You Can't Devalue Your Way to Prosperity

A cheap currency is an advantage in global competition.  It might seem smart for national leaders just to devalue the currency.  But this is a form of state meddling that has proved increasingly ineffective.

Since the crisis of 2008, many nations have tried to improve their competitive position by devaluing currencies, but none have managed to gain an advantage.

The central banks of the United States, Japan, Britain and the Eurozone have pursued policies that effectively amount to printing money, in part as a way to devalue their currencies.  But each has achieved at best a brief gain in export share, because rivals quickly match each other's policies.

The rise in 2016 of Donald Trump, who keeps a hawkish watch on the moves of foreign central banks, made it increasingly difficult for any nation to devalue its currency without being called to account for it.

By 2019, many emerging countries had seen sharp currency depreciation, but with little boost to growth.  

• One reason was foreign debt; since 1996, in the emerging world, the debt owed by private companies to foreign lenders had more than doubled as a share of GDP, reaching 20% or more in Taiwan, Peru, South Africa, Russia, Brazil and Turkey.   For these countries, devaluation made it more expensive for private companies to service foreign debt, and forced them to spend less on hiring workers or investing in new equipment.

• Another factor that can derail devaluations is heavy dependence on imported food and energy.  In this case, a cheaper currency will make it more expensive to import these staples, driving up inflation, further undermining the currency and encouraging capital flight.  This is a recurring syndrome in nations like Turkey, which imports all its oil, but the problem is spreading.

• These days, even manufacturing powers are mere cogs in a global supply chain, relying heavily on imported parts and materials.  They thus find it harder to capitalize on a cheap currency because devaluation raises the prices they pay for those parts and materials.

A rare occasion when devaluation worked

China, in 1993, was one of the rare devaluations that worked.  

China had little foreign debt, it did not rely too heavily on imported goods, and its already strong manufacturing sector grew faster after Beijing devalued the renminbi.  

But this was an exception that proves the rule in general you cannot devalue your way to prosperity.

Devaluation is increasingly less likely to work

Moreover, devaluation is increasingly less likely to work, even in China, which has grown to command 13% of global exports, the largest share any economy has reached in recent decades.  It is just simply too big to expand much further and if it does devalue, others retaliate.  

In late 2015, China devalued the renminbi by 3%, and many emerging nations responded immediately, erasing any competitive gain that Beijing hoped to achieve.

China is also making increasingly advanced exports, which are less price sensitive and gain less from a cheap currency.  

In Korea, Taiwan, and China, technology and capital goods make up a rising share of exports.  

The more advanced the economy, the less of a boost it gets from devaluations.

To spot whether the government is meddling more or less.

Is the government meddling more or less?

To spot whether the state is meddling more, or less

1.  Look first at trends in government spending as a share of GDP.

2.  Then check whether the spending is going to productive investment or to give-aways.

3.  Finally, look at whether the government is using state companies and banks as tools

• to pump up growth and contain inflation, and 
• whether it is choking or encouraging private businesses.

In certain environment, less meddling is best

In recent years, many countries have been 

• raising the government share of the economy, 
• steering bank loans to big state companies, 
• subsidising cheap gas for the privilege classes and 
• enforcing insensible rules in an unpredictable way.

Even low income countries like India are rolling out full-service welfare systems, a luxury that the Asian miracle economies began to adopt only much later in their development.  At that point, countries like South Korea and Taiwan had already invested heavily in factories and transport networks, and they could well afford inclusive pension and health programs.

In contrast, many states are now managing the economy in ways that effectively retard growth, thereby 

• fueling disrespect for establishment politicians, and 
• the rise of radical populists.  

In an environment like this, especially, less meddling is best.

When Government Spending Becomes a Problem

Government Spending

 As a country grows wealthier, spending by the government tends to increase.

Is the government spending much higher (or lower) as a share of the economy than in other nations at the same income level? 

The worst case is a fat state getting fatter, compared to its peers.  

Developed economies

Among the top twenty developed economies, the king of this class has long been France.  

