The Big Picture blog posted a list of typical errors that a financial advisor should avoid. This list is also VERY relevant to individual investors. I specially liked “People don’t have money problems, money has people problems”. Cute.
It seems that Tshuva is going for a haircut or at leas postponement of debt payment, as has been published in the Israeli financial media. My previous point of view has been proven wrong and I am really sad for this, because the guy put in a lot of his money into the business and also sold and sold properties to try to return the debt. Oh well. I hope we both learned from the experience.
P.D: my position on all Delek Nadlan securities was sold about two months ago because the future became uglier.
P.D.2: this is my private opinion and not any kind of advice to anyone.
Just finished reading James Montier‘s article on this subject (available for free at the GMO site). A definite recommendation for any serious investor. Enjoy it.
I am an avid reader of John Mauldin (one of his 1.5 million closest friends, as he puts it).His weekly mail is a must-subscribe for any investor.
I’m a bit behind on my reading material, so just a couple of days ago I finished reading his “Out of the Box” article, which was written by James Montier (never heard of him, but I’m definitely going to add his blog to my reader and probably buy The Little Book of Behavioral Investing). The following sentence caught my eyes and I think it is so true that I must pass it on, if at least one of my readers (do I have more than one?) stops listening to economists and starts thinking by himself, I will be very happy.
“ attempting to invest on the back of economic forecasts is an exercise in extreme folly, even in normal times. Economists are probably the one group who make astrologers look like professionals when it comes to telling the future… economists are simply useless when it comes to forecasting. They have missed every recession in the last four decades! And it isn’t just growth that economists can’t forecast: it’s also inflation, bond yields, and pretty much everything else.”
Having said that, it is now time to say good night.
Today I’m going to write about a complicated topic that confuses many new investors, which is the price of a stock (that is, common stocks traded at stock exchanges around the world).
A stock or a share is an investment instrument that gives ownership of a company. For example if company A has 100 outstanding stock, one share gives a 1% ownership on the company, which allow the owner to vote in shareholder meetings, gives him dividends (when they are distributed) and in case the company goes broke the money left after all assets are sold and debt served are divided between the shareholders (see investopedia’s and wikipedia’s definitions of stock).
So getting to the point, what is the price of a stock? (I’m not sure that this is the correct way to say it… should I say the price of a share? hope this doesn’t bother you, kind reader).
For starters, the current price of a share is defined by Mr. Market. Let’s say you own 1 share of company A and want to sell it at $5, and I am willing to buy this share at that price, then $5 is the price of the share. This is regardless of how much company A earns each year, how many assets it has, etc. The price is defined by the market – by how much people are willing to pay for the stock. This is something that is not usually understood by the new investor, so I will write it once more: The price of a stock is defined by the market supply and demand.
All this is very nice, but how do I know what price should be paid for a company’s stock? This is obviously not an easy question, otherwise the stock market would be a very boring place 
. After reading a lot I have not found a good answer, other than this: you should buy a stock if you think that its future value will be higher than its value today (that is, either it will be more expensive or the company will distribute dividends that increase the return to the stockholder).
OK… but how do I know this?
Well, thing is, you can’t. But there are a number of theories than can help you approximate this. But since it has taken me too much time to finish this post, this will have to wait for the next post.