The Hidden Trading Secrets of Wall Street (Part 2 of 7)

If you have ever traded a stock you know that feeling of watching the price sinking when there seems to be no justifiable reason for the downward motion... why?

For this second installment of the 7 Trading Secrets you are going to learn a deep dark secret that everyone on Wall Street knows but no one wants to admit. 

How do we determine the real value of a stock?

It's not what your financial advisors told you, and it's certainly not what they tell you on TV. But in this video you are going to discover what may be one of the most valuable trading secrets you will ever discover! 

Here's What You Will Discover:

  • How to know the REAL VALUE of a stock
  • How much critical numbers really matter
  • How to always know what a stock is worth right now

VIDEO TRANSCRIPT (Click to expand)


Hey and welcome back to the seven trading secrets. I am Jeremy Whaley, and it's great to have you joining me for what is day number two or session number two, depending on how you are receiving these videos so that you can walk through these seven secrets. Now, if you're anything like me, whenever I first started trading, I knew nothing about the stock market. I mean, I kind of knew a little bit. Somebody had taught me a little bit and I learned enough about, you know, placing a trade to actually go execute the trade, but I didn't have any clue how to pick a company to actually trade. And so at that time I was a college student. I was a senior in college. I was a musician and I had all this music equipment that I loved. I figured, Hey, that's a great place to invest.

Right? And so there was a company that made audio mixers where we would use their equipment to mix audio like at a, at a concert or something. And, um, it was a really great company. I had a lot of their equipment and I figured, well, Hey, if I'm buying their stuff, other people are buying it too. That would be a great place to buy their stock. Well, it turns out they were a publicly traded company. And so I went in and I bought my first hundred shares of a company in that particular company. Now, at that time, that stock was trading for $4 and 85 cents a share. And I knew nothing about fair values. I knew nothing about anything. I just knew. I liked the company. And over the summer I held that stock for about three months. And over the summer, sometimes it would get up to $5 and then it would go down to four 80.

And sometimes at one point it got up to $5 and 5 cents. And eventually after about three months, I figured this isn't going anywhere. I'm not going to make any money with this stock. And I finally sold it, but that's how most people end up picking the stocks that they trade. They look for companies that they know about companies that they like companies that they personally use. And they think, well, if I'm a customer of this company, then obviously it must be a good company, but unfortunately that's not how we pick a stock. In fact, the first step in picking a stock is to do analysis, to do some analysis of that trade and where we think that stock is going to be moving over time. And there's only three answers. It could be going up. It could be going down or it could be going sideways as was the case for my very first trade that I placed.

All right. So my secret number two, something that I learned the hard way is whenever you're doing analysis for a trade, you don't want to guess we need to work with known data. We don't want to guess we want to work with known data. And so to answer this issue, you know, you say, well, what should the stock be trading for? When should it be a good, good buy? We have to answer the question of what is the actual value of the stock. This is the age old question, right? Somebody buys the stock and they think, or they look at a stock, they're analyzing it. And they're saying, well, it's trading at, for example, $10 today, but I think it should be trading at $15 tomorrow. How do we know, how do we know what the value of a stock is? It's a really hard question to answer, right?

Not really. Here's the, the appropriate answer should be the value of the stock is whatever someone's willing to pay for it, whatever someone's willing to pay for it. So if people are willing to pay $10 a share for it, that's the value of the stock. If people are willing to pay a hundred dollars a share for it, that's the value of the stock at that moment. Now it may or may not match up with the book values of the company, but it really doesn't matter if it's something that someone's willing to pay. Then that is the present value of the stock, regardless of what someone's numbers might suggest. And that brings us to two different style types of analysis that people get into. And that is fundamental information, fundamental data versus technical data. Now, this is a war in the world of stock traders. There's a lot of people that re argue really, really hard that you should look at all the fundamental data.

And whenever you have all this information, then that's what you should use to base the purchase of your stock. We call that value vesting, by the way, somebody is looking for the value of a company and they say, well, it's trading below its estimated value. So we're going to buy it. And one day it's going to come up to its fair value. The other school of thought is what we call technical analysis. So let's just look at both fundamental analysis and technical data. And we'll look at both of these together or side by side, and I'll show you which one I think is far inferior as opposed to the ones that are superior. And it comes down to known data versus unknown data. Okay? So let's start with fundamental data. Fundamental data is all of the numbers about a company. For example, it's going to be your earnings reports.

It's your sales, it's the quote unquote book value or the debt ratio, all that kind of information that's related to the company. And what happens is if you're a fundamental analyst you go in and you look at all this information, and then based on that information, you come up with an estimate of the future price of the stock. Now there's the key word right there. It's an estimate. It's an estimate. We have no idea what the future price is going to be. And the truth is it doesn't matter what style of analysis you're doing. You have no idea what the future price is going to be. But when you're a fundamental analyst, we're looking at the information that is the book value of the stock. And we say, well, based on this information, this is what the future value should be. And we've already established what is the value of a stock to whatever someone's willing to pay for it.