The French government spends an annual sum equal to 56% of GDP, more than any other country, barring the possible exception of Communist like North Korea.  

• France's spending level is 18% above the 39% average for developed nations - the biggest gap in the world.  
• Over the last decade, the tax burden required to support this state was driving businesspeople out of the country in droves.  
• France's own president, Georges Clemenceau, in the early 20th century described it as "a very fertile country: you plant bureaucrats and taxes grow."

Many European states have been under pressure to cut back since the crisis of 2008, particularly where their spending amounts to more than half of GDP.  Led by France, that list includes Sweden, Finland, Belgium, Denmark, Italy and until recently, Greece.   Greece has been moving in a positive direction - with state spending falling from 51$ to 47% of GDP - in part because its creditors forced Athens to make painful cuts in civil service jobs and salaries.

Prior crises had already started to erode the welfare state in Europe in the late 1990s.  Scarred by the crisis of 2008 and its aftermath, other European nations will remain under pressure to keep the size of the state in check.

The lighter spenders in the developed world include the United States, Austria and Australia, with government spending amounting to between 35 and 40% of the GDP.  Switzerland was even lower, at 33%.

Emerging Nations

Emerging Big Spenders

Among the twenty largest emerging nations the outlier for many years was Brazil, where official government spending amounted to more than 40% of GDP, a level more typical of a rich European welfare state than a middle-class nation.  

• In recent years, under a controversial right-wing government, that figure has come down to 38%, still well above the 32% average for nations with a per capita income of around $12,000.   
• Brazil had by 2019 fallen behind Poland (42%) and Argentina (39%) for the title of the emerging world's biggest, most bloated spender.
• Brazil's recent turn reflects the growing realization that it could not keep spending like a rich European welfare state, as well as growing frustration with the dysfunctional system.

Emerging Small Governments

The large emerging countries with the smallest governments include Indonesia, Nigeria, South Korea and Taiwan.  

The East Asean (South Korea and Taiwan) success stories were built on a model that, until very recently, delayed the development of welfare programs, kept government spending around 20% of GDP or less and focused that spending on investment in infrastructure and manufacturing.  

Even today, only 30% of Asia's population is covered by a pension plan, compared to more than 90% in Europe.    

Taiwan's public healthcare system did not exist in 1995 but now covers nearly 100% of the population and costs just 7% of GDP; that compares well to spotty coverage costing 18% in the United States.

Governments in the Andean countries of Columbia, Peru and Chile all look relatively undersized, as does Mexico, with government spending equal to 25% of GDP, 7% below the average for its income class.  It is mainly on the Atlantic coast - in Brazil, Venezuela and Argentina - that governments suffer from bloat.

The health of the credit system is crucial

Periods of healthy credit growth bear no psychological resemblance to the extreme exuberance of manias or the extreme caution or fear of debts (debtophobia).

The health of the credit system in 2008

When the global financial crisis hit in 2008, countries like the United States were vulnerable because they had been running up debt too fast.

In Southeast Asia, however, the opposite story was unfolding.  Indonesia, Thailand, Malaysia and the Philippines had manageable debt burdens and strong banks ready to lend, with total loans less than 89% of deposits.

Over the next 5 years, post 2008, the health of the credit system would prove crucial:

• nations such as Spain and Greece, which had seen the sharpest increase in debt before 2008, would post the slowest growth after the crisis;
• nations such as the Philippines and Thailand, which had seen the smallest increase in debt during the boom, would fare the best.

How the credit cycle works in brief

Rising debt can be a sign of health growth, unless debt is growing much faster than the economy for too long.

The size of the debt matters, but the pace of increase is the most important sign of change for the better or the worse.

The first signs of trouble often appear in the private sector, where credit manias tend to originate.

The psychology of a debt binge encourages lending mistakes and borrowing excesses that will retard growth and possibly lead to a financial crisis.

The crisis can inspire a healthy new caution, or a paralyzing fear of debt (debtophobia).

Either way, the period of retrenchment usually lasts only a few years (usually 4 to 5 years). #  

The country emerges with lower debts, bankers ready to lend, and an economy poised to grow rapidly.

