greatest-trade-how-you-can-make-20-billion: Personal Finance News from Yahoo! Finance.
Most of the "lessons" listed in the article are common sense. A few are worth discussing:
3) Debt Markets can do a better job predicting problems than stock markets. Consider - right now interest rates are very low across the spectrum - see this chart - suggesting subdued economic growth going forward while equity markets are predicting 30% year-over-year earnings growth. This despite average EBITDA margins for the S&P 500 at 32%, 4% over the historical average of 28%. What does that mean? It means there is much left to squeeze from the cost structure so earnings growth must come from top line revenue growth. Essentially the bond markets are suggesting that kind of growth isn't possible right now. Who's right? I don't know but I'm more inclined to believe the debt markets.
5) Don't underestimate the value of a safety net. If the debt markets are correct, the equity markets will likely correct at some point. The safety net will help your portfolio endure that correction. The article suggests put options. For most investors, I'd suggest looking for mutual funds that actively incorporate hedging techniques.
A good article as it highlights common sense investing. Of course, to match Paulson, one also needs softer characteristics such as intuition, courage and and a little bit of luck. We can't all make $20 billion but we can utilize these lessons to improve our own portfolios.
Most of the "lessons" listed in the article are common sense. A few are worth discussing:
3) Debt Markets can do a better job predicting problems than stock markets. Consider - right now interest rates are very low across the spectrum - see this chart - suggesting subdued economic growth going forward while equity markets are predicting 30% year-over-year earnings growth. This despite average EBITDA margins for the S&P 500 at 32%, 4% over the historical average of 28%. What does that mean? It means there is much left to squeeze from the cost structure so earnings growth must come from top line revenue growth. Essentially the bond markets are suggesting that kind of growth isn't possible right now. Who's right? I don't know but I'm more inclined to believe the debt markets.
5) Don't underestimate the value of a safety net. If the debt markets are correct, the equity markets will likely correct at some point. The safety net will help your portfolio endure that correction. The article suggests put options. For most investors, I'd suggest looking for mutual funds that actively incorporate hedging techniques.
A good article as it highlights common sense investing. Of course, to match Paulson, one also needs softer characteristics such as intuition, courage and and a little bit of luck. We can't all make $20 billion but we can utilize these lessons to improve our own portfolios.
