If there were a Bad Trade Hall of Fame, Brian Hunter would have just secured himself a prominent spot.
Losing $5 billion in a week will do that.
Hunter lost that amount earlier this month, according to The Wall Street Journal, making big, risky bets on natural gas prices for coming winters.
Monday, September 25, 2006
Friday, September 22, 2006
The Trader's bell curve
Writes Price Headley, "MOST OF YOUR TRADES ARE GOING TO BE MEDIOCRE AT BEST. The huge homeruns are few and far between. But, you'll have enough of them over time to generate some big profits."
Thursday, September 21, 2006
hot stock tips
[9/25/06] The title of a paper by Laura Frieder and Jonathan Zittrain gets right to the point: “Spam Works: Evidence from Stock Touts and Corresponding Market Activity.”
Incredibly, while Internet users will readily delete emails touting Free Medz and good deals on V-i-a-g/ra, investors have plenty of time to read the email touts, find the ticker symbol, and buy the touted stock.
The authors reviewed a sample of Pink Sheet stocks touted in more than 75,000 emails. After all that number crunching, they concluded that the stocks went up on heavy volume the day they were touted. Stocks also showed unusual strength the day before the spamming as the spammers were no doubt buying into the names they were about to blast around the Internet. In the days following the big spam day, the stocks went down as the spammers continued selling and volume from new buyers dried up.
[9/21/06] According to a recent study of more than 1.8 million investment spam messages by Laura Frieder of Purdue University and Jonathon Zittrain of the University of Oxford, the purpose of investing spam is to provide enough liquidity for those touting the stock to sell their shares at a profit. For the hypesters, average returns from the day before the spam was sent to the day of heaviest touting was as much as 6%. What if you were one of the ones who received the spam and decided to "take a flyer" when you got the email? Your average loss would be as much as 8%.
[4/19/06] Have you ever wondered if you're missing out on a great investment opportunity by NOT investing in the "hot" stock tips you receive in your e-mailbox?
Joshua Cyr decided to find out. On May 5, 2005, he decided to track what would happen if he purchased 1000 shares of every stock for which he received a hot stock tip via spam.
Naturally, he didn't actually waste money on this experiment. Instead, he just pretended to buy the stocks and kept track of their value on a website he created (so he never actually bought the stocks). He simply tracked what would have happened if he had actually purchased these stocks based on the stock tips.
Joshua expected that he'd get temporary, short-term windfalls on all these stocks and then see big losses. What he found instead surprised him. Almost ALL of the stocks went up a few cents at most, and then dropped dramatically the next day. So, no short term windfalls.
Joshua tracks the stocks real time at his site, so you can see how he's doing at any moment.
Incredibly, while Internet users will readily delete emails touting Free Medz and good deals on V-i-a-g/ra, investors have plenty of time to read the email touts, find the ticker symbol, and buy the touted stock.
The authors reviewed a sample of Pink Sheet stocks touted in more than 75,000 emails. After all that number crunching, they concluded that the stocks went up on heavy volume the day they were touted. Stocks also showed unusual strength the day before the spamming as the spammers were no doubt buying into the names they were about to blast around the Internet. In the days following the big spam day, the stocks went down as the spammers continued selling and volume from new buyers dried up.
[9/21/06] According to a recent study of more than 1.8 million investment spam messages by Laura Frieder of Purdue University and Jonathon Zittrain of the University of Oxford, the purpose of investing spam is to provide enough liquidity for those touting the stock to sell their shares at a profit. For the hypesters, average returns from the day before the spam was sent to the day of heaviest touting was as much as 6%. What if you were one of the ones who received the spam and decided to "take a flyer" when you got the email? Your average loss would be as much as 8%.
[4/19/06] Have you ever wondered if you're missing out on a great investment opportunity by NOT investing in the "hot" stock tips you receive in your e-mailbox?
