Archive for the 'Finance' Category

What’s Your Value?

June 11, 2006

I use a definition of stock valuation which may not be new (I doubt it is), but it does seem to be little known or overlooked. To dive right into it, it says:

Valuation = time needed for future Earnings to add up to
                [ Price - {(tangible) Book value} ]

While not perfect, it's a first step in assembling the relevant pieces in an attempt to unify and improve upon the usual valuation ratios.

The motivation behind this is not difficult and can be found here: (PostScript file),

or here:

value.pdf (PDF file).


"I'm lookin' for one new value … but nothin' comes my way"

Iggy Pop, New Values, (1979).

The Crack From Behind (part 8)

May 28, 2006

Let’s take a look back at what happened to gold during the past week. The daily closes in U$ are:

23 May 673.70
24 May 637.50
25 May 648.50
26 May 651.00

(Unfortunately I don’t have Mon 22 May’s close close at hand, as it was a holiday in this neck of the woods.) One can see the recent bottom around 24 May quite clearly. That lowest close is U$ 92.50 from the recent top. Not bad at all in the predicted 70 — 100 U$ range! This pretty well covers the time period of 10 business days from the start of the crack. I’ll only return to this again if something worthwhile develops.

Crack Ho! (part 7)

May 19, 2006

Gold was down at one check over U$ 24 this morning, and stayed down. Bigtime. Closes for Fri 19 May ’06:

Gold: U$ 657.50,down U$ 23.40
XGD:TSX: C$ 74.00, up C$ 0.20, up 0.27 %

Target achieved (Crack ho!): From an intra-day high of U$ 730 last week, even to the close today, the drop is U$ 72.50, already within the predicted range of U$ 70 — U$ 100. Hopefully we’ll get some more, but it doesn’t matter.

Gold is toast? (Cracked wheat?): Will it stay down, or re-test the previous highs as conventional wisdom would suggest? I wouldn’t be surprized to see it go up near there, but I wouldn’t want to predict it. Hey, one week on the money (with no money), what more do you want?

I should also apologize for this rapid-fire, daily series of postings single-mindedly focussed on such a dully glittering topic. It’s been a good experiment, and I may return to it once or twice as needed, in the longer run, to tie up loose ends. But not every day. After all, better to quit when ahead, not a crack-head.

Crack Back (part 6)

May 18, 2006

Gold was down, then flat and finally back down again today. Closes for Thu 18 May ’06:

Gold: U$ 680.90, down U$ 10.90
XGD:TSX: C$ 73.80, down C$ 1.35, down 1.80 %

Not necessarily the big hit desired either today or tomorrow, but no small potatoes and quite promising. A couple of these would do quite nicely instead. Compared to yesterday, it does look like it’s still trying to hang in there, but with less conviction because the action is on the downside rather than upside. We’ll see how it goes tomorrow.

Crack-down (part 5)

May 17, 2006

When I checked the markets this morning, gold was up over U$ 18. A little later on it was already down from there, up only about U$ 2. In the end, the closes for Wed 17 May ’06 were:

Gold: U$ 691.80, down 1.10
XGD:TSX: C$ 75.15, down C$ 2.45, down 3.16 %

At one point in the afternoon gold was down around U$ 9, so it seems to have come back some. Still, with a downward swing of U$ 27 or more, it looks like the short-term bounce is playing out. We need to see at least one heavy hit in the next 2 days, and it’ll be well on its way. Here’s hoping!

Cracking Up (part 4)

May 16, 2006

Closes for Tue 16 May ’06:

Gold: U$ 692.90, up U$ 7.80
XGD:TSX: C$ 77.60, down C$ 0.80, down 1.02 %

Short-term bounce anyone? It could be, but we need to see it heading back down within a day or two, and dropping another 35 to 60 U$. Stay tuned.

