices brought public benefits. Adam Smith incorporated Mandeville’s wicked insights into his political economy. In The Wealth of Nations, Smith describes the individual as one who ‘By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.’51 A similar thought is expressed in another famous line, in which Smith writes that ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.’ The spirit of capitalism was transmitted across networks of credit that connected lenders and borrowers through bonds of mutual self-interest.52 Daniel Defoe described credit as a ‘stock’, synonymous with capital, while the French in Defoe’s day referred to capital as ‘interest’, in the sense of taking a stake.fn6 From a technical viewpoint, capital consists of a stream of future income discounted to its present value. Without interest, there can be no capital. Without capital, no capitalism. Turgot, a contemporary of Adam Smith’s, understood this very well: ‘the capitalist lender of money,’ he wrote, ‘ought to be considered as a dealer in a commodity which is absolutely necessary for the production of wealth, and which cannot be at too low a price.’53 (Turgot exaggerated. As we shall see, interest at ‘too low a price’ is the source of many evils.)

Newton, a devout Puritan believer, has anecdote that when he claimed that no disciple had God, he refused to claim atheism, saying, "Do not speak disrespectfully about God, I am studying God." He paid much attention to the Bible and had an eschatological belief that the Saints would resurrect and live in heaven and reign with Christ invisibly. And even after the day of judgment, people would continue to live on the ground, thinking that it would be forever, not only for a thousand years. According to historian Steven Snowovell, he thought that the presence of Christ would be in the distant future centuries after, because he was very pessimistic about the deeply rooted ideas that denied the Trinity around him. He thought that before the great tribulation came, the gospel activity had to be on a global scale. 카톡pak6 텔레:【JRJR331】텔레:【TTZZZ6】라인【TTZZ6】 믿고 주문해주세요~저희는 제품판매를 고객님들과 신용과신뢰의 거래로 하고있습니다. 24시간 문의상담과 서울 경기지방은 퀵으로도 가능합니다 믿고 주문하시면좋은인연으로 vip고객님으로 모시겠습니다. 원하시는제품있으시면 추천상으로 구입문의 도와드릴수있습니다 ☆100%정품보장 ☆총알배송 ☆투명한 가격 ☆편한 상담 ☆끝내주는 서비스 ☆고객님 정보 보호 ☆깔끔한 거래 포폴,에토미,알약수면제 판매하고있습니다 Newton studied alchemy as a hobby, and his research notes were about three books. Newton served as a member of parliament on the recommendation of the University of Cambridge, but his character was silent and unable to adapt to the life of a parliamentarian. When he lived in the National Assembly for a year, the only thing he said was "Shut the door!" In Newton's "Optics" Volume 4, he tried to introduce the theory of unification that covered all of physics and solved his chosen tasks, but he went out with a candle on his desk, and his private diamond threw a candle There is a story that all of his research, which has not been published yet, has turned to ashes. Newton was also appointed to the president of the Minting Service, who said he enjoyed grabbing and executing the counterfeiters. Newton was a woman who was engaged to be a young man, but because he was so engaged in research and work he could not go on to marriage, and he lived alone for the rest of his life. He regarded poetry as "a kind of ingenious nonsense." [6] Newton was talented in crafting inventions by hand (for reference, Newton's craftsmanship was so good at his childhood that when he was a primary school student he was running his own spinning wheel after school, A child who throws a stone and breaks down a spinning wheel, so there is an anecdote that an angry Newton scatters the child.) He said he created a lantern fountain that could be carried around as a student at Cambridge University. Thanks to this, it was said that students who were going to attend the Thanksgiving ceremony (Episcopal Mass) were able to go to the Anglican Church in the university easily. Newton lost 20,000 pounds due to a South Sea company stock discovery, when "I can calculate the movement of the celestial body, but I can not measure the insanity of a human being" ("I can calculate the movement of the stars, but not the madness of men ").

for the stock market, corporate earnings and dividends; for the bond market, interest payments. Market returns, however, are calculated before the deduction of the costs of investing, and are most assuredly not based on speculation and rapid trading, which do nothing but shift returns from one investor to another. For the long-term investor, returns have everything to do with the underlying economics of corporate America and very little to do with the mechanical process of buying and selling pieces of paper. The art of investing in mutual funds, I would argue, rests on simplicity and common sense.

