Go Deep Young Man

My morning began with a thud, being an optimist and all ...

  • Caterpillar Inc. cut its 2015 earnings forecast on Monday, becoming the latest heavyweight in Corporate America to sound alarms on the sluggish global economic recovery. Caterpillar reduced is earnings forecast for 2015 to $12 to $18 per share, from $15 to $20 per share previously.

Then I remembered the upside down pyramid. Ya know, the thing where the news gives you all you need to know (or the hook as I call it) in the first paragraph. The reason journalists write like this is they believe the audience for the news has little desire to read deep, or so they teach in journalism classes. Frankly, I believe it is a marketing technique. Nevertheless, I do have a desire to read deep into an article.

  • The new forecast comes a year after Caterpillar paid $7.6 billion for mining equipment maker Bucyrus International - the largest deal in its history - and bullishly predicted the deal would help boost earnings to as much as $20 per share by 2015.

Caterpillar reduced its earnings forecast (two years into the future mind you) because it believes commodity prices will weaken over the next two years. This then explains the forecast reduction and it makes me feel better.

  • The deceleration will undermine Caterpillar's expansion in the mining sector, where demand for the company's mega trucks is expected to slow.

This makes me feel better because lower commodity prices are better for the global economy, and since Caterpillar did not reduce its forecast below its original one, it makes me think they have baked into the cake all that good stuff happening with infrastructure in China ...

If you go into the doctor and say, "I don't feel good," she can't really do anything for you until she knows more. I feel like that doctor when I receive a question such as the one below.

  • I have been educating myself as best I can to be a better investor. I still only break even. I don't even try to be a trader. I figure that is even harder. Am I wrong here? How can I become above average?

I would like to ask this reader more questions, such as "What do you read?" "Who do you listen to?" "How do you select your investments?" I would ask more, but I can't, oh wait ... I can.

Do you read deeply? Do you go beyond the surface stuff, the stuff at the top of the article? Do you read the financials, the balance sheets, the income statements, the cash flow statements of a potential investment? When you buy, are you checking the short ratio of the stock? Do you have a buying and selling strategy?

Do you track the global macro picture so you know what is going on in the world? Do you use intermarket analysis, as opposed to single market analysis? These two questions go hand-in-hand. The days of fundamentally analyzing a stock in isolation without knowing the world picture are over. No stock is an island, entire unto itself. Sorry Mr. Donne, but I had to say it.

Trade in the day; Invest in your life ...

Trader Ed