Additional notes:

# On average, credit and economic growth remained weak for about four to five years.

In Asia, credit fell in the five years after 1997 by at least 40 percentage points as a share of the GDP in Indonesia, Thailand and Malaysia.  But within about four years, the gloom had started to lift as debts fell, government deficits declined, and global prices for the region's commodity exports rose.  Credit growth picked up, and the average GDP growth rate in these three Southeast Asian economies rose from around 4% between 1999 and 2002 to nearly 6% between 2003 and 2006.

The 4 basic signs of a stock bubble

 There are four basic signs of a stock bubble:

1.  high levels of borrowing for stock purchases;

2.  prices rising at a pace that can't be justified by the underlying rate of economic growth;

3.  overtrading by retail investors; and

4.  exorbitant valuation.

In 2015, the Shanghai market had reached the extreme end of all four bubble metrics which is rare.  

The amount that Chinese investors borrowed to buy stock had set a world record, equal to 9% of the total value of tradable stocks.

Stock prices were up 70% in just 6 months, despite slowing growth in the economy.

On some days, more stock was changing hands in China than in all other stock markets combined.

In April 2015, the state-run People's Daily crowed that the good times were "just beginning."

In June 2015 the Shanghai market started to crash, and it continued to crash despite government orders to investors not to sell.

The Real Inflation Threats

Inflation generally refers to the pace of increase in consumer prices.

1.  Historical inflation data

1970s

Consumer prices were rising at a double-digit pace and wreaking economic havoc all over the world.  

In early 1980s, they began to recede under pressure from rising global competition and a concerted attack by central banks.  

Raising interest rates to painful heights, central banks choked off money flows and won the war on inflation just about everywhere.

1981 to 1991

The average rate of inflation in developed nations fell from 12% to just 2%, where it remains today.

Meanwhile, in emerging nations, the average rate of inflation peaked at a staggering 87% in 1994 and reached the hyperinflationary triple digits in major countries like Brazil and Russia.  Then, over the subsequent decades, it receded to its current, much calmer rate of just 4%.

2.  Average inflation rates today

Any emerging nation with a rate of inflation much above 4% or any developed nation with a rate much above 2%, has cause for concern.  

In a world where double- and triple-digit consumer price inflation is a rare threat, the outliers are worth watching closely because they are out of balance and seriously at risk.

3.  Traditional thinking focuses on consumer price inflation only

High consumer price inflation is a growth-killing cancer

In the short term, 

• rapidly rising prices compel central banks to raise interest rates, 
• making it more expensive for businesses and consumers to borrow.  
• High inflation also tends to be volatile, and its swings make it impossible for businesses to plan and invest for the future.

Over the longer term, 

• inflation erodes the value of money sitting in the bank or in bonds, thus discouraging saving and 
• shrinking the pool of money available to invest in future growth.

4.  Post crisis of 2008 slow-growth environment fears outright deflation

The central banks are now fighting a very different war.  

Central banks often worry that inflation may be too low, not too high in the slow-growth environment that took hold after the crisis of 2008.  

In developed countries, instead of raising rates to make sure inflation doesn't increase too far above a target of 2%, they now cut interest rates when inflation is falling too far below 2%.  

Their big fear is that low inflation will lead to outright deflation - the dreaded but overblown "Japan scenario."

5.  Low inflation and deflation can be bad (depressed demand) and can be good (driven by new innovation and expanding supply)

History, shows that neither low inflation nor deflation are necessarily bad for economic growth.

"Bad deflation"  

Japan suffered a rare bout of "bad deflation" after the collapse of its stock and housing bubbles in 1990.  

• Consumer demand dried up, prices started to fall and shoppers began delaying purchases in the expectation that prices would fall further.  
• The downward spiral depressed growth for two decades.  

"Good deflation"

However, deflation can also follow a new tech or financial innovation that 

• lowers production costs and 
• boosts economic growth.

High inflation is always bad for growth, deflation maybe neither bad nor good

If inflation is too high, it is almost always a threat to growth but the same cannot be said of low inflation.  

