16 July 2011

Forex Growth Stocks

When a company is at a market top, can it be suggested that growth processes decaying or disintegrating are a causal factor. This is a state of the market, not of companies, where companies are saturated in their valuations.

They move at the whim of money flow, and are pushed up as the market itself makes new peaks.

But what does value saturation mean, does it mean that the company cannot grow further. Well, what does company growth mean. This is a complex much studied problem, but one way to approach it is to look at financial statements.

Looked at over time, in accordance with the methods of Graham, one can say that one is looking for an inherent property of the company thus expressed to grow. That is, one is not asking what is the growth, one is asking a qualitative question, is it growing. If it is one can expect a value differential. What that differential is, depends then on the market itself over time. Over long period of times, it depends on the company.

This is a reason why I pay particular attention to quarter on quarter (year on year): here is a snapshot of the present capacity of the company to grow, when taken with its long term efforts, but more particularly it reflects a coherence of the company with the market.

This suggests that it may work irrespective of the state of the market, except in a state of extreme extended saturation. the company may be fine, but there is nothing for it to cohere with, hence its valuations become very relative.

Such approaches care little about the flow of money. Partly because once this happens as the predominant force, growth does not happen, with the notable exception of tech stocks. This may be to do with the basis of the growth in usually computer engineering which itself is a growth process before maturity. But does money flow saturate the potential to grow. Perhaps, but note the immunity of tech stocks to the saturation after the crisis.

That may be why markets top, because to grow again (that is there is a process to regrow), the money flow has to cascade out, and the companies find their valuations in accordance with their inputs into and from the rest of the economy.

So what is the causality. Possibly something like the causality within forex. That is, high speed flash causality predicated on the process enabled by growth/decay/money flow/growth (but not a symmetrical set, because over time the importance of each element, if they can roughly be described thus, changes). As noted, forex may be the process maker for markets.

As a process maker, forex would be expected to function in a crisis based on money flow cascading out, in fact it would find such a process amenable to it. Hence the survival of forex in the crisis.

Because it is possible that growth as a process ends, though I believe this is unlikely, then forex could stabilize the stock market. However what one wants from the stock market are differentials, either with some dependability in short time frames, with very large positions, or that more accessible compounding over years. Or those stocks which just take off, and return within a year or less, no matter what the position.

In such a case there will always be stocks which grow, but it might be biased more towards short time frames (like forex) but I expect as well with the surprises. The detectability of these surprises is I think related to whether there are dependably tradable regularities in forex.

I would note from the crisis that a forex market which is highly interactive and dependent on the equity market, is highly tradable, more tradable than the more stabilized market before the crisis. However a more tradable market is an even more high risk market.

It would be unlikely that the equity market now would be stable, or that one would want it so. However, in general, one wants a happy medium (more like a convergence to investing markets).

It maybe this is what is developing in financial markets and the economy as a whole and the relations between larger economies (if one looks at money flow into bonds and hence into sovereign funds then investing in stocks and now forex itself). The quality of forex is that one could in theory engineer this happy medium oneself, as a trader.

© 2011 Guy Barry - All Rights Reserved.