Why Great Companies May Not Be Great Stocks

Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

“Obvious prospects for growth in a business do not translate into obvious profits for investors.”

Advertisement.

— Ben Graham

Wall Street is full of potholes and danger signs. There are puzzles, paradoxes and anomalies in the stock market that often defy explanation.

For example, there’s the “growth trap” that Jeremy Siegel, the “Wizard of Wharton,” warns about in his book “Stocks for the Long Run.” Why is it that growth stocks often disappoint investors?

Advertisement.

Peter Lynch, who ran the most successful mutual fund for 15 years (Fidelity Magellan Fund), said that the most frustrating part of his business involved so-called growth stocks — they often didn’t do as well as everyone expected.

Twitter is a good example. It’s a media darling. It makes front page news every day when President Trump issues a line or two from his Twitter account. He has 2 million followers, and other celebrities have similarly big numbers.

And yet the stock price still has not exceeded its high of $63 a share back in 2013, even though five years has passed since then. It has been moving up lately but still has not been a blockbuster stock — despite all the hype.

The problem is that too many investors chase growth stocks and pay too much. Generally, the price to earnings (P/E) ratio for growth stocks is too high! Indeed, the trailing P/E ratio for Twitter is over 2,200! Fast-growing companies often fail to meet high expectations.

Advertisement.

That’s just one example of the puzzlers we are going to discuss and resolve at this year’s Fast Money Summit at FreedomFest, July 11-14, at the Paris Resort in Las Vegas. The multi-day event starts in four weeks and I can’t wait!

Exclusive  ETF Talk: Spotlight on Spot ARK 21Shares Bitcoin ETF

We will have a special session on “Puzzles and Paradoxes in Investing,” and will give you the surprising answers to questions such as:

  1. Why did most shareholders LOSE money in the Magellan Fund, the most successful mutual fund run by Peter Lynch?
  2. Why do stocks that pay rising dividends tend to grow faster, and not the other way around?
  3. Why do stocks with high dividend payout ratios do better than stocks with low payout ratios? Shouldn’t it be the opposite?
  4. Why do publicly traded companies with clever stock symbols (such as LUV, MAIN and TEAM) often do better than stocks with non-memorable symbols?
  5. How it is possible for monkeys throwing darts at stock pages to consistently beat the market index? (Known as Burt Malkiel’s Monkey Paradox).

Financial gurus such as Rob Arnott (“godfather of smart beta”), Pomona Professor of Finance Gary Smith, the Oxford Club’s Alex Green and Marc LichtenfeldMoney Map’s Keith Fitz-Gerald and Asian guru Jim Rogers will be there to discuss and resolve these fascinating puzzles on Wall Street.

Plus, don’t miss the final day of the Fast Money Summit when John Mackey, CEO of Whole Foods Market, will reveal “Investing on the Run: How I Became a Successful Part-Time Investor Running a Full-Time Business.” He will be followed by Steve Forbes on “My Favorite Way to Invest in Free-Market Capitalism,” prior to a private reception with the former presidential candidate. For full details on the Fast Money Summit, click here.

You Nailed It! Federal Judge Rules in Favor of AT&T/Time Warner Merger

Advertisement.

You would think that under President Donald Trump, the Justice Department would have better things to do than to interfere with free enterprise, especially when academic studies have shown the futility and negative impact of antitrust actions.

Exclusive  From Third World to First World: Who Offers the Best Model of State Capitalism?

Yet believe it or not, Trump and the antitrust cops tried to deny the $85 billion merger of AT&T (NYSE:T) and Time Warner (NYSE:TWX) on the flimsy argument that the merger would be uncompetitive. According to the Trump administration, AT&T could use its new market power to raise prices exorbitantly on cable and satellite operators that want to run Time Warner TV programs — such as CNN broadcasts or HBO shows. The government’s lawyers argued that consumers’ cable bills would go up if the merger went through.

Of course, that’s nonsense. As Steve Moore wrote in today’s New York Times, “The absurdity of this argument is that the Justice lawyers seemed to be stuck in the 1980s. In 2018, the number of American households getting their television or video entertainment from traditional cable providers is declining. The very notion of “watching TV” is becoming as obsolete as listening to music on a turntable. My teenage kids and their friends don’t even own TVs. They watch “Game of Thrones” on their computers or smartphones, and one of their favorite “channels” is YouTube. They can choose from thousands of programs at a very low cost. Today, any hotshot with a camera and a Facebook page can be a media company. Is that enough competition for the Justice Department?”

Moore concluded, “These are two American companies merging to gain profitability and global market share. In this way, the merger helps put America first. Someone, please tell the lawyers…” and President Trump?”

Fast Money Summit and FreedomFest Are Just One Month Away!

Exclusive  ETF Talk: Bitcoin Is IBIT of a Trend

It all starts on Wednesday, July 11, at the Paris Resort, Las Vegas, and runs through Saturday, July 14. Over 1,100 people already have signed up for “the world’s largest gathering of free minds.” If you haven’t attended, you are in for a treat. We’ve now posted the entire schedule online at https://www.freedomfest.com/agenda-3/.

Advertisement.

Plus, we just confirmed a new speaker. Yeonmi Park, a North Korean defector who has shared her journey to freedom in a book called “In Order to Live.” She will give us her views on the impact of the historic summit between President Trump and North Korean dictator Kim Jong-un.

Now is the time to sign up. Our discounted room block ends this week! Save $100 on the registration fee by using coupon code EAGLE100. Sign up here at www.freedomfest.com/register-now/ or call toll-free: 1-855-850-3733, ext. 202.

share on:

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE