I made a naive mistake joining a few on-line investing groups. I immediately had an argument with a few investors who believed that investing is inherently a speculation. I responded, “Most of you are lazy. You don’t make enough money investing because you change the process from a carefully selective behavior (Kahneman System 2) to a speculator gamble (Kahneman System 1) which is inherently heuristic. Investing using Kahneman System 2 is a calculating process where you reduce risk by knowing how to discover and apply the right information that goes into your decision-making about companies and timing.”
For those of you who are listening: You can increase the probability of being able to identify a winning company better than the pros do because you are not constrained by the “system.” You can analyse a winning time to buy the shares using my BLASH system. Get smart, “ride” with CEOs like Besos, Page, Musk and Jobs, analyse quarterly earnings, e.g., be ready to buy TWTR during the next 8 quarters! Time it! Become an expert in analysing P/E, PEG, Md/Me, 100-MA, support/Resistance levels and so on. If you do your homework right there is no reason why you can’t earn 25% CG per year for 10 years like I do! The key is love of money and commitment to mastery of Kahneman System 2. You do it right and it’s like riding on Daniel’s Nobel price train in economics. Hey, I hope you don’t have the common problem of relaying too much on your own beliefs about investing. 99% of them are speculation.
As you know I wrote 2 books on the psychology of investing. All the shares that I have purchased and sold for the last 10 years have made money (my average CG is 25%, one of the highest in the industry). I say all these things not to toot my own horn but so you will listen to what I have to say about Twitter. The reason I didn’t buy at $26 at IPO is that the organizers of the primary market didn’t let me, I’m not a “big fish.”
Now, you and me have an opportunity to buy close to $26 in a few quarters. Why? Because if you watch TWTR’s earning at the end of the each of the next eight quarters and plot it percentage-wise against the earning at IPO ($300 million) you will have an idea of TWTR growth potential, A) 1.2 billion (3mx4) will be a respectable enough earning to get the share up back to $40, B) I expect something below that billion + 0.2 by 2014, will get the share down close to IPO state, C) TWTR has a great future as SM company. (FB earning is 10 billion in 2013. Investors love social media) but it will take a few years to capture the fringe ad market so the thing is to wait and buy at a strong dip, 4) The rule is: if the dip is close enough to the IPO the first few years - buy! After 5 years or so your margin of profit shrinks.
I will make money on Twitter buying around $30 but my calculations along the above ideas will have to be a lot more sophisticated about timing than this spontaneous posting. More complex than the above. My job here is to give you a head start on an opportunity to learn to invest with patience. Use your brains for the rest of the journey with the bird. Be patient! Be independent!
I am 77 and retired. My next posting is in December 2013. Be patient, again. Meantime, read all my previous postings on investing rules, to get an idea how easy and hard it is to use Kahneman’s System 2 to make money in the stock market if you are a maverick and have —– patience!
You know the exchange rates and you know how to make money. To know exchange mediums is to know the history of Economics. You are invited to follow me anywhere in the world where I dream on speaking about the behavior of these marvelous Cro-magnon that appeared 30,000 years ago as a hybrid race on an island west of Gibraltar and “invented the wheel.” They started spreading south to Morocco, Spain, Portugal and Germany. They multiplied and made nice things and built a city named Tarshish.
At first they used Abyssinian rocks as a medium of exchange, the first weapons for hunting bisons and defending the family . When they discovered salt, sugar, turmeric and other precious spices they used the next exchange medium – spices. Then they discovered gold as a medium of exchange that lasted a millennium untill coins and paper money appeared.
Then they invented the “Microchip.” They built “credit machines” that did away with cash. That exchange medium context was still based on money but not for long. Last year a Japanese dude invented the next exchange medium, this time in the “clouds,” the “Bitcoin.” I suppose the normal microchip that uses “bytes” to run your living gave birth to a virtual microchip that uses “bits” to “steal” the economy bit by bit from the recession makers. Bytes and Bit are destined to rule the world. Climb on the bandwagon going to Tarshish Kabab. The race to riches is just beginning!
Does it take a psychologist to tell you that the democrats and republicans in congress consider the American people shallow thinking dummies? How do I know that? Imagine that you are a wife married and have 4 kids who soon will go to college. The family income is $150,000.00 per year. You are a democrat congresswoman and you turn to your husband who is an economist and a republican and you say, “George, congress is fighting over raising the debt ceiling. We need to raise this family debt ceiling too, from $250,000.00 to half a million so we can pay out bills, 2 mortgages, the kids college tuition, go out to dinner, shows, save some, entertaining is a big expense for us, friends, we got to raise the family debt ceiling too. We are doomed if we don’t.”
The husband happened to be an economist, not a congressman, so he responded, “Dear wife, you are caught in politics, you seem bent out of shape, you need to change your gloomy attitude about money to a positive view. If you check out our total income this year it’s actually $175,000.00 and I just borrowed $50,000.00 with our excellent credit, Mary, we have $225,000.00 this year, enough to cover even 6 kids in college.”