The adjective “efficient” in “efficient markets” refers to how investors use information. In an efficient market, every titbit of new information is processed correctly and immediately by investors. As a result, market prices react instantly and appropriately to any relevant news about the asset in question, whether it is a share of stock, a corporate bond, a derivative, or some other vehicle. As the saying goes, there are no $100 bills left on the proverbial sidewalk for latecomers to pick up, because asset prices move up or down immediately. To profit from news, you must be jackrabbit fast; otherwise, you’ll be too late. This is one rationale for the oft-cited aphorism “You can’t beat the market.” An even stronger form of efficiency holds that market prices do not react to irrelevant news. If this were so, prices would ignore will-o’-the-wisps, unfounded rumors, the madness of crowds, and other extraneous factors—focusing at every moment on the fundamentals. In that case, prices would never deviate from fundamental values; that is, market prices would always be “right.” Under that exaggerated form of market efficiency, which critics sometimes deride as “free-market fundamentalism,” there would never be asset-price bubbles. Almost no one takes the strong form of the efficient markets hypothesis (EMH) as the literal truth, just as no physicist accepts Newtonian mechanics as 100 percent accurate. But, to extend the analogy, Newtonian physics often provides excellent approximations of reality. Similarly, economists argue over how good an approximation the EMH is in particular applications. For example, the EMH fits data on widely traded stocks rather well. But thinly traded or poorly understood securities are another matter entirely. Case in point: Theoretical valuation models based on EMH-type reasoning were used by Wall Street financial engineers to devise and price all sorts of exotic derivatives. History records that some of these calculations proved wide of the mark.

What is unique about the 'I' hides itself exactly in what is unimaginable about a person. All we are able to imagine is what makes everyone like everyone else, what people have in common. The individual 'I' is what differs from the common stock, that is, what cannot be guessed at or calculated, what must be unveiled, uncovered, conquered.

Invest where you have an edge through superior information. Consider the popular interpretation, but also variant perspectives. Estimate the value of stocks; don’t trade for other reasons. Try to look out as far into the future as possible. Be (calculatingly) bold. Minimize taxes, fees, and transaction costs; this is done most easily by trading infrequently. Above all, don’t underestimate your rivals. If you are average, don’t count on superior results.

Kuznets himself, however, would not have chosen this as the picture of economic progress because he was well aware of the limits of his ingenious calculations from the outset. Emphasising that national income captured only the market value of goods and services produced in an economy, he pointed out that it therefore excluded the enormous value of goods and services produced by and for households, and by society in the course of daily life. In addition, he recognised that it gave no indication of how income and consumption were actually distributed between households. And since national income is a flow measure (recording only the amount of income generated each year), Kuznets saw that it needed to be complemented by a stock measure, accounting for the wealth from which it was generated, and its distribution. Indeed, as GNP reached the height of its popularity in the early 1960s, Kuznets became one of its most outspoken critics, having warned from the start that ‘the welfare of a nation can scarcely be inferred from a measure of national income’.

Calculating risks shrewdly is the main ingredient for consistent superior performance. Pros play percentage ball, and that’s why, in the long run, they are more consistent than amateurs. Therefore, it could be said that the difference between an amateur and a pro lies in consistency. Relying on the probabilities based on a positive mathematical expectation to win (your “edge”) will lead to success.

I could calculate the motions of the heavenly bodies, but not the madness of the people.

This is often referred to as the “earnings yield” of a stock. You can calculate it in one of 2 ways: 1. Earnings per share divided by the stock’s price per share 2. Net profit divided by the market cap

To calculate the market capitalization of a company, multiply the current market price of a stock by the number of outstanding shares. The number of outstanding shares refers to the number of shares that have been sold to the public.