Crack Splitting (part 3)

May 15, 2006

Gold more than doubled last Friday's loss today. Closes for Mon 15 May '06:

Gold: U$ 685.00, down U$ 26.80
XGD:TSX: C$78.40, down C$ 6.38, down 7.53 %

From an intra-day high of U$ 730 Friday, to an intra-day low of U$ 678.60 today, the drop was U$ 51.40. Looks like the crack has begun, right on schedule. But we're not all the way there yet. Will need at least another U$ 25 from today's close to get down to the "predicted" levels. There's still a week or so to get there, with the likelihood of a short-lived bounce sometime real soon. Dive, DIVE, DIVE!

Crack Spotting (part 2)

May 13, 2006

Closes for Fri 12 May '06:

Gold: U$ 711.80, down U$ 9.70
XGD:TSX: C$ 84.78, down C$ 2.94, down 3.35 %

Gold was first up a few dollars intra-day. A promising start, but nothing to get too excited about yet. Could be just profit-taking at the end of a very strong week. The next 2 to 10 days may prove more interesting, though.

Gold About To Crack?

May 11, 2006

Gold has now been up (priced in U$) nearly nine weeks in a row:

   ----     -----
  Mar 10   541.30
  Mar 17   555.10
  Mar 24   560.50
  Mar 31   581.80
  Apr  7   588.40
  Apr 13   596.50
  Apr 21   632.20
  Apr 28   654.50
  May  5   684.30
  May 11   721.50

Look at these opposing price swings today (May 11, 2006):

  Price of gold:
    U$ 721.50, up U$ 15.80, up 2.24 %

  XGD (Barclays iShares gold trust, TSX):
    C$ 87.72,  down C$ 2.06,  down 2.29 %

I’m no believer in the predictive power of technical analysis, and normally would think nothing of such swings. But still. Trees don’t grow to the sky and there is cleary a bubble. No-one can tell, without being lucky, precisely when the bubble will crack, and when it cracks, whether it will continue upward again, or be a final burst.

Predictions of this kind make mortals look like fools. Being both, I’ll have a little fun by stepping in front of the freight train right here. How about:

  • Gold cracks imminently: starting within 1-3 days (i.e., heading down by May 16 at the very latest (and I am thinking probably tomorrow (except that it’s pre-weekend)));
  • The crack will be significant: say U$ 70 to 100 down (counting intra-day) when all is said and done;
  • The crack will be swift: 7-10 days to the bottom from the top;

Even if this happens, my guess is the run is not over, it will likely surpass the previous highs.

Caveats: All of this is just bemused observation, for fun, by a non-professional. I don’t know anything, because there isn’t anything to know. Don’t base any investment decisions on it! What you do is your responsibility alone.

Disclosure: I am neither long nor short any pure gold plays. In fact I’ve never gone short anything, and have held no pure gold stocks or precious metals funds for nearly the last 3 years. I do own a very small amount of Teck Cominco, a mining company with a bit of gold exposure.

Basics of the Gordon Equation

March 29, 2006

When I first encountered the Gordon equation (GE), a simple rule used to estimate/describe financial returns, in popular books I was confused and doubtful about various aspects of it. Eventually I hammered away at it in bits of spare time. It seems a lot clearer now — what it assumes and its range of validity and limitations. Anyone interested in the basic derivations I’ve written up, which are essentially trivial and try to be clear and keep the assumptions explicit, can view/download them with these links:

gordoneq.pdf (131 Kb PDF file)

or (85 Kb PostScript file)

From the introduction:

Outline of topics: Section 2 looks at the GE in the setting it’s commonly introduced in: the so-called dividend discount model, where it’s an exact solution. In Section 3 a more general model, with finite time period and including capital growth, is considered and the return is expanded as a small-dividend perturbation series. Section 4 specializes this further with the introduction of two simple price models. The GE emerges in the leading order parts of the expansion along with corrections due to valuation or dividend yield changes. In Section 5 these corrections to the Gordon return are illustrated with numerical examples. Section 6 briefly collects conclusions.

Comments and corrections are welcome.