Even if low inflation threatens to devolve into deflation, it could be good for growth if the falling prices are driven by new innovations and expanding supply, rather than by depressed demand.

6.  Post 2008 low interest rates environment

After central banks won the war on high consumer price inflation, they cut interest rates to levels that have fueled a massive run-up in prices for 

• financial assets, including stocks, bonds and 
• houses.  

In recent decades, stock market and housing bubbles have been increasingly common precursors to financial crises and recessions.

7.  The Real Inflation Threats

Economists have been very slow to recognize this new inflation threat, and central banks have been very slow to think outside their official mandates, which focus on stabilizing the economy by controlling inflation in consumer prices, only.  

But successful nations will control both kinds of inflation, 

• in consumer markets and 
• in financial markets.

Conclusions

The general rule is that strong growth is most likely to continue 

• if consumer prices are rising slowly or 
• even if they are falling as the result of good deflation, driven by a strengthening supply network.

In today's globalised economy, cross-border competition tends to 

• suppress prices for consumer goods but 
• drive them up for financial assets (stocks, bonds and houses).  

Thus watching consumer prices is not enough.

Increasingly, recessions follow instability in the financial markets.  

To understand how inflation is likely to impact economic growth, you have to keep an eye on stock and house prices too.

Bitcoins and Cryptocurrencies

Are cryptocurrencies real money?

Blockchain technology and Bitcoin

With modern computers, the twenty-first century solution to securing private information is to encrypt it in a chain of code that can never be altered without permission from all the users.  This blockchain encryption technology works because the entire user world will be alerted if anyone tries to change the information.

The first use of blockchain was to encrypt and secure holdings of a currency called bitcoin, the world's first decentralized digital currency that didn't need a central bank or central monetary authority to control its use.  Bitcoin was invented by an anonymous computer pioneer with the name of Satoshi Nakamoto in 2009.

The open-source software was structured to allow anyone, at any time, to see who owns what in the bitcoin world.  The system allows for anonymity because the owners of bitcoin can use pseudonyms, keeping their real identities secure in encrypted form.

Purpose of bitcoin and other cryptocurrencies

The purpose of bitcoin and other cryptocurrencies was to have a user-to-user payment system that avoided the cost and control of a central authority.

When the owner of a bitcoin decides to purchase something, the system is updated to reflect the transfer from buyer to seller.  The transaction takes place via the buyer's and seller's bitcoin wallets, but the ownership change is embedded in the blockchain for everyone to see and verify.  Once the transaction is verified, it cannot be retracted.

Like transactions in cash and gold, one of the major appeals of cryptocurrency payments is that they can be made in total anonymity, without any central bank or monetary authority getting involved.  This is why many countries have moved to ban cryptocurrencies, fearing that they can easily be used to pay for illegal goods, such as drugs or stolen guns.

A possible solution would be to create a cryptocurrency that requires users to be transparent about their identity.  This could be an ideal defense against money laundering, tax evasion and other illicit activities because every transactions would be seen and verified by users.

Many people have been reluctant to start using cryptocurrencies, saying that they would never hold a currency that has no intrinsic value.  Their values are now nothing more than what people are willing to pay for them.

How are cryptocurrencies created?  

Bitcoins, like may other cryptocurrencies, are put into the circulation by miners, who are required to undertake complex computer calculations in order to receive the new bitcoins.  The costs of maintaining the bitcoin protocol system would become increasingly large as bitcoin becomes more and more accepted as a means of payment.  It was therefore, decided to give the new bitcoins to those willing to do the work necessary to keep the system up and running.

Anyone can become a bitcoin miner.  The first bitcoins were mined mainly by individuals, but by the late 2010s, the amount of computing power required to perform the calculations had become so large that only big consortiums and companies were mining new bitcoins.  The energy used by the massive server farms completing the calculations has been estimated to be equivalent to the entire energy consumption of Ireland.  And as the computers doing the mining become more efficient, the calculations are purposefully being made more complicated to control the supply of new bitcoins.