The aim of the “professional gambler,” as he is called, is to make money. He can be recognized by deliberate and extremely disciplined wagering. His wagering is systematic and usually limited to infrequent but highly favorable opportunities. The behavior of the professional gambler is highly controlled and usually the result of a studied approach to his chosen game. He concentrates on games where the element of skill is sufficient to produce the possibility of a player advantage, such as blackjack and parimutuel betting. The professional gambler is similar to the stock arbitrageur in that they both take calculated risks. They are dealing with an uncertain outcome and seek to profit from their ability to anticipate the future or to see the future—in other words, to speculate. Professional gamblers are actually speculators because of the characteristics they exhibit when risking money. They are not seeking entertainment at the tables like gamblers do, and they are not trying to be right. They are trying to make money.

Chris Krueger, long-time Capitol Hill watcher for Guggenheim Securities, says the people expecting this kind of kumbaya moment are “Pollyannas”. He said: “My reading of the White House is that they already feel pretty good about their legacy, having done what no administration since Harry Truman has done and extended access to healthcare.” These are the facts on the ground, which bode ill for investors, but there is a conundrum: history suggests we are at a point in the political cycle when markets usually do well. After some volatility around the midterms, the stock market has historically settled into a very strong year in the third year of the presidential cycle, according to an analysis by Jeff Hirsch, editor of the Stock Trader’s Almanac. Sweeping in 180 years of data on the Dow Jones Industrial Average and predecessor indices, he calculates the average Year 3 gain to be 10.4 per cent, almost double the next best year, the presidential election year itself.

Stock up on your emotional capital. Prior to starting our business, my partners and I spent a lot of time calculating our expenses and financial burn rate before we thought we would become profitable. However, when starting a business, the real burn rate is emotional. Be prepared for disappointments and emotional letdowns, and make sure you have partners who are emotionally prepared for the uncertainties associated with any startup.

Explaining their allure, Milken said, “The opportunity to be true to yourself in high-yield bonds is great. It is not like buying a stock. With a stock, its value is generally dependent upon investors’ collective perceptions of the future. No matter how much research you have done regarding a particular stock, you don’t have a contract as to what the future price will be. But with a high-yield bond there is a date certain in the future when it matures, and if you hold it to maturity and your analysis is correct, you will be correct in your calculation of your yield—and you do have a contract as to future price. One is certain if you’re right. The other is not.

Over the last several decades, policy consensus has cautioned that the world would only tolerate responses to climate change if they were free—or, even better, if they could be presented as avenues of economic opportunity. That market logic was probably always shortsighted, but over the last several years, as the cost of adaptation in the form of green energy has fallen so dramatically, the equation has entirely flipped: we now know that it will be much, much more expensive to not act on climate than to take even the most aggressive action today. If you don’t think of the price of a stock or government bond as an insurmountable barrier to the returns you’ll receive, you probably shouldn’t think of climate adaptation as expensive, either. In 2018, one paper calculated the global cost of a rapid energy transition, by 2030, to be negative $26 trillion—in other words, rebuilding the energy infrastructure of the world would make us all that much money, compared to a static system, in only a dozen years.21