Joshua Cyr decided to find out. On May 5, 2005, he decided to track what would happen if he purchased 1000 shares of every stock for which he received a hot stock tip via spam.
Naturally, he didn't actually waste money on this experiment. Instead, he just pretended to buy the stocks and kept track of their value on a website he created (so he never actually bought the stocks). He simply tracked what would have happened if he had actually purchased these stocks based on the stock tips.
Joshua expected that he'd get temporary, short-term windfalls on all these stocks and then see big losses. What he found instead surprised him. Almost ALL of the stocks went up a few cents at most, and then dropped dramatically the next day. So, no short term windfalls.
Joshua tracks the stocks real time at his site, so you can see how he's doing at any moment.
Wednesday, September 20, 2006
The Presidential Election Cycle
[9/20/06 Keith Fitz-Gerald] In case you’re not familiar with it, the Presidential Effect suggests that the second year of any president’s term, regardless of party affiliation, is the least productive in terms of how the financial markets move. Years three and four, on the other hand, are the better performing ones and are typically made possible by all of the free money promises that get made during the election process by both parties. These promises then get translated into market gains.
According to the Stock Trader’s Almanac, the 12-month period beginning in October of the second year of the presidential term has enjoyed average total returns of more than 28%. And since 1933, not a single third year 12-month period beginning in October has registered a loss (the worst return was a gain of 6.6%).
On average, since 1914, the Dow has jumped a whopping 50% from the bottom it hits in the second year to the top in the third year. This bounce ties in with other statistics that show the second and third years of the four-year cycle tend to be the best for stock markets as the party in power gears up for the following year’s election by trying to keep investors happy.
[7/5/06] Martin Zweig makes this observation in the Zweig Fund quarterly report.
"Based on statistics, there may be trouble ahead of the market. According to Standard and Poor's, the S&P 500 Index has lost 2% on average in second quarters of second years of presidential terms since 1945. Third quarters show average losses of 2.2%. Given the historically weaker mid-year trend, we will proceed cautiously."
[3/31/06] as the first quarter of 2006 ends stocks are smack in the midst of what is notoriously the most dangerous year of the U.S. political cycle -- Year Two of a presidential term. Of the 12 declining years endured by the Standard & Poor's 500 Index since 1960, a check of my Bloomberg indicates, six occurred in the second year of a presidential administration. Those included the punishing declines of 24 percent in 2002, 30 percent in 1974, and 13 percent in 1966.
On top of that, we're nearing the part of any year, from the end of April through October, that has gained a reputation as most difficult for stocks. Recall the boardroom adage, ``Sell in May and go away.''
[3/29/06] Liz Ann Sonders takes a look at the current presidential cycle.
[3/22/06] Looking ahead, there is one slight possible negative for the market relating to the presidential election cycle. Statistically, the postelection year and the mid-term year, which we are now in, have not been great years. Based on historical performance, the next pre-election year (2007) and election year (2008) would turn out to be better years according to this cycle.
While we are not strongly supportive of this particular thesis, data going back to 1949 indicates a significant market bottom occurs about every four years. Our last market bottom was in 2002 and it’s possible we may experience the next bottom in 2006. However, we are far from convinced that this will be the case.
-- Martin Zweig in the Zweig Fund annual report
[11/17/04] Several studies purportedly show that presidential elections do indeed affect the stock market and that the best times to own stocks are the two years before an election. Conversely, stocks apparently do not do as well during the first two years of a presidential term. One study, for example, shows that from 1941 to 1995, every bear market but one has occurred in the first or second year of a president's term; none have occurred during the last year, right before an election.
According to the Stock Trader’s Almanac, the 12-month period beginning in October of the second year of the presidential term has enjoyed average total returns of more than 28%. And since 1933, not a single third year 12-month period beginning in October has registered a loss (the worst return was a gain of 6.6%).
