What rational explanation can there be for the market to go up by almost 3% on a single day when the big news was a job loss of 598,000, the largest loss reported in several decades? The answer is that there isn't any rational explanation. Isaac Newton once said "I can calculate the motions of heavenly bodies, but not the madness of people." The market is emotional, not rational.
Once again, the old Wall Street adage "Buy on the rumor and sell on the news" seemed to be at work. The rumor was the possibility of the stimulus package being passed. Will the market turn around and move lower once the package becomes a reality? Investors carried out the first part of the adage, and it will be interesting to see if they follow through with the second part.
The adage has its roots from the 1950's when a lot of merger activity was taking place. A study showed that in the few months before a merger was announced (but was rumored), the stock outperformed the market in general, but once the merger was announced, the stock underperformed the market. The best strategy was to buy when the rumor started circulating, and then sell as soon as the news became public.
I could not find any studies that supported the adage since the 50's study, but it has persisted nevertheless. I think it is just something for analysts to pull out when there is absolutely no rational explanation they can think of to explain why the market did something like what it did on Friday. It really doesn't make any rational sense. Once again, we are reminded that the market is primarily an emotional beast rather than a rational thinking intellectually evolved animal.
Monday, February 9, 2009
Thursday, February 5, 2009
Finger Length and Financial Success
Look at your hand. Is your ring finger (the one next to your pinky) longer than your index finger? If so, congratulations! If not... well, don't read any further.
Researchers from the University of Cambridge who studied male stock traders in London found that those with longer ring fingers tend to make more money (about five times more) than their counterparts with shorter ring fingers.
What does finger length have to do with financial success in the markets?
Here's one possible explanation offered by the authors of the study: The length of those two fingers is determined during fetal development. And a longer ring finger indicates increased exposure to the male hormone androgen. Androgen has been linked to increased confidence, persistence, heightened vigilance, and quick reaction times.
This "cutting-edge" research doesn't tell us however, what effect education, background, experience, and hard work might have on an individual's success as a trader. Because, you know, that would be silly.
(Source: Associated Press)
Researchers from the University of Cambridge who studied male stock traders in London found that those with longer ring fingers tend to make more money (about five times more) than their counterparts with shorter ring fingers.
What does finger length have to do with financial success in the markets?
Here's one possible explanation offered by the authors of the study: The length of those two fingers is determined during fetal development. And a longer ring finger indicates increased exposure to the male hormone androgen. Androgen has been linked to increased confidence, persistence, heightened vigilance, and quick reaction times.
This "cutting-edge" research doesn't tell us however, what effect education, background, experience, and hard work might have on an individual's success as a trader. Because, you know, that would be silly.
(Source: Associated Press)
Friday, January 30, 2009
Hate to say I told you so, but …
by Mike Larson on January 29, 2009
The Treasury bond market continues to collapse under its own weight. The long bond futures are down ANOTHER 28/32 as I write, extending recent losses to around 15 points in price. In fact, this month is shaping up to be the worst month for the Treasury market going all the way back to April 2004, according to Bloomberg.
Not only did the Fed fail to live up to expectations that it would immediately (or very shortly) start buying Treasuries, but demand for the latest flood of 5-year notes also came in weak. The Treasury sold $30 billion of 5s today at a yield of 1.82%, above pre-auction talk of 1.8%. The bid-to-cover ratio also came in weak at 1.98 (the lowest since September and before that, May). Indirect bidding was the only bright spot, with 34.9% of the notes sold going to that group (which includes foreign buyers).
I warned that Treasures were vulnerable and that the market was taking on bubble-like characteristics weeks ago. So I hope you dodged this bullet.
The Treasury bond market continues to collapse under its own weight. The long bond futures are down ANOTHER 28/32 as I write, extending recent losses to around 15 points in price. In fact, this month is shaping up to be the worst month for the Treasury market going all the way back to April 2004, according to Bloomberg.
Not only did the Fed fail to live up to expectations that it would immediately (or very shortly) start buying Treasuries, but demand for the latest flood of 5-year notes also came in weak. The Treasury sold $30 billion of 5s today at a yield of 1.82%, above pre-auction talk of 1.8%. The bid-to-cover ratio also came in weak at 1.98 (the lowest since September and before that, May). Indirect bidding was the only bright spot, with 34.9% of the notes sold going to that group (which includes foreign buyers).
I warned that Treasures were vulnerable and that the market was taking on bubble-like characteristics weeks ago. So I hope you dodged this bullet.
Tuesday, January 27, 2009
One Approach to Investing
A wise teacher once told me, "Common horse sense is not so common." And investors seem to overlook common sense now and again.
