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Will Coronavirus Hurt Corporate Earnings?

The forced holiday that China has experienced due to the coronavirus has been compared to the entire US workforce taking a two month vacation! This means that China is producing less and that they are consuming less as well. Commodities suppliers will be hurt as they sell fewer raw materials to Chinese industry and foreign customers will not get the parts they need to do their own manufacturing. So, will the coronavirus hurt corporate earnings as it continues in China and spreads across the globe?

How Will the Coronavirus Affect the Stock Market?

CNN reports that Goldman Sachs is warning of a stock market correction. At the root of their concern is the combination of an overbought market and the threat to earnings posed by the Chinese coronavirus.

Stocks keep reaching record highs. Goldman Sachs is worried that leaves investors vulnerable to surprises.

The investment bank told clients this week that a near-term correction, in which the market slides at least 10% from a recent peak, “is looking much more probable.”

The thinking: Equity markets look “increasingly exposed” to disappointing earnings growth due to the new coronavirus outbreak, Goldman warns.

The number of companies that have lowered their guidance on profits for the first quarter is still in line with past years. But Apple’s surprise update this week that it wouldn’t hit its revenue target has put investors on edge.

The FANG stocks have been steadily climbing higher as they continually increase earnings. Investors are paying a premium for each of these stocks based on the expectation of continually higher value based on steady increases in earnings. When that turns out not to be the case, the correction could be impressive.

How Will the Coronavirus Hurt Corporate Earnings?

The concern about lower earnings is widespread. According to Forbes, more than 400 companies have projected lower earnings based on the effects of the virus.

Some 421 different companies, 394 of which are U.S.-based, have talked about the coronavirus on first quarter earnings calls.

These range from the likes of Starbucks, McDonald’s, Nike, and Apple to Yum Brands China which includes Pizza Hut, Taco Bell, and KFC. Luxury goods will be hurting as well according to Este Lauder, Capri Holdings, and LVMH.

The reasons include shutdowns in production due to the virus, reduced access to parts made in China, few raw materials purchased by China, and reduced purchases within China due to business shutdowns and reduced income.

Projections by Apple and others tell us that the effects of the virus on production, sales, and earning will spread far and wide before all of this is over.

What Should Investors Do about a Potential Market Correction?

This depends on whether you are a long term investor or make your money swing trading stocks. Those who are in the market for the short term may wish to pick stocks to short a few stocks. However, they will want to heed the lesson of Tesla and the Short Squeeze. Long term investors will do well to assess the intrinsic stock values within their holdings, only get rid of the weak ones now, and plan on investing in stocks with the highest intrinsic value when the market corrects.


Are Robotics Good Investments?

Automation has taken a toll on manufacturing in every corner of the globe. Light assembly jobs that took a hundred workers now require an automated assembly line working around the clock and now more than half a dozen workers. Investors are well aware of industries and economies hurt by automation. But, robotics has also created jobs and profitable companies. Are robotics good investments? Right now with the worldwide economy in the doldrums, this sector is lagging, but over the long term, robotics is, in fact, the wave of the future.

Investing in Robotics Stocks

Robotics Investing News writes about the seven top robotics stocks.

Spending in the USA on drones and robotics passed $100 billion a couple of years ago and is rising at close to 20% a year. These firms make two-thirds of their money selling robots or robotic equipment and the rest from software.

Here are the top seven (listed on exchanges in the USA) that they list alphabetically.

  • Cognex
  • FANUC
  • iRobot
  • KUKA
  • Medtronic
  • Rewalk Robotics
  • Rockwell Automation

Each of these companies has its own niche. For example, Medtronic makes medical devices and their automation is aimed at manufacturing in the core market. The listing gives a snapshot of each company and the article has financial info.

Are Robotics Good Investments?

There are three main themes to concern yourself with when investing in robotics. The first is the industry for which the robotics or automation are intended and the second is how well run the company is. The third has to do with how inventive they are and good at keeping up with or staying ahead of the completion.

Today the biggest markets for robotics are the auto and electronics industries. Today, with the trade war and now the Chinese coronavirus, trade has slowed, sales are down, and robotics sales are suffering. But, over the longer term, this technology will find more and more uses, and will be a true wave of the future. Thus, you need to consider are robotics good investments for the long term when picking investments.