On average, since 1914, the Dow has jumped a whopping 50% from the bottom it hits in the second year to the top in the third year. This bounce ties in with other statistics that show the second and third years of the four-year cycle tend to be the best for stock markets as the party in power gears up for the following year’s election by trying to keep investors happy.
[7/5/06] Martin Zweig makes this observation in the Zweig Fund quarterly report.
"Based on statistics, there may be trouble ahead of the market. According to Standard and Poor's, the S&P 500 Index has lost 2% on average in second quarters of second years of presidential terms since 1945. Third quarters show average losses of 2.2%. Given the historically weaker mid-year trend, we will proceed cautiously."
[3/31/06] as the first quarter of 2006 ends stocks are smack in the midst of what is notoriously the most dangerous year of the U.S. political cycle -- Year Two of a presidential term. Of the 12 declining years endured by the Standard & Poor's 500 Index since 1960, a check of my Bloomberg indicates, six occurred in the second year of a presidential administration. Those included the punishing declines of 24 percent in 2002, 30 percent in 1974, and 13 percent in 1966.
On top of that, we're nearing the part of any year, from the end of April through October, that has gained a reputation as most difficult for stocks. Recall the boardroom adage, ``Sell in May and go away.''
[3/29/06] Liz Ann Sonders takes a look at the current presidential cycle.
[3/22/06] Looking ahead, there is one slight possible negative for the market relating to the presidential election cycle. Statistically, the postelection year and the mid-term year, which we are now in, have not been great years. Based on historical performance, the next pre-election year (2007) and election year (2008) would turn out to be better years according to this cycle.
While we are not strongly supportive of this particular thesis, data going back to 1949 indicates a significant market bottom occurs about every four years. Our last market bottom was in 2002 and it’s possible we may experience the next bottom in 2006. However, we are far from convinced that this will be the case.
-- Martin Zweig in the Zweig Fund annual report
[11/17/04] Several studies purportedly show that presidential elections do indeed affect the stock market and that the best times to own stocks are the two years before an election. Conversely, stocks apparently do not do as well during the first two years of a presidential term. One study, for example, shows that from 1941 to 1995, every bear market but one has occurred in the first or second year of a president's term; none have occurred during the last year, right before an election.
Strategy Performance
Validea has been keeping model portfolios of their various strategies since 2003. Leading the way is their Validea Hot List, followed closely by Martin Zweig and David Dreman [link from screenvestor of MFI, 9/18/06]
AAII has backtested various stock screens going back to 1998. Zweig is second again. O'Shaughnessy's Tiny Titans leads the way. [link from Michael Gallagher of MFI, 9/14/06]
AAII has backtested various stock screens going back to 1998. Zweig is second again. O'Shaughnessy's Tiny Titans leads the way. [link from Michael Gallagher of MFI, 9/14/06]
Saturday, September 16, 2006
Bears
[9/15/96] (Mauldin writes] The market, my various mentors have all told me, is designed to cause the most pain to the largest number of people. And while I am not in pain, the recent move up in the various market indices is certainly not in keeping with my thoughts that the economy is going to slow down and thus should exert downward pressure on the equity markets. Has the world transitioned to a kinder, gentler Mr. Market?
... this statistic from Paul Robinson: What happens when you have 3-plus years without a 10% correction in either the S&P 500 or DJIA? On March 15th, 2006 the market sustained 3 full years without a substantial sell-off from a 6-month high. This long a bull run has occurred only 3 other times in the past 100-plus years of market history and led to an average decline of 18.5% between the 3 occurrences.
In summary, I think it is too early to throw in my bearish towel. A slowdown means that earnings are not going to grow as fast as currently projected. That means some disappointments may (will?) be coming our way in the next few quarters.
Disappointments are the stuff that makes for bear markets.
[7/27/06, via investwise] Dr. Marc Faber says "Most asset markets including stocks and commodities are extremely overbought, and there is far too much speculation in all investment markets. Therefore, severe downside volatility, also in precious metals, should not be surprising in the period directly ahead.
