are you using the knowledge in the best way?
by ed mendlowitz
77 ways to wow!
trends are ubiquitous. those running a business or not-for-profit organization need to be aware of trends that affect how they will operate and remain viable and sustainable.
more: six kinds of loan covenants | 26 ways to wreck a financial projection | three ways to run a break-even analysis | price not always the top consideration in a sale | when an owner dies without a buy-sell agreement | due diligence is in the details
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the language of business is spoken with numbers. numbers themselves are not always important, but the trends that they represent are always important. it is essential for business owners and managers to be aware of and sensitive to changes indicating trends. usually, the trends are not huge waves but slight drifts away from what you are doing and toward a new paradigm.
can the knowledge of trends help us? possibly for working people, entrepreneurs, new venture investors, inventors, government leaders, educators, managers of not-for-profit organizations and others. an involved person who focuses on the numbers presented can usually detect slight variations from the norm over a short period of time. ignoring or passing over what they see can set the stage for a later decline in business or the loss of upward momentum. the absence of the knowledge and focus will remove a valuable alert tool that is essential for sound management and effective stewardship.
how expectations materialize and whether they are reasonable or off-target are conjecture, but knowledge about the company, its industry, innovation and trends can help you to make an informed decision.
awareness of incipient trends is necessary, and various reports are a way to help you react to them.
trend awareness
in 2014, articles in the wall street journal about ge and berkshire hathaway indicated a trend that may or may not have been important. what the trend was, was not the issue. the point i want to make is that opportunities for awareness and sensitivity to changes and trends are constantly in front of us.
there was an apparent trend. it was mentioned that ge’s revenues were now 40 percent from energy, and berkshire had 40 percent of its revenues from utilities. both companies were cutting edge and they had invested heavily in “boring” non-tech, non-health care industries. something was up. was a trend getting started or had it matured latently?
can the knowledge of trends help us? possibly for working people, entrepreneurs, new venture investors, inventors, government leaders, educators, managers of not-for-profit organizations and others. but i am not so sure it helps in making investments in the stock market.
we don’t “buy stocks.” we invest in companies we hope will grow profitably. current profits are important but so are expected growth, probable profits and dividend potential.
reading news stories and then thinking about what you read is one way. additional elements of investing are to have the time to devote to this activity, the knowledge in myriad essential disciplines, the skill to construct a portfolio that will have some balance and provide reasonable risk, and the ability to apply everything to making a better decision of what and when to buy, and when to sell, rebalance or prune your portfolio.
in terms of investing, i don’t believe individual investors can get enough of the right information, if it exists, and then be able to properly analyze it. i also believe that once five different stocks are invested in, the investor has created a fund that will perform substantially the same as the group they were selected from. for that reason, i recommend mutual funds, with the mutual funds of my choice being the major index funds.
awareness of incipient trends is necessary for most things you will do, but for the average stock market investor i do not believe it will lead toward great wealth or above average returns.
(note that today’s ge is completely different than the september 2014 ge. this is an example of importance of looking at trends, but perhaps they need to be the right trends.)
tricky trends
graphs and numbers do not always tell the whole story or present the entire picture. however, the charts i use here serve my purposes very well, because they reflect the long-term trends i want to illustrate to my financial planning clients.
discussion of nasdaq index
(highlighted above)
the index began 2000 at 4069. on march 10, 2000, the index closed at its all-time high to that point of 5408. that is an increase of 32.9 percent in less than 2½ months. it then plummeted to end 2000 at 2471. its downward trend continued to a low point of 1108 on october 10, 2002, but closed that year at 1336. the trends are there but because of the measurement dates that i used, which were the last day of each year, the full extent of the major swings and changes is not indicated.
looking at the above graph it shows a high point on december 31, 1999, of 4069 while the high point was two and a half months later. using the high of 5408 as the benchmark, it took until early 2017 for that index to get back to where it was in 2000. since then, it kept going up, until it didn’t at the end of 2018.
the same thing happened in 2009 where these indexes hit low points in march, but those are also not reflected in the charts. as an fyi, the dow jones industrial average on march 9, 2009, hit its low point of 6509 and from there it catapulted upward. neither the 2008 nor 2009 ending amounts come close to that 6509 amount.
takeaway: make sure you understand fully and that the right beginning points and appropriate intervals are used in any data you review.
additional comment: it appears from the above 22-year record that the growth in three of the four indexes was quite similar. only the nasdaq was much different. also, all these indexes paid cash dividends during this entire period that are not reflected in the index amounts, making the returns greater than shown above, or in the charts posted on january 8, 2019.