Newton, a devout Puritan believer, has anecdote that when he claimed that no disciple had God, he refused to claim atheism, saying, "Do not speak disrespectfully about God, I am studying God." He paid much attention to the Bible and had an eschatological belief that the Saints would resurrect and live in heaven and reign with Christ invisibly. And even after the day of judgment, people would continue to live on the ground, thinking that it would be forever, not only for a thousand years. According to historian Steven Snowovell, he thought that the presence of Christ would be in the distant future centuries after, because he was very pessimistic about the deeply rooted ideas that denied the Trinity around him. He thought that before the great tribulation came, the gospel activity had to be on a global scale. 카톡【AKR331】텔레【RDH705】라인【SPR331】위커【SPR705】 믿고 주문해주세요~저희는 제품판매를 고객님들과 신용과신뢰의 거래로 하고있습니다. 24시간 문의상담과 서울 경기지방은 퀵으로도 가능합니다 믿고 주문하시면좋은인연으로 vip고객님으로 모시겠습니다. 원하시는제품있으시면 추천상으로 구입문의 도와드릴수있습니다 ☆100%정품보장 ☆총알배송 ☆투명한 가격 ☆편한 상담 ☆끝내주는 서비스 ☆고객님 정보 보호 ☆깔끔한 거래 포폴,에토미,알약수면제 판매하고있습니다 Newton studied alchemy as a hobby, and his research notes were about three books. Newton served as a member of parliament on the recommendation of the University of Cambridge, but his character was silent and unable to adapt to the life of a parliamentarian. When he lived in the National Assembly for a year, the only thing he said was "Shut the door!" In Newton's "Optics" Volume 4, he tried to introduce the theory of unification that covered all of physics and solved his chosen tasks, but he went out with a candle on his desk, and his private diamond threw a candle There is a story that all of his research, which has not been published yet, has turned to ashes. Newton was also appointed to the president of the Minting Service, who said he enjoyed grabbing and executing the counterfeiters. Newton was a woman who was engaged to be a young man, but because he was so engaged in research and work he could not go on to marriage, and he lived alone for the rest of his life. He regarded poetry as "a kind of ingenious nonsense." [6] Newton was talented in crafting inventions by hand (for reference, Newton's craftsmanship was so good at his childhood that when he was a primary school student he was running his own spinning wheel after school, A child who throws a stone and breaks down a spinning wheel, so there is an anecdote that an angry Newton scatters the child.) He said he created a lantern fountain that could be carried around as a student at Cambridge University. Thanks to this, it was said that students who were going to attend the Thanksgiving ceremony (Episcopal Mass) were able to go to the Anglican Church in the university easily. Newton lost 20,000 pounds due to a South Sea company stock discovery, when "I can calculate the movement of the celestial body, but I can not measure the insanity of a human being" ("I can calculate the movement of the stars, but not the madness of men ").

And back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence.

As Sir Isaac Newton famously confessed after losing a small fortune in the stock market in the early 1700s, "I can calculate the motions of heavenly bodies, but not the madness of peopole.

BARGAIN-ISSUE PATTERN IN SECONDARY COMPANIES. We have defined a secondary company as one that is not a leader in a fairly important industry. Thus it is usually one of the smaller concerns in its field, but it may equally well be the chief unit in an unimportant line. By way of exception, any company that has established itself as a growth stock is not ordinarily considered “secondary.” In the great bull market of the 1920s relatively little distinction was drawn between industry leaders and other listed issues, provided the latter were of respectable size. The public felt that a middle-sized company was strong enough to weather storms and that it had a better chance for really spectacular expansion than one that was already of major dimensions. The depression years 1931–32, however, had a particularly devastating impact on the companies below the first rank either in size or in inherent stability. As a result of that experience investors have since developed a pronounced preference for industry leaders and a corresponding lack of interest most of the time in the ordinary company of secondary importance. This has meant that the latter group have usually sold at much lower prices in relation to earnings and assets than have the former. It has meant further that in many instances the price has fallen so low as to establish the issue in the bargain class. When investors rejected the stocks of secondary companies, even though these sold at relatively low prices, they were expressing a belief or fear that such companies faced a dismal future. In fact, at least subconsciously, they calculated that any price was too high for them because they were heading for extinction—just as in 1929 the companion theory for the “blue chips” was that no price was too high for them because their future possibilities were limitless. Both of these views were exaggerations and were productive of serious investment errors. Actually, the typical middle-sized listed company is a large one when compared with the average privately owned business. There is no sound reason why such companies should not continue indefinitely in operation, undergoing the vicissitudes characteristic of our economy but earning on the whole a fair return on their invested capital.

