EUCOM Economic Analysis - Part I

[Surferbeetle]

Maybe we could start a bit more detailed European discussion about it. In general I would say that Europe-wide the utilities are trading for low prices. The big question is of course if the those prices are low enough under their long-term value to give you a good margin of security.

Good post, thanks for the links, and I am willing to discuss further. Will have to do some additional reading and thinking and will get back to you in a week or so.

In the meantime, here is a story that I am mulling over:

U.S. Rethinks Security As Mideast Oil Imports Drop, by Tom Gjelten, Nov 14, 2012, NPR, http://www.npr.org/2012/11/13/165052...op?ft=1&f=1001

The sharply reduced dependence on Persian Gulf oil is raising questions about whether the Carter Doctrine should still apply.

If protecting the Persian Gulf oil supply doesn't matter so much anymore, would that justify some U.S. disengagement from the Middle East?

Persian Gulf oil will remain important, and somebody will need to secure those Gulf shipping lanes. China, poised to become the No. 1 buyer of Gulf oil, is now benefiting from the huge U.S. security presence in the region. Perhaps the United States could turn over security responsibilities in the Persian Gulf to China.

"Strategically, that's not something we really want to do," says Herberg. "But in an oil sense they are now the prime beneficiary of this. [They are a] free rider on these free sea lanes the U.S. keeps open. So how do you manage that conflict?"

"It's insane that we have the 5th Fleet of the U.S. Navy tied up there to protect oil that ends up in China and Europe," T. Boone Pickens, the energy tycoon, was quoted as saying recently in Parade magazine.

[Fuchs]

I'm always amazed that people think public info would be good for investing.
Whatever info is public IS PUBLIC. How is this supposed to offer an advantage over the others?

[Surferbeetle]

@Fuchs

One doesn't have to cheat in order to win.

There is gobs of public info out there and it is my sense that not all of that info gets to the market instantaneously nor efficiently (flying in the face of some of the tenants of the efficient market hypothesis ).

Firn has rightly recommended Benjamin Graham's book the Intelligent Investor as worth a read. I second his recommendation...Mr. Market sometimes drops by with some craaazzzyyy pricing on stocks...enough value that one can later sell those same stocks and cover one's beer and pretzels expenses for the year.

[Fuchs]

Surferbeetle, the people who buy or sell shares (and stuff) define the market price, not the ones who hold it.
The people who buy or sell can also be expected to have recently paid attention to news more than the holders.

I understand others people who read financial news or listen to them on TV believe they have info, but this info is basically already priced in. Whatever unsystematic distortion happens between info and conclusion tends to affect both you and all the others (buyers, sellers) on average. The market price is already aggregated including the info you get from reading or watching public info.
To believe that you get an advantage from such sources is about the same as to believe that you can process the info better than the one you're trading with. There's little reason to believe this to be systematically true.

Professionals who spend 60 hrs/week with consuming, discussing and digesting publicly and non-publicly available information on a narrow segment of the market get rich if they're correct more than 51% of the time. It's in my opinion delusional to believe you can beat your trading partner this way.

Or in another way: It's like believing that you can make profit in the betting market for sports because you are watching sports matches.



Focus on avoiding systemic risks and on keeping fees small instead and enjoy life by not looking at your shares' development or useless financial "news" more than monthly or quarterly.
A more thorough analysis makes only sense if you've got enough capital to diversify AND justify the expenses of a thorough analysis of a specific company, preferably a Ltd.

[Surferbeetle]

Fuchs,

Appreciate the concern and words of wisdom.

Savings/investing work is limited to low cost index funds only, and I am more on the cash side of late due to my concerns with our geopolitical situation. For fun, relaxation, and intellectual exercise I have about ten stocks which I follow and trade in from time to time. My limit is 'beer & pretzels' money only... if it all goes bad I can walk away without a glance back at what I placed on the table. E.ON is not one of these stocks since I have little or no knowledge regarding Euro utilities.

Agree with you regarding the value of much of what passes for for 'news'.

Regarding the efficient market hypothesis, what you state tracks with what I was taught in school and what I read in many of my various text & reference books. I am a bit of a heretic on this topic however as theory does not always appear to track with what I experience in the field. Let's just say that asymmetry exists....

[Fuchs]

Asymmetry or not; the problem is you have no systemic reason why you should find yourself on the good end of asymmetry, rather than on the bad end.

[Surferbeetle]

The world is a very big place, and we don't necessarily understand what we think we know. Along those lines:

What's the better way to invest—little by little, or all at once?, October 09, 2012, Vanguard, https://personal.vanguard.com/us/ins...eraging-102012

A Vanguard research paper issued in July 2012 found that the lump-sum approach has historically outperformed the dollar-cost method in the United States, United Kingdom, and Australia. But a close look at the study's underlying assumptions reinforces the idea that there are compelling arguments for both investing methods.