And so a lot of fundamental traders got into big trouble in 1999 when I was trading whenever I started trading. Yeah. And, um, you know, we were in the middle of the day bubble at that time. And so you had companies that were trading for 10 times, 20 times, a hundred times, 200 times their book value. And in some cases you had companies that were trading for two and $300 a share. They had never even made a profit in some, some of those companies that even have a profit, really, this was bubble, right? And so you had a lot of traders that looked at that and there was like, you know, these companies are way over valued. We should short these companies cause they're going to go down in value. And then the stocks just kept going higher and higher. Are you in a higher because someone was willing to pay more.

And so here's the problem with fundamental data. Fundamental data might sound great in theory, it sounds great, but that's it, it's just a theory. It's just a theory. How can the value of a company project, what someone's willing to pay for it? It can't the book value, the fundamental value, the fundamental data of a company has no way to project what someone's going to be willing to pay for it because beauty is in the eye of the beholder, as they like to say. And in the world of the stock market, the value is in the eye of the trader. And so let's look at technical data or technical analysis. Technical analysis is going to look at the historical price of the stock. It's going to look at the price action that the stock has actually traded at over time, where it goes up, which price point it goes down.

And this is really more accurate because it's a real-time accounting of what has actually occurred. It's taking the information and is using that information of what has actually happened to project based on historical events, historical price action. In other words, it's taking actual data that has actually happened with real buyers, real people who are buying and selling the stock. And it says this, you know, these buyers like to buy at a hundred dollars. These buyers like to sell an a hundred dollars, whatever the price points are. And then we use that information to build a framework around the price points that the stock tends to trade. And then we can use that to project the future buying and selling prices where people are going to be interested in the stock. So in other words, we're basing it. On fact, it's not a theory. It's not a hypothetical of where do we think the stock should trade.

We're doing it based on where does this stock tend to trade, regardless of what the book value says, regardless of what the fundamental information says, just simply the people who are actually trading the stock, who are actually buying and selling it, where do they trade at? What price point do they traded at? And on this chart right here, which we're not going to get into a lot of charts, but on this chart, you can really see on this particular trade, we knew you can see shaded there in the green. This was an actual trade that we set up where we had projected the stock was going to go up to, uh, just slightly less than where it actually went to. We projected, it goes up to about $170 and 36 cents. And of course it ended up just a little bit higher than that before it turned around and started to come back down again.

Now, how can we make those kinds of projections? And the answer is we made the projections not on what the book value is, but one on the actual trading behavior, the actual trading behavior that people who've been trading this stock. And so here's my secret. This was something that I had to learn early on. And I learned it the hard way because I went into a lot of trades. I mean, I blew out two trading accounts before I ever learned this secret. And the secret is this don't guess don't guess on what the value of the stock should be work with known data. We can go into fundamental data and we can research that. And we can research that until we're blue in the face phase, we can run all the calculations and we can finally say, this is what I think the stock should be worth, but who's to say your formula was right.

Who's to say that, you know, the rest of the market, the millions of people that are trading who's to say that they're going to agree on your future price projection. And we see this over and over and over again, people will see a new stock that's trading, you know, it's, it's going up really, really fast. And people say, well, you know, it's a rocket, where's it going to stop? And people come up and they're like, well, the estimate is a thousand dollars a share. Well, it turns out, you know, it traded $1,100 a share the day before. So those estimates were, there were really late to the party. This happens all the time. And these so-called professionals, they put out these target prices, these estimates of what the stock should be worth. And most of the time, the stock either blows right past it going higher or right past it going lower.

It has no semblance of an idea of what these analysts think the price should be worth. And that's because they're working on a theory, they're working on a theory based on all these numbers, what should the price be worth? And what we're going to do is whenever I look at the stock, we look at the actual known data, the price point that people have actually paid in the PA pass and where they feel like the value should be. And based on that information, we can project where the price should be going. Okay. This is a really, really important secret. In fact, it's such an important secret that if everybody who traded the market learned this, it would probably break wall street. I mean like, seriously, this is one of those secrets that will totally set you apart from the average everyday trader there's over a hundred million people trading the stock market in the United States. And I'm going to guess that maybe, maybe 5% of them know this particular secret right here. So get really, really good at this. And you'll be able to pick much better trades. Okay. That's going to conclude us for today for secret number two. Hope you've really enjoyed it. You might want to review some stuff in here, but get ready because in the next secret, I'm going to absolutely show you how you can make trading so much simpler.

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