Prepping for 2,000

 | Oct 01, 2013 | 3:33 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

aapl

,

amzn

,

FB

,

tsla

,

nflx

What does a 2,000th show mean? As I prep to celebrate "Mad Money's" 2,000th show, it makes me realize how much people really just want to understand this stuff. They really and truly don't.

And I don't blame them. A lot of what I think about when we put the show together comes directly from when I was learning stocks at Goldman Sachs.

The second day I was there, the teacher in our training room class devoted three straight hours to solving for M, the multiple. If we could figure out the earnings estimates for a particular stock, then we could figure out its growth rate -- first relative to its sector and then relative to the market, we could figure out how much we would pay for that earnings stream. Remember, the ultimate equation we want to solve is: M for multiple times E for earnings estimates will equal P, the price a stock should sell for (M x E = P).

At its core, "Mad Money" is a wide-ranging nightly entertainment problem about solving for the M. Consider it a game show about stocks. I have to explain why the M trades for what it is and why the M should go up or go down. Or in rare cases, such as Netflix (NFLX) or Tesla (TSLA) or Amazon (AMZN), we have to, for the moment, throw out the M because the stock isn't bound by algebra. Remember: At any given time, there are stocks that can't be solved and knowing when you have one of those on your hands is ultra-important because they defy security analysis. They are about momentum and popularity and these two P-E enhancers can take a stock beyond the gravitational pull of the spread-sheeted canvas.

Sometimes we solve for M and it is wanting. Can something really be as rotten at Apple (AAPL) as that M indicates? Can something really be as fabulous at Facebook (FB) as the M indicates? It's possible.

Can these biotechs be explained at all by the multiple? No, they are totally driven by the opportunity.

This morning, an analyst at MKM Capital Advisors did some "opportunity" analysis for Netflix that I liked. He said that the stock failed to represent the $75 billion opportunity that could be Netflix's. That's solving for M and MC! -- multiple and market cap.

Tonight's show's no different from the last 2,000. I'll be trying to find the imperfections, trying to explain the games that people play -- Herb Greenberg sure gets that -- and trying to divine what we should and will and are going to pay for earnings.

Sure, we can get sidetracked by all sorts of governmental folderol and by brinksmanship and partisan rancor. We can endlessly discuss when and if the Fed will taper its quantitative easing program. But in the end, the only thing we are really doing is trying to figure out how a stock goes from point A to Point B -- and whether that is right given the company, the earnings, and the bizarre mechanics of the market that you can only figure out if you have been behind the scenes with those who set it.

Columnist Conversations

FCEL closed trading at $2.24, down small with IV30™ up 8.1%. This is a follow up to a story I posted on ...
Lang:
The chart of Delta looks very good and we have seen good option flow recently. This airline stands out among ...
mark mobius on market watch (dow jones) says buying baba is "not a good idea" due to his take on baba's corpor...
Mike Paulenoff's comments on Tarrget (TGT) prove once again how fast investor sentiment, and stock prices, can...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.