Nearly all the bull markets had a number of well-defined characteristics in common, such as (1) a historically high price level, (2) high price/earnings ratios, (3) low dividend yields as against bond yields, (4) much speculation on margin, and (5) many offerings of new common-stock issues of poor quality. Thus to the student of stock-market history it appeared that the intelligent investor should have been able to identify the recurrent bear and bull markets, to buy in the former and sell in the latter, and to do so for the most part at reasonably short intervals of time. Various methods were developed for determining buying and selling levels of the general market, based on either value factors or percentage movements of prices or both. But we must point out that even prior to the unprecedented bull market that began in 1949, there were sufficient variations in the successive market cycles to complicate and sometimes frustrate the desirable process of buying low and selling high. The most notable of these departures, of course, was the great bull market of the late 1920s, which threw all calculations badly out

A cash flow statement is simple to calculate because you can easily track what goes in and what goes out. Income statements are a little different (especially for businesses) because they take into account things that aren’t technically cash flow (such as depreciation or amortization).

According to Poterba’s calculations, shown in Table 1.5, taxable investors in stocks might lose as much as 3.5 percentage points per year to taxes. In the context of a pre-tax return of 12.7 percent per year, the tax burden dramatically reduces the rewards for investing in equities. The absolute level of the tax impact on bond and cash returns falls below the impact on equity returns, but taxes consume a greater portion of current-income-intensive assets. According to Poterba’s estimates, 28 percent of gross equity returns go to the tax man, while taxes consume 38 percent of bond returns and 42 percent of cash returns. Table 1.5 Taxes Materially Reduce Investment Returns Pre-Tax and After-Tax Returns (Percent) 1926 to 1996 Source: James M. Poterba, “Taxation, Risk-Taking, and Household Portfolio Behavior,” NBER Working Paper Series, Working Paper 8340 (National Bureau of Economic Research, 2001), 90. Tax laws currently favor long-term gains over dividend and interest income in two ways: capital gains face lower tax rates and incur tax only when realized. The provision in the tax code that causes taxes to be due only upon realization of gains allows investors to delay payment of taxes far into the future. Deferral of capital gains taxes creates enormous economic value to investors.*

The point of this exercise is to allow you the opportunity to understand a very important term that is used in calculating the value of your future stock picks: equity. Just as you calculated your own equity, businesses do the exact same thing every quarter (or every three months).

I examined the buy-and-hold returns of almost 9,000 IPOs issued between 1968 and 2001. I calculated the returns based on whether investors purchased the IPOs either at the end of the first month of trading or at the IPO offer price and held these stocks until December 31, 2003.25 There is no question that the losing IPOs far outnumber the winners.

Moderate P/E ratio. Graham recommends limiting yourself to stocks whose current price is no more than 15 times average earnings over the past three years. Incredibly, the prevailing practice on Wall Street today is to value stocks by dividing their current price by something called “next year’s earnings.” That gives what is sometimes called “the forward P/E ratio.” But it’s nonsensical to derive a price/earnings ratio by dividing the known current price by unknown future earnings. Over the long run, money manager David Dreman has shown, 59% of Wall Street’s “consensus” earnings forecasts miss the mark by a mortifyingly wide margin—either underestimating or overestimating the actual reported earnings by at least 15%.2 Investing your money on the basis of what these myopic soothsayers predict for the coming year is as risky as volunteering to hold up the bulls-eye at an archery tournament for the legally blind. Instead, calculate a stock’s price/earnings ratio yourself, using Graham’s formula of current price divided by average earnings over the past three years.3 As of early 2003, how many stocks in the Standard & Poor’s 500 index were valued at no more than 15 times their average earnings of 2000 through 2002? According to Morgan Stanley, a generous total of 185 companies passed Graham’s test.

In addition to pioneering a new product, the Wave team had been run in an experimental way. We were exploring whether setting milestones and allowing teams the possibility of IPO-like rewards for the achievement of IPO-like ambitions would spur greater success. They had chosen to forgo Google bonuses and stock awards for the possibility of much larger rewards. The team had worked for two years on this product, putting in countless hours in an effort to transform how people communicated online. They took a massive, calculated risk. And failed. So we rewarded them. In a sense, it was the only reasonable thing to do. We wanted to make sure that taking enormous risks wasn’t penalized.

