Quote:
Originally Posted by CoachKandSportsguy
First daily volatility swings is not investing, but the results of very large trading positions unwinding or the collision with huge funds reallocating funds or the collision with monthly 401K inflows positioning into equities
Second, market valuation movements is due to investor preference between real treasury bond interest and capital gain rates and stock potential real cash flow growth and dividends.
Macdonalds might has a terminal growth rate of 3 pct over inflation, but still subject to human management mistakes or other event risks to the company. if bonds have a 5 percent return over inflation, where would you put new money for the moment? bonds would be where one would get a better yield at the moment.
So in reality, its the competition between future stock company uncertainty of cash growth rates, and the relative certainty of bond real interest rate and capital gains certainty by the return of capital at the bond life end.
simple, but portfolio implementation is very difficult with the uncertainty of the future in any particular equity.
current recent long for me, though underwater, are long treasury bonds and XLE
posing CFA guy
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My point about McDonald's is that some people buy a stock because they think that, if the company sells a product and makes a profit, they will share in that profit. But, it is not nearly that simple or logical. It's pretty clear that McDonald's makes a profit on every hamburger they sell. But, when the overall stock market declines, the McDonald's stock will also decline, even though they are still making a profit on every hamburger. That is why I don't pick stocks or time the market.