Intrinsic Stock Value of Robotics Investments

Is it better to invest in companies that make the robots or those that design and upgrade the software? Large companies like Siemens do both but many smaller concerns focus on one or the other. The bottom line here is that, aside from paying the programmers, there is a low overhead to creating and upgrading software while making new machines requires more money than a smaller company may have access to.

And, you can certainly invest in Siemens via an ADR to take advantage of their robotics and automation prowess, but that aspect of their business is only a fraction of what they do so that the effects of growing automation sales are diluted. Three billion euro in sales would be huge for a standalone robotics company but is only a portion of the pie for Siemens.

The winning companies in this long term race will be those that keep ahead of the pack in regard to automation technology and run their businesses efficiently in order to maintain their customer base and produce steady profits.


Beware of Coronavirus Investing Scams

It seems that every time there is some sort of threat to health, welfare, or your pocketbook, the scammers show up looking for ways to trick you out of your money. The most recent threat is the Chinese coronavirus. The disease is highly contagious, kills its victims at about ten times the rate of influenza cases, and does not seem to be under control at the source in East and Central China. While this is happening, investors are smart to consider investment risks and opportunities such as whether pharmaceutical stocks could be a good choice. In the meantime beware of coronavirus investing scams.

Beware of Coronavirus Investing Scams

In this regard, CNBC reports that both the Federal Trade Commission and the Securities and Exchange Commission have put out warnings about likely coronavirus scams.

If you’ve seen research reports or promotions touting opportunities to invest with companies that are working to cure coronavirus, think twice before buying stock shares.

This advice comes from the SEC, FTC, and even the Florida Department of Agriculture after an uptick in investor scams related to the virus.

“Fraudsters often use the latest news developments to lure investors into scams,” the SEC’s office of investor education and advocacy said in a Feb. 4 email.

As the Wuhan coronavirus dominates virtually every news cycle, everyone is worried about the spread of the disease and investors are on the lookout for defensive measures to take and potential investment opportunities. This is what the scammers are trying to take advantage of.

The SEC released its warning after it became aware of “a number of Internet promotions, including on social media, claiming that the products or services of publicly traded companies can prevent, detect or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result.”

Investors Need to Beware of Fraudulent “Research Reports”

Investors on the lookout for investing opportunities related to the virus outbreak and spread naturally look for useful background information to use as part of their analysis of intrinsic stock value. This is a good approach when investing in stocks. The problem is that scammers are good at hyping a stock and doing it so smoothly that they appear to be offering genuine and accurate information. What is really happening is that they are typically running pump and dump schemes, especially with OTC stocks. Anyone who got sucked into the later stages of the Bitcoin pump and dump scheme and then losing their shirt knows how this works.

How Can Investors Avoid Being Scammed?

The old saying that if something appears too good to be true it is most likely too good to be true applies first and foremost. When we give advice to new investors we typically suggest that they stick with what they know. If you have a background in medicine, biology, infectious disease, or preventive medicine, you will probably have some useful insights into this situation. And, you will also know that there is no quick cure. Companies selling face masks and cleaning solutions will see upticks in sales but it can take years to develop a vaccine, especially for a brand new virus. And, many diseases for which scientists have tried to make vaccines have resisted any such solution.

If you have the appropriate background, you can read any “research reports” and spot the ones that are fraudulent. For example, when a report states that respected medical journals are reporting certain results, they should be citing the journals and the information needed to find the reports in question. Then you can go online and find the report for yourself. Statements by researchers without results that have been published in peer-reviewed journals should also be suspect. All too often, even scientists are looking for someone to back their research and will make such statements in attempts to get funding. This does not mean that they have a cure in sight.

The bottom line is that you need to beware of coronavirus scams as this disease spreads and causes havoc on the Chinese mainland, neighboring nations, and the world.


Is It Time to Sell Amazon?

A good way to know when to sell a stock that is about to correct is to watch what the insiders are doing with their stock. In this regard, is it time to sell Amazon? In just the last week or so Jeff Bezos has sold $3.5 billion dollars-worth of Amazon.com stock. Is this an indication that the boss of Amazon.com thinks that is a good time to start taking a profit because the stock is about tank? Or does he simply have so much money that $3.5 billion is pocket change?

Investing in Amazon.com

Amazon.com was founded in 1994 and has traded on NASDAQ since 1997 when it opened at $1.73 a share. During the years running up to the dot com bubble, Amazon.com was one of the few internet stocks that actually was making any money and was not based on hype and fluff. It peaked at $78 before the dot com bubble but fell to the $10 range after the crash. The stock gradually rose in value until it got to the $120 range before it began an almost exponential growth, arriving at $1952 a share in September of 2018. At that point it lost about a third of its value before recovering and then lost about a fourth before climbing to over $2,100 a share today.

