Something the big trading companies understand, and the billionaires too, is that there are stocks whose price is based on hype, and stocks whose price is based on reality. Hype stocks make money till the market drops them back in the toilet. Sometimes this takes a while, which explains certain unprofitable tech companies. There's even a number for this, called the P/E Ratio, which is Price to Earnings. Most billionaires don't invest in stocks with a P/E above 14. Not if they want to stay billionaires. Billionaires are notoriously practical and frugal, for good reason.
There are many companies with millions of shares of stock but earnings are barely in the black. They seem to make their money by selling stocks while operating something vaguely profitable, or should be, but they're not doing that well and the competition is catching up. Tesla is an example of this. Tesla's primary business seems to be selling dreams of electric cars. There are a few around, but there are a lot more Nissan Leafs and millions of Priuses. The Tesla is just too expensive. It has been stated by market analysts examining the company financial records that most of Tesla's income is from selling CAFE waivers to the Big 3, allowing them to meet the CAFE (Corporate Average Fuel Economy) law requirements in a complex scheme of govt buybacks and exchanges. It is not simple. It should be simple. Due to the falling price of oil, a temporary situation, owners of Tesla stock are selling it off. Since the announcement of a $2 billion dollar factory to be constructed in Reno that will process raw lithium brines from a mine in Nevada and turn them into complete battery packs for cars, and then sell those packs to China who has strong market reasons to want them for their huge car buying public, rather than here. I wonder how many batteries you have to make to justify $2 billion investment, plus wages for all the workers? Tesla announced last week that they won't make a profit till 2020. The stock is the lowest its been in years.
Its CEO seems to be all about staying in the news, and some psychologists think he's got an abnormal personality, possibly Bipolar or something more exotic that craves attention. The Hyperloop is what I call seriously impractical, delicate, and a terrible idea. You want a huge vacuum vessel filled with very fast projectiles full of people during a time of Muslim terrorists? Really.
What I see in his company is that his cars cost as much as much nicer luxury cars which weigh considerably less and can fill their tanks easily at things called gas stations so they can go on trips, which people with luxury cars do. The current Tesla is no better equipped than an Accord or Camry, but costs 2-3x as much and goes half as far. How is this competing with a Leaf? I think these are the reasons the stock is down. The oil price drop just made people think about electric cars rationally. When the price of oil goes back up, the stock might not follow. Time will tell. You don't get rich investing by believing in your hopes and dreams. Legalizing biodiesel powered cars, waiting to come here from Subaru and Audi and BMW and Honda is the easy answer, and they avoid the battery trap of excessive weight, poor life, long recharge times, explosions, and durability problems. They already have models ready for the USA. Right now our only choice is VW and those monster Cummins diesels. Ford has some brilliant turbo diesels ready for small passenger cars, and they get Prius mileage.
When the stock market goes up, people make money. When the market goes down, stocks go on sale, and smart investors buy the ones which are artificially and temporarily depressed by the overall crash. So these days with big drops? Stocks are on sale. This is why the market keeps having big up days too. Overall, having the market go way up and way down and way up again is called Volatility. Volatility is best for those with steady nerve, and solid understanding of the stocks they own, or trust in the fund managers to know that. Usually, mutual funds (a bunch of stocks with a manager) do well because the people running them do the work to understand things. They understand the news and vote the stocks and don't accept slimeball CEOs and con men in companies demanding golden parachutes for a few months or a year's work while wrecking a company with their egos. And there's a lot of companies like that. Some of them are so dumb the employees don't quit and people don't sell the stock despite the company being obviously out of control and run by a cult of personality. There's a really famous Fruit Computing company known for this. Its not the only one with this problem, either. One that rhymes with "Damn Son" is famously brutal to its staff. I refer to this problem in investing as "Rock Star CEOs" and I don't invest in companies which have them. When CEOs are making big grins of assurance to trust them, that's when things are about to fail. Egos go off the rails and the company implodes, which is bad for stock values. Companies which are run well don't have time to shoot their mouths off on camera. Failure is when the bluster starts getting loud.
