I’ve been lost in the Alps. And saved by Google maps
I attended Ideaweek 2019 in St Moritz, Switzerland. A gathering of 30 super-duper-smart investors from all over the world. It was as intellectually stimulating as last year and I was pleased to be invited back. My contribution to the gathering this year was a presentation on market cycles
On the way back down to Zurich I stopped to see a friend in Davos. I decided to memorize the route and then promptly got lost. Google Maps on my 4G phone really saved me on the train routes, road routes and then finally walking to the meeting. St Moritz is so posh that after 4 days there my first thought as I entered Davos was - wow, it looks REALLY dumpy compared to St Moritz.
My usually Google Map adventures are much more prosaic. I use it mostly to navigate the snarly traffic of London. London is such a dense organic build up of roads that one little hiccup means a certain route will take much longer. Avoid the red lines on Google Maps!
Google constantly monitors GPS location data from our phones (yes, yours too) and tracks how fast a phone is moving on a road. Given many, many phones as data points along a route, and some data scrubbing, and Google soon has a view of the speed of traffic on the route. Google has an idea of how fast traffic is usually going along that route.
Based on the volume of phones travelling a road versus expected speed, Google colours the route red, yellow or green.
Of course Google traffic is often wrong or the conditions have changed by the time you get there.
Investing has a similar red - green - yellow indicator for buying companies.
The P/E ratio or Price - to - earnings ratio is probably the most oft quoted measure of whether a company is good travelling companion to add to your portfolio. Price is the share price divided by the earnings per share to create the P/E ratio.
Think of earnings as the base of the companies earning power in the present moment. Price is then how crowded a share is, how much the crowd is willing to pay for the earnings per share. The higher the P/E the more crowded the company. Go too high and the company is “red”, probably not a good long term buy.
This is a simplification, but much like google maps, a good starting point on an investing journey.
I have several writing projects on which means my blogging is a bit threadbare. Bear with me.