The stock does not pay a dividend and has a P/E ratio of 92! All of its attraction lies in its growth prospects. Amazon.com today is the largest provider of AI assistance, cloud computing services, and online marketplace. The company has driven a huge swath of brick and mortar retailors out of business or into much smaller versions of their former selves. They have gone into movie production and online content streaming as well where they compete with Netflix and Disney. It is unlikely that the company will ever go away as it efficiently provides a whole range of valuable services and routinely out-competes all others. But, its growth curve is reminiscent of Microsoft before it corrected and flat-lined for years after the dot com crash. Thus the investment risk for Amazon.com is getting in today at $2,100 a share and seeing it fall to $1,500 only to stay there for a decade!

Jeff Bezos Has Other Investments than Amazon.com

Is it time to sell Amazon just because the largest shareholder decides to take less than 3% of his holdings? Bezos announced three years ago that he would be funding his space flight company, Blue Origin, to the tune of $1 billion a year and he may be planning another expected purchase like when he bought The Washington Post a few years ago. All of that having been said, Bezos has timed his sale at a high point for Amazon.com stock.

How Bad Is the Amazon.com Bubble?

CCN thinks that Amazon stock is in serious trouble. Their argument is that, unlike the other high-flying tech giants that have been driving the market higher, this stock has a hugely-inflated PE ratio and is due for a correction. The situation is similar to that with Tesla which recently benefited from a short squeeze as short sellers were forced to exit their positions and drive prices higher.

There are investors who firmly believe that Amazon is and will remain the wave of the future. But, the question in regard to intrinsic stock value of Amazon.com is just how many new businesses Bezos can grow under one umbrella and how long can he maintain thin profit margins before something breaks?

Investing and the Tesla Short Squeeze

Tesla is on a tear with the stock price up nearly three-fold in the last year. While some see this as a vindication of their faith in Tesla over the years, others see the most recent surge in Tesla’s stock price as a classic short squeeze. While Tesla has been going up, many traders have shorted the stock in expectations of a substantial correction. When that has not happened, they have had to buy the more-expensive shares to cover their positions, this has driven the stock price even higher. Here are our thoughts on investing and the Tesla short squeeze.

Investing and the Tesla Short Squeeze

In just a month Tesla stock has gone from $450 a share to $900 a share. For a stock that sold for $17 a share when it opened a decade ago, this is an impressive success story. Many who have invested in Tesla over the years firmly believe that electric cars are the future of the auto industry and that Tesla will be the leader. However, Tesla has rarely made a profit and carries about $13 billion in debts. They had severe production delays a couple of years ago which took the stock down from the $400 range to about $200 before it started to recover in light of meeting production quotas and eking out a profit.

None of this prepares us for the stellar run-up of Tesla’s stock price in the last month. The Wall Street Journal looks at this situation and compares it to oil and bitcoin bubbles. They note that it has the characteristics of a short squeeze.

The gains are proving to be a thorn in skeptics’ side. Despite some short-covering over the past few weeks, there is still some $14 billion in short interest against Tesla, making it the most shorted U.S.-traded company, according to financial analytics firm S3 Partners. Short sellers borrow stocks and sell them, profiting if they are able to repurchase the shares at lower prices.

“The situation is a textbook short squeeze, albeit on an unprecedented scale,” said Matt Weller, a market researcher at Gain Capital. Last fall, short interest in the stock was about 25%. As the price went up, those traders were forced to sell their stock, which drove the price up. That forced others to sell, which further drove the price. “And so on,” Mr. Weller said.

Short interest is still around 13%, he said, so that dynamic may not be done playing out.

Investopedia defines a short squeeze.

A short squeeze is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing short sellers to close out their short positions and adding to the upward pressure on the stock. Short sellers are being squeezed out of their short positions, usually at a loss. Short squeezes are generally triggered by a positive development that suggests the stock may be embarking on a turnaround. Although the turnaround in the stock’s fortunes may only prove to be temporary, few short sellers can afford to risk runaway losses on their short positions and may prefer to close the position even if it means taking a substantial loss.

In short, if you will forgive the pun, Tesla is currently the most-shorted stock and many short sellers have been forced to get out of their positions by purchasing a higher price which in turn drives the price even higher.