Major security risks

There are major security risks inherent in holding a large amount of wealth in cryptocurrencies that can be transferred in a moment to an anonymous user.   

• Several cryptocurrency millionaires were kidnapped in the late 20010s with the express purpose of getting the victim to transfer large amounts of their assets.  These crimes ended with millions of dollars' worth of ransom being paid directly into the kidnappers' encrypted accounts, never to be traced.
• In 2019, $40 million of cryptocurrency was stolen from a trading platform called Binance when several of the platform's users' "keys" were hacked, similar to the way credit card users' date is hacked from retail stores' databases.

Transactions becoming expensive and taking too long to be processed

Another hurdle to wide acceptance of bitcoin is that transactions are becoming more and more expensive and taking a longer time to be processed.   With average costs for small transfers approaching the 2-3 percent sellers have to pay for most credit card transactions, bitcoin is becoming less of a viable alternative.

High volatility of cryptocurrencies.

The final issue is the high volatility of cryptocurrencies.   Unless a cryptocurrency holder is a risk-friendly investor, it may be better - for the moment at least - to stick to traditional investments like stocks, bonds and real estate.  During some periods of the 2010s, bitcoin had price swings several times greater than those of gold, the S&P 500 or the U.S. dollar.  One of the biggest hurdles to wide acceptance of many cryptocurrencies has been their high volatility.

When to sell? You will always not be happy with yourself. The philosophical approach.

Philosophically!!! This is the question that you have to come to self realization. 

You will always not be happy when you sell!

You will always be wrong when you sell: this is your thinking. 

• You sell with a profit but price go higher so you think you are wrong. 
• You sell at a loss but the price bounce back so you think you are wrong. 
• You sell at a profit when price drop you still think you are wrong because you should sell at the very top.

The whole idea is you are not happy with yourself no matter what. 

Set your goal for a time period

So it would make more sense to set a goal for a time period and when you reach the goal celebrate and set the next goal.

Don’t bother if you are right or wrong, as long as the 2 steps back are less than 1 big step forward to reach your goal. This is just a game.

Hardest part of investing for me is knowing when to sell

 

Some reflections:

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Sell when you no longer believe in a company

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When the fundamentals change, sell it.

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Honestly, when I would have sold the stocks in my portfolio which were 40% down instead of up, I would have made far better returns.

Ask yourself a question: "would I buy at this price?"

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When your position doubles, sell half and let the house's money ride.

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Depends on your investment horizon. 

Great business will continue to grow as will their price in the long term. Short-term volatility will always be there. If you’re invested in great businesses don’t worry about short term price fluctuations.

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If you’re looking for short term gains then you can consider using options to supercharge your returns. But first learn how to trade options.

For the short term, the power of technical analysis will give you indicators of when to sell.

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Depends what you are in it for. 

I have long term holdings and trading cash. 

Long term is just that, as long as the story doesn’t change I hold. 

Trading cash is completely different and gets a bit wild. Can be in and out in a day if the return is good enough.

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For Deep value stocks, or stocks that you buy simply due to cheap valuation, some investors simply buy and exit when the stock is close to 90% of his calculated intrinsic value. 

But if the business deteriorate to the point whereby the intrinsic value keeps eroding, you might want to sell it once you find a better opportunity.

For growth investing or superior business, if you managed to find a good price to enter, try to never sell it unless the fundamentals / thesis changes.

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I very rarely sell. I try to find companies I believe in long term. I only sell if something changes so I no longer believe that companies can give me good returns. Like if a see a shift in technology or how people use products.

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If you are not willing to buy again then it's time to sell

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I use allocation of portfolio. for example, I allocate 20% portfolio to AMD. when it rises, I will be gradually trimming it over time and transferring the funds to other stocks I find of value. When it start to crash, I will buy gradually as it goes down. This will inevitably mean I wont sell at highest or lowest. But valuation will also help me decide the %allocation so when AMD is overvalued based on the metrics, I chose to drop it to 15% of portfolio so I sell 25% of my holding. I use this as a guideline to discipline my buying and selling.