... we can say that, yes, the Dow has been in a bull market since October 2002 in dollar terms, but it has been in a bear market in gold terms. This is an important point to understand. In case we should experience continuous monetary inflation, which could lift, over time, all asset prices such as stocks, real estate, and commodities, some asset classes will increase more in value than others."
* * *
[6/15/06] There are market bears--and then there's Barry Ritholtz. Some might call him one of the grizzliest forecasters on the Street. Although the Dow Jones Industrial Average came close to its all-time high of 11,722.98 earlier this year, Ritholtz expects the Dow to finish the year at 6,800. He's also forecasting that the Standard & Poor's 500 Index and Nasdaq will lose more than 25%.
[via investwise]
* * *
But even Ritholtz may not be as bearish as Doug Casey who believes that another depression is practically inevitable. On the bright side, he hasn't totally given up hope. "Perhaps friendly aliens will land on the roof of the White House and present the government with a magic technology that can undo all the damage it's done."
... this statistic from Paul Robinson: What happens when you have 3-plus years without a 10% correction in either the S&P 500 or DJIA? On March 15th, 2006 the market sustained 3 full years without a substantial sell-off from a 6-month high. This long a bull run has occurred only 3 other times in the past 100-plus years of market history and led to an average decline of 18.5% between the 3 occurrences.
In summary, I think it is too early to throw in my bearish towel. A slowdown means that earnings are not going to grow as fast as currently projected. That means some disappointments may (will?) be coming our way in the next few quarters.
Disappointments are the stuff that makes for bear markets.
[7/27/06, via investwise] Dr. Marc Faber says "Most asset markets including stocks and commodities are extremely overbought, and there is far too much speculation in all investment markets. Therefore, severe downside volatility, also in precious metals, should not be surprising in the period directly ahead.
... we can say that, yes, the Dow has been in a bull market since October 2002 in dollar terms, but it has been in a bear market in gold terms. This is an important point to understand. In case we should experience continuous monetary inflation, which could lift, over time, all asset prices such as stocks, real estate, and commodities, some asset classes will increase more in value than others."
* * *
[6/15/06] There are market bears--and then there's Barry Ritholtz. Some might call him one of the grizzliest forecasters on the Street. Although the Dow Jones Industrial Average came close to its all-time high of 11,722.98 earlier this year, Ritholtz expects the Dow to finish the year at 6,800. He's also forecasting that the Standard & Poor's 500 Index and Nasdaq will lose more than 25%.
[via investwise]
* * *
But even Ritholtz may not be as bearish as Doug Casey who believes that another depression is practically inevitable. On the bright side, he hasn't totally given up hope. "Perhaps friendly aliens will land on the roof of the White House and present the government with a magic technology that can undo all the damage it's done."
Tuesday, September 12, 2006
Current Account Balances
This is an interesting list from the CIA world fact book:A Rank Order of Current Account Balances...
http://tinyurl.com/eseet
[from chucks_angels]
[9/14/06] [Bill Bonner writes] Fallen into our hands is a report from the CIA, ranking nations in order of their current account balance. The current account, we remind readers, is like the operating statement of a business or an individual. Income must exceed outflow or your upkeep is your downfall. The difference between what comes in and what goes out, if it is positive, accumulates as though it were a profit. If it is negative, it builds up - but not necessarily, in the form of debt.
Last in line are the nations of the Anglo-Saxon, English-speaking debt-based empire! New Zealand has a deficit of nearly $10 billion. Then, South Africa...and India...and Australia all have deficits too. Among the major former colonies of the British Empire, only Canada seems to have any sense. It runs a surplus. The others are all debtors. The UK itself is third from the bottom with a $57 billion negative current account balance.
For no reason we can think of, the penultimate on the list is Spain. And then comes the worst of all...the United States of America, with a current account balance of a minus $829 billion.
Add up all the deficits of the entire world and you get a figure barely half of the U.S. total.
