I've been doing more reading (so I'm presently reading Kill the Messenger, mentioned in an earlier post, and these two new ones. I like reading more than one book at a time. I know lots of people that can only read one book at a time, but yet it is normal to watch a dozen TV shows. I don't see any difference.
I've mentioned Jim Cramer before. I used to watch him a lot when his new show, Mad Money, first came out on CNBC, and I still do watch it on those days I am sitting in my office in the mood to do stocks. I think Cramer has an excellent understanding of how markets work, and how you can make money by identifying inefficiencies in the market. He also displays (almost too overwhelmingly) the excitement and euphoria of trading. I guess the lesson I took from his show is that you have to have both sides of the equation -- you need to know the numbers (price, earnings, PE, etc.) but you also need to know who is excited by all of it. Who will become fearful. Who will become boastful and overconfident. I personally don't party like Cramer does when a trade goes well, but I try to cash in on emotional buyers and sellers that, due to their emotionalism, have made a transient inefficienty where I can make a profitable trade. I've only read the first few chapters, and I already like it. I like his personal stories, about how he and his wife would seal themselves off in "the steak room" where she heartlessly makes Jim state clearly why they still own a stock even if it's down (my parents have their own version of this room, and the conflict my parents go through is captured so vividly in Cramer's book).
In Heiserman's It's Earnings that Count, I am trying to find a more mathematical method to determine how good or bad a company's earnings report really is. I do read earnings reports (the 10-K and 10-Q reports that you can get a piece of on yahoo, and the summary financial tables on yahoo). But my analysis is extremely simplistic. Reading the table from year to year, I want to see the company making more money quarter after quarter, year after year. However, as a shareholder, I am more interested in the earnings per share (EPS), which is the total earnings divided by the total number of shares. I want EPS numbers to also grow year after year, quarter after quarter.
But I'm missing a lot. There are numbers on the reports which can make the report a more pessimistic view, or a more hopefull view, that is not warranted or deserved. I've read only the first 4 chapters, but the jist seems to be to take the earnings report, and break it up into two reports -- one a pessimistic view (prevention of loss of capital is the primary objective) and an optimistic view (to realize greater gains and profits). By comparing these two views, you have a better grasp of whether the company is growing or faltering. The trading strategy I use now is to identify stocks with good earnings reports (indicating growth ahead), that did not already get overpriced due to market excitement (often these will take a tumble immediately after the earnings announcement). A trigger for me is a company with good earnings, with positive guidance, and whose price has not doubled overnight due to over-anticipation.
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