Monday, August 31, 2009

Red Dawn in Morning - or Time and Price/Supply and Demand

Being a good steward of your money ultimately means understanding the value of things and being able to manage risk. I'm always a bit surprised to see discussions of technical analysis trumps fundamentals or fundamental analysis trumps technical analysis. I consider them both to be nourishment of the bread and water kind--essential to your investment survival (I'm channeling Loeb here).

You've no doubt heard the expression about 'certain' people: S/he knows the price of everything but the value of nothing. It's an expression worth thinking about as you consider your stewardship responsibilities over your money.

We cannot ever lose site of the simple fact that stocks are inventory, and that inventory is always turning over. And, much like your favorite shopping destination, when there is more inventory than there are willing buyers, prices drop. The obverse goes without saying. Our good friend Seldon reminds us:

Our big capitalists are seldom entirely
out of stocks. They merely have more
stocks when prices are low and fewer
when prices are high

Now my saying this is not a paen to value investing. Rather, it is a paen to importance of knowing price and value and being able to opportunistically benefit from the difference by making a buying or selling decision. And while arguments are fervently made that the market is the final arbiter of price, those adherents forget that time is another important dimension. Panic selling can yield opportunistic buys, and panic buying can yield opportunistic sells.

No matter what your philosophy is OR what your modality is, ultimately you are moving inventory as well. Accordingly you must buy advantageously and sell advantageously. Knowing the value of what you are buying/selling v. the price that those are willing to sell/buy to/from you is an important part of keeping your inventory turning profitably.

There's another dimension, too. That is knowing the season, what to stock and in what colors. That statement IS a paen to the business cycle. Much has been made recently in the increases in metal prices (always a requirement in a recovery) and increases in durable goods (a signal of confidence). Trying to figure out which season you are buying for is not so easy as the lovely symmetrical charts will tell you--a bit like the model size 8 doesn't is different that a real woman's size 8.

I just saw on Bloomberg yesterday (I don't see it now) about how undervalued Chinese stocks were. I've had my best luck with Chinese stocks, but I must admit that I do not trust the reported numbers so much. But I do know this....the Asian economies are being looked to as the saviour for the world. I've maintained in this space before that we are projecting our own proclivities for assuming debt and lack of saving to Asians who are savers. Will these would-be consumers step into the large shoes of the American consumer within a short period of time? I think that you'd have to believe something monstrously untrue to answer yes.


Anonymous said...

Now you’re picking on me. I hope I didn’t offend you last night, on the slope, with my comment on fundamental analysis. :o)


Leisa said...

V, absolutely not! I was reflecting on comments about fundamentals v. technicals (to include Katzo's and my sparring).

Fundamentals/technicals are frequently argued about with great fervor. Recent, active conversations reminded me of a recurring theme that I've had which is the importance of both.

Now I need to go look at what you wrote...perhaps I should be offended!

Anonymous said...

You’re right. It’s really ridiculous for me to say “I only use technical analysis”, or “I only use fundamental analysis”. I just like being argumentative (a dick) sometimes. :o)


katzo7 said...

Jeez, I am being discussed over here too? That katzo really gets around. LOL

Anonymous said...

Leisa, I just received The Nature of Risk, and I’m already enjoying it. And yes, I’ve got my flexible ruler and pencil out underscoring key points. It looks like a page turner.


Leisa said...

I'm glad you are finding the book approachable and useful. I particularly like his discussion of time, information and price risk.

Anonymous said...