These situations typically correct themselves when the stock finally heads back to its intrinsic stock value. We may have seen the start of that dynamic at the end of yesterday when Tesla fell by about $100 at the end of the session.

How Badly Will the Wuhan Coronavirus Hurt Investments in China?

More than 3,000 Chinese stocks fell by their daily limit the moment the Chinese stock market opened this morning. What is happening? A new, mutated, and lethal virus called a coronavirus has killed more than two hundred people, infected more than ten thousand and led to a virtual shutdown of large segments of the Chinese economy. This is a huge social and humanitarian disaster in the making as the virus has spread across the world to dozens of countries and air travel to and from China has been restricted. From an investor’s point of view, how badly will the Wuhan coronavirus hurt investments in China?

How Are Investors Responding to the Coronavirus Threat?

The Chinese stock markets were shut down for a week for the New Year holiday so the precipitous fall of Chinese stocks was the first response as coronavirus fears grow according to The New York Times.

The sell-off continued despite government efforts to bolster the economy. China’s central bank on Monday injected $173 billion into its financial system in an emergency move it said was “in order to maintain reasonable and abundant liquidity in the banking system and stable operation of the currency market.” It has also pledged to lower the lending rates for companies.

Other markets in the region, which have already digested much of the impact, were also trading in the red. Shares in Tokyo finished the day down nearly 1 percent, while in Australia they closed down 1.3 percent.

Although the stock markets are open again, much of the rest of the country is shut down. Travel is restricted in and out of the 11 million person city of Wuhan as well as other metropolitan areas in the East and Central regions of China. The Chinese economy was already slowing down and Chinese debt has risen greatly. Thus the world’s second largest economy already had weaknesses and needed to maintain its forward momentum in order to avoid further economic and social-political problems. Investors see this and are heading for the exits. How long the stock plunge lasts and how bad it gets will depend on a large degree on how well China is able to manage this crisis and get people back to work.

Will Investors Be Able to Sell Their Chinese Stocks?

The Chinese stock market, like many others, has limits to keep a stock rout from devastating the market in a single day. Unfortunately, this means that many investors could not get their sell orders executed in time before trading closed on their individual stocks. Thus, we can expect to see this rout go on for several days as both traders and long term investors seek to pare their losses.

A big problem is that in China it is perfectly legal and quite common to borrow money to invest in stocks. In a market that has more often gone up than down over the last few years, this could be very tempting. The problem now is that those who owe money cannot sell their stocks and may end up being “upside down” on their investment portfolios. This may be where the Wuhan coronavirus wrecks the most damage on Chinese stocks and the overall economy.

Is There Any Use for Active Investments Today

The market keeps going up and those who have simply put their money in index funds tracking the S&P 500 have done better than the vast majority of active investors. At this point you have to ask the question, is there any use for active investments today? Investing in stocks has always been a matter of picking the best stocks to invest in using an approach like intrinsic stock value. But, in the current bull market, stock picking for most folks is not doing as well as choosing and staying with an index fund. Here are some thoughts on the subject.

What Happens to Index Fund Investments in a Bear Market?

When the market goes down, any investments tied to index funds will follow. Is this a reason to get out of an index fund when you suspect that a correction is around the corner? First of all, the reason you are in an index fund is because you know that the fund will do better than managers who try to time the market. So, unless you have a crystal ball that tells you precisely where to put your money instead of the index fund you are using, stay with it. But, if you had that crystal ball, you would not need the index fund!

Market Watch had a useful piece dealing with this issue. They say there is a test of whether you will win or lose in a bear market with index fund investing.
Their advice is to use a buy and hold strategy with index funds and not to bail out when the market corrects. Rather, use a dollar cost averaging approach and continue to add to your portfolio when shares are cheaper!

Is There Any Use for Active Investments Today?

If you have invested in dividend stocks and are using a dividend reinvestment plan, this is something that you cannot do with an index fund. While the cost of investing with index funds is lower than when you routinely buy and sell stocks or when you use a mutual fund, nothing beats the free reinvestment option offered by a dividend reinvestment plan! If your money is in a stock that has been paying dividends for more than 100 years, this is a difficult approach to beat.

And, it is important when investing to understand how a particular investment is going to keep making money over the years. When you invest in a fund that tracks the S&P 500 you are putting your trust in the American economy. But, if you have unique investment skills and knowhow, you may be able to choose some investments that will replicate the Microsoft story of growing nearly 1,000-fold over the years.