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I control my greed by setting the selling price BEFORE I buy the stock.

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Actually if it is an uptrend stock, don’t sell, ride the trend ... set a trailing stop like if it falls back more than 10% from new high, get out, else just ride the trend .... this is not greed 

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As long as the fundamental doesn’t change and the management continue to commit and grow the company... never sell

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Always have a sell mark before buying the stock unless you are planning to hold long term. And that is if it is positive or negative. You may lose some profit but I'd rather take a little profit than lose it all.

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I like a trailing stop loss. The stock can still go up, but if it starts to fall I don't lose my gains.

How often is the stock stop loss triggered? Has the stock price ever gapped below your stop loss?

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Be greedy. Don't sell your winners just because they're up. Only sell when your original thesis no longer holds. Don't practice portfolio socialism lol

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Do whatever consistently works for you. Doesn’t matter what I say or anyone else.

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You shouldn’t sell. Unless the number is ridiculous, I’ve learned to avoid selling. If I never sold any of my positions I would easily have over 100 more money today.

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I sell when is overvalued 15-20%~.

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I set up trailing stop sell orders when a stock reaches 7 percent gain.

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Have a plan when you buy it, then stick to the plan, whatever it may be, sure you can re-evaluate but by and large stick to the plan.

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It's a loaded question. It depends on your plan/goals. Part of your plan is whether your stocks are in taxable vs qualified accounts. I tend to rebalance once or twice per year in my qualified accounts. I'm a net buyer of stocks in each year in the taxable account that I intend to hold very long term for compound growth and at that time sell very little for income.

In my IRA, my goal is to build equity/net worth and consider converting some stocks for income/dividend. The end of each year, if the fundamentals change for a company, I highly consider selling.

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That’s another great question.

Buffett actually covered a piece of this in his most recent annual meeting...

Quoting back something that Sir John Maynard Keynes (an old, and very famous economist) was famous for saying:

"When the facts change, I change my mind. What do you do?"

In other words, one of the biggest reasons, and probably the most difficult is to actually change our minds when our original thesis for the investment has fundamentally changed.

Trust me when I say that this is not easy.

I like to say you should hold onto our opinion the way we have to hold onto a bar of wet soap. If you hold on just a little bit too tightly, it's likely to get away from you when you need it...

The second biggest reason is when our investment thesis actually comes true.

I think it was Guy Spier who talked about how much more difficult it is to sell something we own, than it is to buy into it.

We get attached to it. Especially if it's making us money!

I literally ran into this recently.

I bought a company that I determined to have an intrinsic value of roughly $23. I bought in at $10. in less than a year it quickly went up from $17 to $23 and guess what I did...

Nothing!

The story in my thesis hadn’t changed and it would have still been a great investment (prior to COVID) but even though I knew it was at fair value, I didn’t act.

I’m still trying to analyze that and figure out if I made the right or wrong choice.

Obviously if I knew a pandemic was going to hit it would have been the right choice to sell, but it’s not true when people say hindsight is 20-20.

There are always factors at play that we can’t see.

Honestly right now I think it was greed that made me hold on.

The speed at which it was rising was too exciting and I probably allowed my “what if” emotions to kick in.

Everyone who's not a robot struggles with this (bleep bleep blorp for you robots out there...)

The simple answer is to know what something is worth and only ever sell when it’s roughly 20% above that fair value.

Normally my rule is to sell at 120% fair value, so it wasn’t quite there, but I could have just sold and been happy with the return I would have got.

I think it goes back to that 80/20 principle. Except we can flip that in it’s head.

If we are waiting for 80% of the time to receive our last 20% is that time we’ll spent?

John Templeton, one of my favorite investors, would have had a sell order already set after he bought the stock.

He was amazing at doing anything he could to eliminate his emotions while he was still rationally analyzing the business.

I think I should start this as well.

One of the beautiful aspects of investing is that’s its continuous learning.

I think we can all learn a lesson from this. And as you can see.

As you can clearly see... I’m still learning.

Hope that helps!

