What's Happening?!

I've gotten a few texts and emails from readers asking for my take on the present market turmoil. If you listen to the pundits on cable channels, recent market falls are caused by everything from the fear of the Ebola virus to worries about global growth to worries about the Fed tightening.

The fact is, however, that while all of these issues are factored into market participants' thinking, it is ridiculous to apply some causal connection between these (or any factors) and the market falling.

What's really going on in the markets? It's falling a bit and there doesn't have to be a reason. One of the research articles that sparked my love of the markets was a paper by Larry Summers that investigated the attribution of causal connections to the 50 largest stock market movements. In the majority of cases, he found no evidence of any connection between an identifiable "external" shock and a market movement.

Cheap Chips

Those of you who enjoyed reading my analyses pre-The Intelligent Option Investor--when I was heading up the semiconductor analysis team at Morningstar--will know how much I like the business model and management of Microchip Technology (MCHP), an Arizona firm that specializes in embedded control chips.

Microchip recently offered a lowered revenue guidance and suggested that their industry was heading into a slump. The stock fell over 12% after the announcement.

The announcement is interesting for several reasons, and the firm is now back on my radar screen...

IOI's Analysis of Market Outlook for GE Using a BSM Cone

In this video, I show how to use the online tools at IOITools.com to assess what the market expects as a future stock price range for General Electric. We then compare the market's price range for GE to the valuation range we calculated in an earlier video to assess the possibility of making an investment.

This method is introduced in The Intelligent Option Investor: Applying Value Investing to the World of Options (2014, McGraw-Hill) and in the accompanying online appendices available at IntelligentOptionInvestor.com.

See also the replay of the YCharts conference call on GE as well as the YCharts Focus Report on GE, which you can find on ycharts.com/resources.

A transcript of the video is below.

IOI Leverage Calculations

One of the parts of The Intelligent Option Investor about which I am most proud and happy is the new method of measuring and managing leverage that I develop in the book.

This blog posting shows my current thinking about what I term Loss Leverage and Gain Leverage in the book and shows why a mixed allocation of stocks and options can be such a sensible, powerful asymmetric investment strategy.