Best Investment Approaches Year in and Year Out

No matter if you choose investments where you will not lose any money but also not gain a lot, or if you go with the passive index fund approach, steady investing year in and year out is more likely to be successful for the vast majority of investors than trying to time the market.

When Will the Stock Market Rally Stop?

Despite virtually unending predictions of its demise, the bull market continues. It is tempting to compare the current situation to the dot com bubble at the beginning of the century. But, Mark Cuban, the billionaire who profited from the dot com bubble and was not destroyed by the crash says that this is a different market. There were more investors twenty years ago and interest rates were higher. And, people were buying any stock with dot com in its name! So, when will the stock market rally stop? Cuban says to watch interest rates.

What Is Driving the Stock Market Rally?

Ever-higher earnings are a large part of why some of the big tech stocks keep going up. But, in an interview with CNBC, Dallas Mavericks owner and billionaire Mark Cuban says it has to do with interest rates. You’ll know when the rally is over when rates start going up.

Mark Cuban, who made billions of dollars during the dot-com boom, said Wednesday that the stock market is not reminiscent of 1999.

“Interest rates were a lot different back then,” Cuban said on CNBC’s “Fast Money Halftime Report.” “And you saw a lot more people participating in the market. … You don’t see that now. That individual day trading really led the market to be frothy.”

The levels of day trading have receded and given way to the rise of index funds, creating a fundamentally different landscape, Cuban said.

“There’s so much money chasing index funds, so as long as those funds keep on growing the market is going to go up,” said Cuban, who sold Broadcast.com to Yahoo in April 1999 for $5.7 billion.

His argument is that there is a lot of money looking for investments and, so long as rates are low, the stock market and its derivatives art still where the best return lies.

How Abruptly Will the Market Change Direction if Rates Go Up?

Investopedia discusses the effect of interest rates on investments in an article about what can cause a significant move in the stock market.

Rising interest rates can place downward pressure on real estate investment trusts (REITs) and slow the housing market. Higher interest rates mean higher borrowing costs slowing down purchasing activity and causing stock prices to dive.

These factors will come into play a bit at a time as rates go up and earnings drop off. However, the stock market anticipates events as wells as reacting to them. Many investors, like Cuban, will make adjustments as soon as rates start to rise in anticipation of the bull market ending. We have often noted that Warren Buffet’s silent warning to investors is that (like before the dot com crash) is stockpiling cash!

What Else Could Stop the Rally?

The threats of war, societal chaos, and economic collapse can all drive the market down temporarily. For example, the Chinese coronavirus may be an opportunity for some pharmaceutical stocks, but a global pandemic like the Spanish Flu epidemic a hundred years ago that killed 500 million worldwide would have widespread effects on the economy, investments, and governments!

Investing in Pharmaceuticals and the Chinese Coronavirus

A deadly coronavirus in central China has made the jump from animals to humans and threatens to spread throughout the world. Health authorities in China race to contain the infection as the virus has the ability to jump from human to human. It is already in Japan and Thailand and major US entry points are taking precautions by screening new arrivals for fever. For the investor, there are two issues involved. One is how badly the spreading virus could affect the economies of countries where it lands and the other is opportunities in the pharmaceutical sector as companies strive to find efficient screening and diagnostic tools as well as vaccines and anti-viral antibiotics.

What Is a Coronavirus?

The coronavirus is an infectious agent commonly found in animals. Strains of the virus that are sometimes found in humans cause “usually cause mild to moderate upper-respiratory tract illnesses, like the common cold” according to the CDC. But, “human coronaviruses can sometimes cause lower-respiratory tract illnesses, such as pneumonia or bronchitis. This is more common in people with cardiopulmonary disease, people with weakened immune systems, infants, and older adults.”

And, there are more aggressive strains such as MERS-CoV and SARS-CoV according to the CDC. “About 3 or 4 out of every 10 patients reported with MERS have died.” And the SARS virus that jumped from birds to humans was commonly fatal but no cases in humans have been reported since 2004.

The 2019-nCoV Strain of Coronavirus

This is the name of the new coronavirus strain that emerged in the 11 million-person city of Wuhan in East-Central China. It is of concern because the first cases seem to have been associated with a huge seafood and meat market and were probably animal to human transmissions. But, now there is strong evidence that human to human transmission has occurred as more than a dozen hospital staff came down with the disease after caring for an infected patient. Of the 200 confirmed cases in Wuhan, four patients have died. And, of the 169 persons still undergoing treatment, 35 are said to be in “serious condition.” As with previous human versions of this virus, older adults, infants, and people with weakened immune systems are at greater risk of serious complications and death.

