WikiPricing
I read in the papers that WikiLeaks founder Julian Assange was arrested in the UK under charges of sex crimes. It is a very suspicious but an obvious way for the mean kids to shut up the little tattletale.
For those still in a Wii Tennis-induced coma, WikiLeaks is the highly controversial website that publishes explosive stories submitted by anonymous whistleblowers. The WikiLeaks staff study, check and agree with one another which leak is authentic enough to be published on the site, from what goes down in Guantanamo to Sarah Palin’s inbox to a US military chopper studding people aimlessly with bullets … it’s all there. A bulletin board for silenced journalists encouraged to just keep on looking for weapons of mass destruction. What’s a nation with a massive PR problem to do?
Sex. It pays for every crime.
It seems the 39-year-old Australian Assange (his name even sounds like it belongs in the movies) met two women in Sweden over the summer, which led to a “dispute over consensual but unprotected sex.” And this is how it went down for the world’s biggest whistleblower. Of course, we all know that even as big companies like PayPal, Amazon, Visa and MasterCard have withdrawn their services, it is not going to end there.
The struggle between national security and freedom of speech is the fodder for blockbuster movies. You’ve got to have balls to take on the US government. You need to look like Harrison Ford, talk like Russell Crowe and kick like Angelina Jolie to make it happen. For commercially oriented folks like me, we prefer to take center stage with deals, and watch from the sidelines when taking on sovereign interests. I’m not sure social media will have any success in protecting Assange from prosecution.
The cool kids have him by Interpol.
How is this all relevant to our lives, an archipelago in a land so far away? Wikis have actually changed how we see information.
A wiki is defined as a “web application that allows anyone visiting a website to edit content on it.” Just as Facebook revolutionized social interaction online, the wiki changed how people exchanged and canonize information. The wiki is for research, as Google is for search. Wikipedia operates on the theory of participative truth. Through the participation of many educated and responsible users, Wikipedia becomes a reference point and publishing mechanism for verified and factual information. It is perceived truth or reality that becomes the standard. In other words, the people have spoken. We are either collectively right or collectively wrong, but the notion of a collective understanding forms the basis of our reflection.
Where do I stand when it comes to the wiki?
I realized that the wiki and the market work on similar principles. The market theory of efficient pricing means that the price arrived at for a particular stock as a result of many buyers and many sellers represents its proper price or value at the time based on all the available information. It is a collective and conscious price or value. In a perfect world, share prices of all companies across all markets would reflect the correct value of each of those companies at that point in time. The prices would then change based on the availability of new information.
In reality, people drive markets, and people are far from perfect. Markets then tend to react emotionally or irrationally. This creates inefficient markets, a situation where the price of a current stock is not reflective of its true value. These inefficiencies create opportunities for traders and investors to buy an undervalued stock until the collective mass of the market realizes the imperfect pricing, at which time they swoop in to buy the shares and drive the price up to or beyond the point of its true value. This creates selling pressure until such a point that the price corrects to or below its true value. The process or cycle repeats itself.
It is the classic struggle for perfection and living with the tension of an imperfect reality.
When seeking Alpha (Alpha is defined as excess returns, or above-market returns) I particularly like dividend-paying companies. These high-yielding stocks deliver a yield higher than government securities, yet allow investors to enjoy significant upside and appreciation based on the ability of the company to achieve future earnings. Most laymen investors are fixated on P/E and tsismis as the criteria for deciding whether or not they buy a stock.
A very simple and straightforward method of determining which company is the best place to invest your money can revolve around several data points that are easy enough to track:
• Market Capitalization: P1 billion and above
• Price to Earnings Ratio: 15x and below
• Dividend Yield (historical): At least three percent.
Setting a market capitalization minimum sets the standard. Following the underbelly of the “too big to fail” mentality, the belief here is that bigger companies are safer and less risky than small ones.
Setting a maximum threshold for P/E ratios means you eliminate companies that are priced “out of market” or too expensively.
Looking at the historical dividend yield (previous year, average of the last three to five years) is a good reference point for predicting future dividend payout and yields.
By comparing companies to these criteria, the easy and simple logic is the company with the highest dividend yield but lowest P/E ratio is probably the best place to put your money relative to the other companies in that basket. It is important to dig deeper and understand the company’s financials, but for people who like cursory type analysis, this is a simple and straightforward approach.
Dividends also signify that the company takes its responsibility to shareholders seriously, and rewards stakeholders by up-streaming profits. More likely than not, companies that declare dividends on a regular basis are safer havens for investment.
I hope this helps you seek your alpha. If you catch an undervalued dividend play out there, you may just buy it in time before the wikis come in and correct the pricing. Enjoy the ride!