This is a favourite fallacy of today’s economics, which lacks a coherent concept of time—or, at least, it has a mechanical technique for dealing with time which can be applied uncritically. The key principle underlying the treatment of time here is the rate of interest. Economics recognises that if a person needs to borrow money from another person with whom he or she is not in a close reciprocal relationship, then the lender will reasonably expect to get something back for the money he provides (usually interest), in the same way as any other provider of goods and services. That introduces the principle of “discount”—money you won’t have until a future time is worth less than it would be worth if you had it now. The problem arises when the discount principle is applied to other assets. For example, the value in a hundred years’ time of a stock—such as a fishery—discounted at a rate of 3% per year, is just 5% of its present value, and if a valuation of this kind is taken literally, it can be used as a justification for fishing it to destruction now, because it is a depreciating asset. The fact that the interest rate calculation can be made does not necessarily mean that people will be foolish enough to make it, or to apply it uncritically, but, if they do, economics provides an apparent justification.

A couple recently came to my office. Let’s call them Mark and Elizabeth Schuler. They came in for a consultation at Elizabeth’s request. Mark’s best friend was a stockbroker who had handled the couple’s investment portfolio for decades. All they wanted from me was a second opinion. If all went well, they planned to stop working within five years. After a quick chat about their goals, I organized the mess of financial paperwork they’d brought and set about assessing their situation. As my team and I prepared their “Retirement Map Review,” it was immediately apparent the Schulers were carrying significant market risk. We scheduled a follow-up appointment for two weeks later. When they returned, I asked them to estimate their comfortable risk tolerance. In other words, how much of their savings could they comfortably afford to have exposed to stock market losses? Elizabeth laughed at the question. “We’re not comfortable losing any of it,” she said. I had to laugh too. Of course, no one wants to lose any of their money. But with assets housed in mutual funds, 401(k)s, and stocks, there’s always going to be some measure of risk, not to mention fees to maintain such accounts. We always stand to lose something. So how much could they tolerate losing and still be okay to retire? The Schulers had to think about that for a while. After some quick calculations and hurried deliberation, they finally came up with a number. “I guess if we’re just roughly estimating,” Mark said, “I could see us subjecting about 10 percent of our retirement savings to the market’s ups and downs and still being all right.” Can you guess what percentage of their assets were at risk? After a careful examination of the Schulers’ portfolio, my team and I discovered 100 percent of their portfolio was actually invested in individual stocks—an investment option with very high risk! In fact, a large chunk of the Schulers’ money was invested in Pacific Gas & Electric Company (PG&E), a utility company that has been around for over one hundred years. Does that name sound familiar? When I met with the Schulers, PG&E stock was soaring. But you may remember the company name from several 2019 news headlines in which the electric and natural gas giant was accused of negligence that contributed to 30 billion dollars’ worth of damage caused by California wild fires. In the wake of that disaster, the company’s stock dropped by more than 60 percent in a matter of months. That’s how volatile individual stocks can be.

The principles of present value enable us to calculate exactly how much a dollar sometime in the future is worth in today's terms and to compare cash flows across time.

There are three reasons why a cash flow in the future is worth less than a similar cash flow today. People prefer consuming today to consuming in the future. Inflation decreases the purchasing power of cash over time. A dollar in the future will buy less than a dollar would today. A promised cash flow in the future may not be delivered. There is risk in waiting. The process by which future cash flows are adjusted to reflect these factors is called discounting, and the magnitude of these factors is reflected in the discount rate. The discount rate can be viewed as a composite of the expected real return (reflecting consumption preferences), expected inflation (to capture the purchasing power of the cash flow), and a premium for uncertainty associated with the cash flow. The process of discounting converts future cash flows into cash flows in today's terms. There are five types of cash flows—simple cash flows, annuities, growing annuities, perpetuities, and growing perpetuities. A simple cash flow is a single cash flow in a specified future period. Discounting a cash flow converts it into today's dollars (or present value) and enables the user to compare cash flows at different points in time. The present value of a cash flow is calculated thus:

Delta, a function of interest rates, is a measure of exactly how much stock a futures contract hedges. It was an easy calculation. I