Let's say we stop the presses right now. We disconnect the Internet and Satellite TV, and push all of the papers and magazines on our desks into a cardboard box.
We sit at our desks in complete silence.
Without referring to any notes, commentators, or anything else - try to rely on everything you've learned up to this point in your life.
Now ask yourself, "Which sectors have the greatest upside potential over the next 2 to 5 years?"
Home healthcare? The Internet? Defense? E-commerce? Natural resources? Online gaming? Write down your answers and use them to begin your stock-selection process.
That's how I start my process. I start with the sector that has the greatest upside potential - and work back from there.
Ask yourself which sectors "should" do well based on everything you know up to this point. Your answers will amaze you. Sure, you'll be off the mark once in a while. But most of the time you'll be right on the money.
By Charles Newcastle
Let's say we stop the presses right now. We disconnect the Internet and Satellite TV, and push all of the papers and magazines on our desks into a cardboard box.
We sit at our desks in complete silence.
Without referring to any notes, commentators, or anything else - try to rely on everything you've learned up to this point in your life.
Now ask yourself, "Which sectors have the greatest upside potential over the next 2 to 5 years?"
Home healthcare? The Internet? Defense? E-commerce? Natural resources? Online gaming? Write down your answers and use them to begin your stock-selection process.
That's how I start my process. I start with the sector that has the greatest upside potential - and work back from there.
Ask yourself which sectors "should" do well based on everything you know up to this point. Your answers will amaze you. Sure, you'll be off the mark once in a while. But most of the time you'll be right on the money.
By Charles Newcastle
Thursday, January 15, 2009
The Only No-Risk Way to Ride the Next Big Market Pop
By Andrew M. Gordon
Your next big investing dilemma is right around the corner. Should you - can you - take advantage of the next big stock market pop?
History (since WWII) tells us that when the S&P 500 bottoms, it'll go up about 32 percent over the following nine months. That's been the average climb following a bear market.
Here's the problem. It usually happens in bursts. And if you're not in the market for the initial burst, you've probably missed snagging the biggest gains.
The solution? Market Index Target-Term Securities (MITTS). The irresistible feature of these investments is that you can't lose money. They're hybrid securities - part bond and part options. They go for $10 per share (when first issued), and are traded on the New York Stock Exchange and the NASDAQ.
You can buy MITTS that cover the S&P 500. If the S&P goes up, you get 100 percent of the gains. If, for example, the S&P goes up 40 percent during the life of the MITTS, your gain would be 40 percent. (They last 3-7 years, but you can get them maturing as soon as May 2009.)
What if the S&P loses 40 percent? Your loss would be zero. You automatically get back the $10 per share at maturity. And, right now, all the active MITTS are trading at a discount - for as low as $8.84.
It's a zero-risk way of playing the next big market bounce. MITTS are easy to look up, because The Wall Street Journal tracks them. They're also highly liquid. So if you're interested, your broker can buy them for you. No problem.
Your next big investing dilemma is right around the corner. Should you - can you - take advantage of the next big stock market pop?
History (since WWII) tells us that when the S&P 500 bottoms, it'll go up about 32 percent over the following nine months. That's been the average climb following a bear market.
Here's the problem. It usually happens in bursts. And if you're not in the market for the initial burst, you've probably missed snagging the biggest gains.
The solution? Market Index Target-Term Securities (MITTS). The irresistible feature of these investments is that you can't lose money. They're hybrid securities - part bond and part options. They go for $10 per share (when first issued), and are traded on the New York Stock Exchange and the NASDAQ.
You can buy MITTS that cover the S&P 500. If the S&P goes up, you get 100 percent of the gains. If, for example, the S&P goes up 40 percent during the life of the MITTS, your gain would be 40 percent. (They last 3-7 years, but you can get them maturing as soon as May 2009.)
What if the S&P loses 40 percent? Your loss would be zero. You automatically get back the $10 per share at maturity. And, right now, all the active MITTS are trading at a discount - for as low as $8.84.
It's a zero-risk way of playing the next big market bounce. MITTS are easy to look up, because The Wall Street Journal tracks them. They're also highly liquid. So if you're interested, your broker can buy them for you. No problem.
Monday, January 12, 2009
The $10 Billion Coat
By Suzanne Richardson
The sun was shining, the sky was blue. And the bare-chested young man walking down the street looked like he could have been on his way to the beach. Except... it was two days before Christmas in Northern Montana. Even worse, it was 17 degrees below zero.