The U.S. economy makes up a quarter of the world total...that it should have more than half of the world's current account deficits is a spectacular success - only made possible by its great wealth and status.
[I guess that's one way of looking at it.]
http://tinyurl.com/eseet
[from chucks_angels]
[9/14/06] [Bill Bonner writes] Fallen into our hands is a report from the CIA, ranking nations in order of their current account balance. The current account, we remind readers, is like the operating statement of a business or an individual. Income must exceed outflow or your upkeep is your downfall. The difference between what comes in and what goes out, if it is positive, accumulates as though it were a profit. If it is negative, it builds up - but not necessarily, in the form of debt.
Last in line are the nations of the Anglo-Saxon, English-speaking debt-based empire! New Zealand has a deficit of nearly $10 billion. Then, South Africa...and India...and Australia all have deficits too. Among the major former colonies of the British Empire, only Canada seems to have any sense. It runs a surplus. The others are all debtors. The UK itself is third from the bottom with a $57 billion negative current account balance.
For no reason we can think of, the penultimate on the list is Spain. And then comes the worst of all...the United States of America, with a current account balance of a minus $829 billion.
Add up all the deficits of the entire world and you get a figure barely half of the U.S. total.
The U.S. economy makes up a quarter of the world total...that it should have more than half of the world's current account deficits is a spectacular success - only made possible by its great wealth and status.
[I guess that's one way of looking at it.]
Thursday, September 07, 2006
How To Lose Money
It sounds contrary, but understanding how you lose money is what will make you a successful investor. Because you will lose money.
There are three ways of thinking when it comes to losers. Two of them will help you retire to a life of leisure; the other will help you retire to a life of dog food.
There are three ways of thinking when it comes to losers. Two of them will help you retire to a life of leisure; the other will help you retire to a life of dog food.
Wednesday, September 06, 2006
Two Fools
The Motley Fool hosted its first teleseminar, an event in which Fool co-founders David and Tom Gardner, along with GreenLight masters Shannon Zimmerman and Dayana Yochim, spoke to 1,000 Fools nationwide and shared their Foolish wisdom on the art and science of buying and selling.
Getting Started: What To Look For
How to determine when the price is right
Going against the grain
Emotions and investing
Getting Started: What To Look For
How to determine when the price is right
Going against the grain
Emotions and investing
What Is Value Investing?
[From DEEPWEALTH:]<!- via investwise -->
In a great book and a must-read for investors, “What is Value Investing?”, the author, Lawrence A. Cunningham, writes about the many traditions of value investing.
“Value investing is partly a state of mind. It is characterized by habitually relating the price of a stock to the value of the underlying business. Basic principles of fundamental analysis are the tools. They arise from three traditions.
Benjamin Graham's margin of safety principle is the first one. It requires assurance that a stock's price is substantially below its estimated value. The test requires conducting a full business analysis. To begin, value investors use simple filters that narrow the range of candidates to those that an investor understands and can evaluate (commonly known as a circle of competence).
John Burr Williams refined value investing's second core tradition. This quantitative tradition requires estimating a company's intrinsic value measured by the present value of its probable future cash flows, conservatively estimated using current data. This principle captures the intuition that a dollar in hand today is worth more than a dollar paid in the future.
Philip A. Fisher added value investing's third tradition. This qualitative tradition requires the diligent investor to find a company exhibiting strong long-term prospects. These are indicated by characteristics creating a business franchise, such as consumer loyalty, unmatched brand-name recognition, and formidable market power. Also relevant are high-quality managers who can be counted on to channel the franchise's rewards to the company's shareholders.
Warren E. Buffett is the consummate and best-known integrator of these three traditions. Buffett practices a comprehensive method of value investing. He refers to the exercise simply as investing, viewing the modifier "value" as redundant. Other disciples weight the components differently, producing a range of value investing styles. All are united by appreciating the difference between price and value.