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Sell as much % as you are up, quarterly. Buy as much % as you are down.

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Never. I usually buy with the intent of keeping the cash flow Forever. I sell if the company seems to be collapsing, or I have made such a huge growth that I want to invest in something else. This is just my way of investing, and my tip - it’s in no way the only or «correct» way to invest. 

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Put a trail limit and let it run.

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Check the volume versus the 10 day average volume to be able to see a good exit strategy....not really a value investing type of thing....but has helped me understand why stocks go up and down throughout the day!

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Make a habit of rebalancing chances are if a particular stock is overvalued it will be a larger portion of your portfolio so you can sell some of it and use that money to buy another stock you deem undervalued.

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Don’t sell for years. Quit trying to time the market. Buffet holds for decades.

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As soon as you think about "should i sell?"...sell some. Better to be a fool and lose out on more gains than a fool who rode his gains back down to break even or worse...a loss.

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For people with a "PURE" value investing strategy, a P/E of 40 or a minimum of 50% profit is a good time to sell in the short-term (Walter Schloss strategy). Personally, I prefer to seek great companies and never sell if the fundamentals don't change. 

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I sell when I find something better

 

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If it's a great business purchased below intrinsic value and now overvalued, I'd keep it anyway. You may not a get another chance to purchase it below intrinsic value. If you're feeling like you're becoming too concentrated in one position, go ahead and trim it, but great businesses are seldom undervalued.

 

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Philosophically!!! This is the question that you have to come to self realization. you will always wrong when you sell is your thinking. You sell with a profit but price go higher so you think you are wrong. You sell at a loss but the price bounce back so you think you are wrong. You sell at a profit then price drop you still think you are wrong because you should sell at the very top. the whole idea is you are not happy with yourself no matter what. So it would make more sense to set a goal for a time period and when you reach the goal celebrate and set the next goal. Don’t bother if you are right or wrong. 2 steps back < than 1 big step forward to reach your goal. This is just a game.

 

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Taking a deeper look at Share Buybacks

A buyback is when a company buys back its own stock.  As a company buys back shares, its future earnings, dividends and assets concentrate in the hands of an ever-shrinking shareholder base. 

These companies become more valuable by losing shareholders.  

Warren Buffett wrote in his 2000 letter to shareholders:

There is only one combination of facts that makes it advisable for a company to repurchase its shares:  

"First, the company has available funds - cash plus sensible borrowing capacity - beyond the near-term needs of the business, and, second, finds its stock selling in the market below its intrinsic value, conservatively calculated."

If those two requirements are met, Buffett is an enthusiastic supporter of stock buybacks.  When done right, buybacks can accelerate the compounding of returns.  When you find a company that drives its shares outstanding lower over time and seems to have a knack for buying at good prices, you should take a deeper look.

In a slow to no-growth economy, this tactic is becoming a more important driver of earnings-per-share growth.  But you have to actually shrink the number of shares outstanding.

Since 1998 to 2015, the 500 largest US companies have bought back about one-quarter of their shares in dollar value,, yet the actual shares outstanding grew.  This is because they hand out the shares in lavish incentive packages to greedy executives.

 Warning! : 

When evaluating share buybacks, make sure to look at actual shares outstanding. Relying on company news releases alone can be misleading. 

Companies also buy back shares 

• to support employee incentive programs or 
• to accumulate shares for an acquisition. 

Such repurchases may be okay but aren't the kind of repurchases that increase return on equity for remaining owners. 

Additional reading:

100 Baggers by Christopher Mayer (Foreword by KC Chong)

Do not buy company warrants and structured warrants.

The price of warrant closely follows the price of its parent stock.

Warrant has a lifespan which is very short and no dividend is distributed to its owners.

They are mainly for short term speculation.

Do not buy company warrants and structured warrants.

Those with warrants given out "free of charge" as a result of rights issue subscription or bonus issues, their chances of winning are next to none if held to exercise date.

One of the most foolish ways is to squander your hard-earned money on speculative warrants because short-term speculation is an effective way to part with your hard-earned money.