Another rule by billionaire investors is "don't invest in anything that's too complicated to explain where the money is coming from". This is why the billionaires stayed well away from Bernie Madoff and his Ponzi scheme that defrauded a lot of greedy idiots and put him into country club jail for his retirement years, playing tennis. Can't see where the profit comes from? Don't invest. There's a LOT of con artists in the world, and most of them wear suits and flash charming smiles and sound really confident. They're exactly the sort that get hired in sales jobs because they're highly effective liars. These sorts of people are not to be trusted with your retirement fund.
Finally, don't own shares in companies that do business with villains. Villains like Vladimir Putin, who killed thousands of people and tortured more as the former head of the KGB, is the tyrant in charge of Russia, and wants to expand Russia back into an Empire so is making an example of the Ukraine to scare the rest of the former USSR into doing Russia's bidding, giving them stuff free, and return to being a bunch of puppet states that will be sacrificed and enslaved like all good peasants. This is a bad business plan. At present, due to the oil crash destroying the primary source of Russian wealth, oil exports, Google stock is worth more than the entire Russian economy. Yes, Google is a big company composed mostly of data servers, but it doesn't have tanks, planes, ships (yet) or a nuclear weapons arsenal. It is highly likely that Putin will be assassinated (eventually), probably by the Russian Oligarchs (billionaires) who have lost the most due to his ego. This is what assassination is for, after all. You shoot mad dogs. Or call the animal control to do it for you anyway. So investing in Russia or Iran or Nigeria is a really risky thing to do and if you want to retire, you can't throw away your investments by putting them into businesses who are involved with these places, and these villains.
For a prior example consider the story of Standard Oil. Standard Oil was on the wrong side of Mexico's revolution and it was seized by the communist revolutionaries there. This had the negative affect of threatening ALL physical investment in Mexico and trapped it in a 19th Century economy and resulted in its able-bodied population going to the USA to work its fields rather than stay home and invest in basic stuff like hospitals, roads, and sewage treatment plants, all of which it desperately needs. Mexico has a terrible reputation for corruption internationally, and its presidents routinely flee the country at the end of their term, usually with a fair bit of the treasury. The citizens of Mexico shrug and say "that's the way things are". This makes it a bad investment. Even the official change to the constitution last year that will allow foreign investment in oil has NOT resulted in a rush to get into the place. After all, they stole billions from Standard Oil and now the reservoirs are dry after funding the wealth of their most corrupt? Who wants to play in that sandbox? And what's to stop them doing the same thing again? Nothing.
Retail numbers are terrible because people are poor. And its after Christmas so people bought stuff and can't buy more till they've got money again. Its debt payment time, not shopping time. This is obvious. The only retail that's doing well, beyond grocery stores, is suppliers of repair parts for homes and cars, and dollar stores, which sell things for a buck so women who can't resist "shopping" for their hobby can do it really inexpensively and still feel like they're exercising this particular muscle.
It would be useful for people who are looking at how their 401K is invested consider the above factors. They can probably protect themselves from their retirement fund evaporating like it did when they were heavily invested in Tech stocks during the Dot.Com boom, or that big overpriced house they bought that's worth half what it used to be. You need something to live on when you can't work anymore. If you live in a trailer, or rent a tiny apartment and spend your time away from its noise and stench, you aren't going to be as happy, but you lose a lot of choices when your retirement income is small. Do your best, think things through rationally, and remember that when you're younger, you can take bigger risks, but when you're older you can't. Time marches on. Someday you'll be old. Probably. Think hard about your investments and if those companies are full of p00p or stable with actual products that make money. If your fund is being mismanaged, you'll see the stocks stop growing in value, and your fund going nowhere. Sometimes that's because the economy is crap, and sometimes its because the manager has gotten conned and now the piper must be paid. So pay attention and even if you won't be a billionaire you might be able to avoid getting trapped in a slum someday.
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