What Is Being Done about the Chinese Coronavirus?

The first line of defense for this virus is to contain the disease and prevent its spread across the world. Thus organizations like the CDC are setting up screening at the main entry points into the USA for folks from China and especially from Wuhan. The CDC has developed an in-house test the works to identify the virus and is working to get testing materials to other national and international agencies.

There is no antibiotic for this disease and no vaccine at this time. Patients receive supportive care and attempts are made to keep the infection from spreading.

What Pharmaceutical Investments Benefits from the Chinese Coronavirus?

Stocks in several Chinese pharmaceutical companies went up on hopes that diagnostic and therapeutic products can be invented and sold. Is this a reasonable investment approach?

Pharmaceutical Companies Doing Coronavirus Vaccine Development

Johnson & Johnson announced recently collaboration aimed at a vaccine for preventing the MERS coronavirus.

Janssen Vaccines & Prevention B.V., part of the Janssen Pharmaceutical Companies of Johnson & Johnson, the Coalition for Epidemic Preparedness Innovations (CEPI) and The Jenner Institute at the University of Oxford, United Kingdom, are working together to not only enhance novel vaccine development against MERS-CoV, but are also striving towards developing advance novel vaccines against the Lassa and Nipah viruses.

From an investor’s point of view, is this a good reason to invest in Johnson & Johnson? Johnson & Johnson is a huge company and the potential profit from preventing a few hundred cases of MERS virus deaths a year is tiny in comparison to their total cash flow. However, the research required to develop such a vaccine will make the next coronavirus vaccine easier to develop. The company that eventually has the wherewithal to create on demand a vaccine for a disease like the new Chinese coronavirus will be a moneymaker in our interconnected world where a virus develops in one place and ends up infecting the whole world within a year. As such, investing in Johnson & Johnson or anyone else doing research for vaccines or treatment of such viruses is for the long term and the province of intrinsic stock analysis.

Whose Purchases Are Driving Stock Prices Higher?

The stock market keeps going up. The top tech picks have been especially impressive. Strong corporate earnings, a pause in the intensity of the trade war, and low unemployment have been positive factors. But, just exactly whose purchases are driving stock prices higher? And, why is it important to know that?

Who Is Buying Stocks?

CNBC published a useful article about who is doing all the buying that is driving the market up.

Given a series of new highs for the S&P 500, the Dow Jones Industrial Average and the NASDAQ, the obvious question is who is doing all this buying?

The author goes through the list of investor categories and come up with conclusions that should be of concern to regular investors.

The large investor groups for stocks include retail investors who own about 20% of US stocks. However, this group now has holding comparable to 2007 and is likely not the main culprit in driving up prices. Public corporations themselves are larger factors with money coming from the Trump tax cuts going to share buybacks. The same amount of investment capital (or more) is going to purchase fewer equities. That fact greatly skews the supply and demand curve!

And, hedge funds have become a huge factor in the markets. Money invested in hedge funds comes to a third to a half of that held by retail investors. But, the holdings in these funds are by definition more labile. Unfortunately for many hedge fund investors, the S&P 500 went up 31% last year while the average US hedge fund dealing in equities did about half that. The result is that the “rebalancing” of portfolios is impressive, especially as fund managers have attempted to make things look better at year’s end.

Quant funds, multi-strategy funds, and high-frequency traders add to the mix on the hedge fund side of things.

Why Does It Matter Who Is Buying Stocks?

It matters whose purchase are driving stock prices higher because it tells you a bit about their intentions. Success long term retail investors tend to follow an intrinsic stock value approach when investing in stocks. Hedge funds and short term traders are looking to time the market. If you are following the example of those who are looking for long term value, you want to emulate long term retail investors. If you are buying stocks because the hedge funds are driving up prices (temporarily) you may be in trouble as you prepare to stay the course and they are ready to bail out at a moment’s notice.

A common theme for folks promoting long term investing is to emulate Warren Buffet who only invests in companies that he understands and only buys when the intrinsic value is greater than the current stock price. That approach and following the purchases of hedge fund managers may make you money in the short term if you can respond fast enough but it does not put you in a position to sleep well at night with solid and dependable investments!


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