“George, but we must raise the debt ceiling, you don’t understand economics, let me explain to you about the limits on future borrowing…”
“Mary, I understand economics, honey, I am an economist….you seem arrogant enough to pretend to know something about debt ceiling without knowing what it is. We don’t need one because we are fiscally responsible individuals. I don’t think we waste money. We respect it. We don’t spend other people’s money like congressmen do (you do). You don’t need a debt ceiling raised every 3-4 years if you are thrifty because treasury collects enough money to cover expenses right now, but the democrats want a vote to raise the national dept ceiling because they know that till Obama goes in 3 years they will need to borrow trillions of dollars to waste money on slowly ending wars, slowly starting new one, expand entitlements and fund their wasteful projects.”
“I got it, George, I read something that congress readily extends the debt ceiling because they never-never learned in school how to budget and cut waste instead.”
“Republicans and democrats, research have shown that humans especially leaders don’t know how to cut waste.”
“Is that why we have garage sales every two years”?
“You are right, dear congresswoman but I won’t comment on that…government raises the debt ceiling every two or three years to pay for the waste, it’s their national garage sale.
“How pathetic.” They both said, “Poor dummy citizens.”
“What about Obama care?”
“Well, read my posting last week.”
Let’s skip the issues of republican vs. democratic ideology, maneuvering, stalling, feelings and animosity that you could enjoy watching CNN – if your like arguing kids. This is going to go on the tube every day until the participants get scared realizing that they can’t win it all but they may lose the next election if they don’t stop the “piggy back” game. So, ladies and gentlemen, let’s discuss the only issue that really matters: Getting medical coverage for all Americans, for a fair cost. This is called in behavioral economics “Best value for the buck.”
Obama care looks good, but it violates rule number one in money management. Let me put it out to you as a question because some of you need better education than the one you have received over the years. Does Obama Care get the best value for the medical buck spent? Called cost/benefit in economics. The answer is absolutely not! If you run anything in your life thinking like the people who created Obama Care, you’d end living in a third world country! Obama care is a patchwork medical system that in order to pass congress, had to pacify the American medical association, the medical insurance companies, the drug manufacturers and the liberals and conservatives in congress that could be bent by colleagues pressure. Any unbiased expert in the field would grade Obama care with a “D” grade. Then, you’d ask why did President Obama pushed that system so hard on you and me? The answer is that he cared a lot about the 30 million uninsured Americans. Yes, Obama cares, but he is not that smart about developing systems: System inclusion, simplicity, delivery, cost savings, medical relationship with Medicare, Medical, Employer’s participation, limits on coverage, buy laws, and a host of other things. If he was smart, he would not start yet another system from scratch. He would attach a simple version of medical care insurance to your income tax return, legislating that all Americans must file an income tax return and all filed tax returns will have a medical deducted as a percentage for universal coverage. Hey, start by sending 10 expert to study Canada’s medical system to learn a few things from our neighbor.
I will stop here because I am getting frustrated writing about what your representatives who take your money in taxes are delivering to you in return. You want a better medical services for all Americans? Think cost/benefit!
The money doctor says that if Cook knows how to cook a deal, and I think he does, AAPL will rise by $200 per share as a Christmas bonus to investors from Santa! Hey CEO Cooky, you know risk exists only when you are not smart! Borrow 50 billion bucks and buy back Apple shares, double the dividend you pay us and make us richer! The price of a share will go up more than the 3% interest you would pay for the loan interest and we pocket the difference. You save on taxes. Hugh profit plus a tax deduction, wow, Cook, be as smart as Steve but in a different way. We all know that Apple products sell and the company sits on 100 billion dollars. If you have a 1000 shares you will get $20,000 dividend bonus instead of the meager $10,000 in dividends that I get now! The latest news is that Apple is going to borrow $1,000,000,000.00 at 3% and buy back shares. That will make Apple shares more scarce than gold. The price of a share may zoom from $500 to $700 by year-end (it has grown from $380 to $500 in the last few months). An Apple share a day keeps the scarcity away, says the doctor.
I appreciated the participant’s courage to say it as he felt it. I understood it perfectly when he said, “You wrote two books on investing in 2010 and 2011, Dr. Kinarthy, I know you predicted that AAPL will rise from $80 a share to $500 and even higher, I know I could have tripled my money if I took you seriously, but I couldn’t take you seriously when you said, “Making money in the stock market is easy and simple, but different.” No one in the group did. We weren’t raised that way, Sir, the books that I bought on investing were more interesting to read than your book but impossible to make money with, too much math mixed with lots of writing, it’s what you would call Dr. Kahneman System 2. Your ideas were just too simple, different, too simple to follow to be true. We humans tend to choose what doesn’t work but looks good so we can then fill our lives with explanations.”
Well, George, you were in good company, all 12 participants in my workshop dropped out, the women early, the last man who dropped out on the 12th session invested his money in Harley Davidson and another in A. J. Edward’s or is it Edward Jones. OK, for the fun of it, this is July 2013, let’s look at what I predicted for Apple before, “The share price will slide down close to its powerful “Support level” of $380 but will climb back. I believe it will never again go below $375! Bring up the Tech graph and plot the 50 days moving average. What do you see? You see a sliding linear curve hitting two support levels and inching up very slow over 2 month or so. What does that mean? It means the Apple’s free fall is over. By the end of the year Apple may climb to $600. But, don’t take my word for it. I am a long-term guy, Facebook will climb to $100, but you got to exercise your analytic skills and wait….