In a great book and a must-read for investors, “What is Value Investing?”, the author, Lawrence A. Cunningham, writes about the many traditions of value investing.
“Value investing is partly a state of mind. It is characterized by habitually relating the price of a stock to the value of the underlying business. Basic principles of fundamental analysis are the tools. They arise from three traditions.
Benjamin Graham's margin of safety principle is the first one. It requires assurance that a stock's price is substantially below its estimated value. The test requires conducting a full business analysis. To begin, value investors use simple filters that narrow the range of candidates to those that an investor understands and can evaluate (commonly known as a circle of competence).
John Burr Williams refined value investing's second core tradition. This quantitative tradition requires estimating a company's intrinsic value measured by the present value of its probable future cash flows, conservatively estimated using current data. This principle captures the intuition that a dollar in hand today is worth more than a dollar paid in the future.
Philip A. Fisher added value investing's third tradition. This qualitative tradition requires the diligent investor to find a company exhibiting strong long-term prospects. These are indicated by characteristics creating a business franchise, such as consumer loyalty, unmatched brand-name recognition, and formidable market power. Also relevant are high-quality managers who can be counted on to channel the franchise's rewards to the company's shareholders.
Warren E. Buffett is the consummate and best-known integrator of these three traditions. Buffett practices a comprehensive method of value investing. He refers to the exercise simply as investing, viewing the modifier "value" as redundant. Other disciples weight the components differently, producing a range of value investing styles. All are united by appreciating the difference between price and value.
Tuesday, September 05, 2006
Centenarian looks overseas
Aug. 30 (Bloomberg) -- Albert H. Gordon took over Kidder, Peabody & Co. in 1931, turned it into an underwriting leader on Wall Street, and saw opportunities overseas before many rivals.
He's still looking abroad at the age of 105.
After eight decades as an executive and investor that spanned from the roaring 1920s to the age of terrorism, Gordon says he's ``bearish'' on U.S. stocks partly because of the $8.41 trillion national debt. He prefers shares of companies such as Canada's EnCana Corp., Wal-Mart de Mexico SA de CV and Petroleo Brasileiro SA.
``At least three-quarters of whatever I own is foreign stocks,'' he says from his Manhattan apartment overlooking the East River.
He's still looking abroad at the age of 105.
After eight decades as an executive and investor that spanned from the roaring 1920s to the age of terrorism, Gordon says he's ``bearish'' on U.S. stocks partly because of the $8.41 trillion national debt. He prefers shares of companies such as Canada's EnCana Corp., Wal-Mart de Mexico SA de CV and Petroleo Brasileiro SA.
``At least three-quarters of whatever I own is foreign stocks,'' he says from his Manhattan apartment overlooking the East River.
we've struck oil
NEW YORK (CNNMoney.com) -- Chevron and its partners have successfully extracted oil from a test well in the deep waters of the Gulf of Mexico, an achievement that could be the biggest breakthrough in domestic oil supplies since the opening of the Alaskan pipeline.
The news sent oil prices lower, with U.S. light crude for October delivery sinking 69 cents to $68.50 on the New York Mercantile Exchange.
The announcement helped dampen fears that oil supplies would be swamped by growing global demand, a concern that helped lift oil to record highs this summer, unadjusted for inflation.
But experts cautioned that relief at the pump from the breakthrough is many years away.
The news sent oil prices lower, with U.S. light crude for October delivery sinking 69 cents to $68.50 on the New York Mercantile Exchange.
The announcement helped dampen fears that oil supplies would be swamped by growing global demand, a concern that helped lift oil to record highs this summer, unadjusted for inflation.
But experts cautioned that relief at the pump from the breakthrough is many years away.
Saturday, September 02, 2006
Reading between those for-sale signs
The latest housing numbers seem like they could be a turning point. A real estate crash might not be the most likely outcome, but it certainly seems legitimate to think about what one would look like.