Fundamental Analysis: I can't imagine...

Hi, guys:)


Here I am, and it's 4:11 AM, and the urge has come upon me to perform some "fundamental analysis" of the conditions affecting stock prices.


Only problem is, I haven't the faintest idea where to begin. I don't even know what to think about. I can't imagine...


So please, help me out, and give me an example of something "fundamental" I might look at that will affect stock prices, and how stock prices might be affected. I am serious. Just one thing would be fine as a starting point.


Thanks!


eLROY

Ask Warren Buffet....lol.Market psychology,if you can measure it.

Future earnings is a place to start. Hovever, I'll concede that given all the parameters that go into valuing a company based on future earnings leaves a lot of room for changes in valuations.

Fundamental analysis (in its purest form) is based on the tautology (or "definition") that the present value of a stock is equal to the discounted value of its future dividends. For so-called "clean surplus accounting", the discounted residual income approach is mathematically equivalent to discounting future earnings, and has greater numerical stability. A good place to start is with the work of Cornell accounting professor Charles M.C. Lee:


http://www.gsm.cornell.edu/facultybios/lee.html

Didn't I go into this before? Well I said DCF is king for any kind of valuation, albeit for the long run. Leroy you never seem to play for the long run, fundamental analysis and valuation would never fit you. The game of stocks is all about expectations, supply/demand, hype, etc...things you are well informed on. As far as fundamental analysis goes I would pay attention to the concept of what is a high profile industry and what is not. Not that long ago we were discussing what the hot sector would be. Well if you can figure out what people will get excited about then you have some good investment ideas. Generally best strategy is to find a sector and play every company in it. Your best hope then is that the weak companies get bought up by the strong at a premium so you capture that and then the strong gain high-investor profiles that move their stocks up. Once you hit this point you move onto the next "undervalued" sector. That would be my best shot at how to play fundamental analysis. Ignore earnings and numerical standards for the most part because most of them aren't that indicative of the truth anyways. Companies with solid numbers often use their strength to run over a sector or industry as best they can, but its hard to hit homeruns in investing that way. Remember in the end as long as you aren't too concentrated in your holdings, you will come out ahead as long as your sector bets make sense and the market is going up over a given period of time.

I want to invest some of my poker winnings. Could someone give me a list of stocks that might be good. I know I should do the research myself and all, but I don't have the time or the know how. Some of you seem pretty knowledgable.


Thanks

Supply and demand. Back to the basics.

do not take anyones advice. except mine. buy a low cost index fund like one from vanguard. this will track the market and you dont get to make decisions or pay high commissions.

Small caps is the spot to be in right now if you buy a fund. They always do best in economic recovery and they don't face the high premiums the larger caps have right now.


If you want to put it in a gaming company I would suggest Argosy (AGY) right now. They have a reasonable valuation and are in all the hot markets right now. Best part is that their three main boats are in Indiana, Illinois, and Missouri. These three states have the best upside because each has legal limitations that could be abolished leading to a lot of upside. Indiana has cruising requirements and stiff boarding taxes, Illinois has a stiff 1200 position limit which really crunches facilities on weekends, and Missouri has $500 loss limits that pretty much preclude high rollers from playing and often catch even middle limit players short should they start off with a run of bad luck. If all three of these go over time, this will be a bonanza because most of the companies cash comes from these boats. Their excellent free cash flow could easily cover a small acquisition or expansion opportunity and with only 6 facilities, their management is a lot more focused than most other similar types of companies.

I would stay away from small caps now. True, they have historically done better coming off a recession but they have also typically gotten crunched leading up to and during a recession. This has not happened.


If the interest rate yield curve flattens out thos small caps are going to get pummeled. I expect inflation to pose more of a concern going forward which will flatten out this curve and reduce the lending bias these small cap companies now enjoy.

I don't think they are all that advantaged right now because a lot of bank lending has tightened up. Main reason I would be in them is their valuations are much more reasonable than S&P 500...a point almost everyone in here is referring to. Small caps are good in my mind right now because they are more basic companies, they don't have accounting woes to worry about or analyst downgrades to take away half their value. They are just bread and butter companies for the most part that are driven by consumer spending. Real income growth has been extremely strong even in the slowdown and shouldn't change much with almost no inflation to speak of. Interest rate increases could hurt their profits a bit, but only to the degree that they hurt consumer spending. Since most consumers now have fixed interest rates on houses and loans, a rise in rates won't hurt them as much, just in their ability to buy new houses or cars.

You said "Main reason I would be in them(small caps) is their valuations are much more reasonable than S&P 500...a point almost everyone in here is referring to."


That is a great reason not to buy small caps. It has become the new "hot thing" which means it is ready for a big fall.


I haven't seen a tightening of bank credit to smaller companies. The banks are less willing to loan huge amounts of monies to large companies with possible accounting problems but certainly the yield curve effect is habing a huge impact on the small cap value.