Sitting at a stoplight, all I could do was stare. Was this guy off his rocker? On drugs? Or just severely down on his luck?
But what happened next warmed my heart. A man in a pickup, two kids on the seat beside him, pulled up next to the shirtless man, rolled down his window, and handed out his own thick winter coat.
The young man gave a half-hearted wave of thanks and continued on down the street.
Who knows how much the coat had cost this Good Samaritan? Maybe it was a Kmart special. Maybe he'd shelled out a few hundred bucks. Perhaps he'd picked it up for a couple of dollars at the local Goodwill.
It could have cost $10 billion or 10 cents. That's not what mattered. This generous man reminded those of us who'd witnessed his act of kindness just how easy it is to be selfless. He proved to his kids that some things are worth more than money. And in weather like that, he may have saved a life.
It's easy to be thoughtful around the holidays. But don't let the lack of a "reason" prevent you from giving. I'm not talking about donating money - although that is one way to help. I'm talking about donating a little of your time and energy to people in need. Helping the frazzled mother of four carry her groceries out to the car... holding the door for the gentleman in front of you at the bank... giving blood.
Roman philosopher and playwright Seneca said, "Wherever there is a human being, there is an opportunity for a kindness." There are thousands - probably millions - of ways to spread generosity and goodwill. Do something kind today.
The sun was shining, the sky was blue. And the bare-chested young man walking down the street looked like he could have been on his way to the beach. Except... it was two days before Christmas in Northern Montana. Even worse, it was 17 degrees below zero.
Sitting at a stoplight, all I could do was stare. Was this guy off his rocker? On drugs? Or just severely down on his luck?
But what happened next warmed my heart. A man in a pickup, two kids on the seat beside him, pulled up next to the shirtless man, rolled down his window, and handed out his own thick winter coat.
The young man gave a half-hearted wave of thanks and continued on down the street.
Who knows how much the coat had cost this Good Samaritan? Maybe it was a Kmart special. Maybe he'd shelled out a few hundred bucks. Perhaps he'd picked it up for a couple of dollars at the local Goodwill.
It could have cost $10 billion or 10 cents. That's not what mattered. This generous man reminded those of us who'd witnessed his act of kindness just how easy it is to be selfless. He proved to his kids that some things are worth more than money. And in weather like that, he may have saved a life.
It's easy to be thoughtful around the holidays. But don't let the lack of a "reason" prevent you from giving. I'm not talking about donating money - although that is one way to help. I'm talking about donating a little of your time and energy to people in need. Helping the frazzled mother of four carry her groceries out to the car... holding the door for the gentleman in front of you at the bank... giving blood.
Roman philosopher and playwright Seneca said, "Wherever there is a human being, there is an opportunity for a kindness." There are thousands - probably millions - of ways to spread generosity and goodwill. Do something kind today.
Saturday, January 3, 2009
Don't Let Short-Term Troubles Rule Out Long-Term Investments
By Christian Hill
With the markets getting clobbered over the last year, traditional methods for measuring the value of a stock have been thrown out of whack. That doesn't mean you can't rely on those indicators, but it does mean you need to keep certain things in mind.
Let's take dividends as an example. Many companies have slashed or completely eliminated dividends to keep more cash on hand to weather the downturn. Does this mean their current dividends should be used to measure their future income streams? Of course not.
It's better to isolate this period from your analysis and look, instead, at a company's historical dividend payments. Take a look at what the company has paid out over the last five years or so. If it has a steady and/or increasing dividend - with the only blemish being the most-recent quarters - then it is probably safe to assume that once the economy gets turned around, its dividend stream will return to normal.
Don't forget that we are in the midst of the worst market in decades. Strange things are happening, but it will eventually return to normal. Don't miss out on long-term investment opportunities by focusing too much on current conditions.
With the markets getting clobbered over the last year, traditional methods for measuring the value of a stock have been thrown out of whack. That doesn't mean you can't rely on those indicators, but it does mean you need to keep certain things in mind.
Let's take dividends as an example. Many companies have slashed or completely eliminated dividends to keep more cash on hand to weather the downturn. Does this mean their current dividends should be used to measure their future income streams? Of course not.
It's better to isolate this period from your analysis and look, instead, at a company's historical dividend payments. Take a look at what the company has paid out over the last five years or so. If it has a steady and/or increasing dividend - with the only blemish being the most-recent quarters - then it is probably safe to assume that once the economy gets turned around, its dividend stream will return to normal.
Don't forget that we are in the midst of the worst market in decades. Strange things are happening, but it will eventually return to normal. Don't miss out on long-term investment opportunities by focusing too much on current conditions.
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