Author Topic: Efficient Markets, RIP  (Read 93654 times)

tooqk4u22

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Re: Efficient Markets, RIP
« Reply #250 on: August 02, 2012, 12:53:37 PM »
I posted this on July 11th, and the technical framework it lays out is still valid today:


Market note:  a couple weeks ago I said that the SPX breaking over 1340 was bullish and my technical work showed that the market has some room to run to SPX 1390.  Well, while the SPX did touch 1375 last week, but has since sold off and is currently bouncing around this important 1340 level as we speak.  1340 now represents support for the market, and it's critical that it hold here if the bulls stand a chance.

But I'll say this: the news flow (especially earnings) has been outright negative, which is not surprising since 50% of S&P profits are derived overseas and Europe is an economic mess.  My sense is that these levels don't hold.  The strategy before was to unleash shorts at or near 1390, but maybe that level doesn't come into play.  Plan B  is to see how the market acts around 1330-1340, and if it breaks (drops below 1320), the strategy will be to short the first bounce back to 1340 (markets almost always seem to retest broken support levels after they break, and these retests represent the best trading set-ups IMO). 


So 1390-1400 is the "layup" short level, IMO.  But see how the market keeps getting repelled as it approaches that level, and see how it keeps finding support between 1330-1340 (1337.56 is today's low).  In TA, each test of support weakens it.  I think 1330-1340 is toast soon enough, but I'm, sticking to the game plan from July 11th as represented by Plan A or Plan B, whichever comes first.

And just like that, after touching SPX 1392 (right into the short zone I've been discussing for weeks), the market rips to to the downside by 3%.

Again, the goal is to demonstrate the use of technical analysis in real time. 

That's all.     

On one hand it seems you were on the button, on the other you touched on different levels as the market moved and if you would have shorted at 1340 you still be in a losing trade. 

But it is a starting point and the more you describe the more we can draw conclusions about your abilities and whether or not is repeatable.  So yes the real time aspect is great for this. 

I am still not convinced but open minded and interested in following, so keep it going.

smedleyb

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Re: Efficient Markets, RIP
« Reply #251 on: August 02, 2012, 01:01:31 PM »
On one hand it seems you were on the button, on the other you touched on different levels as the market moved and if you would have shorted at 1340 you still be in a losing trade. 

But it is a starting point and the more you describe the more we can draw conclusions about your abilities and whether or not is repeatable.  So yes the real time aspect is great for this. 

I am still not convinced but open minded and interested in following, so keep it going.

If you read closer, you'll see I said if the market breaks below 1320 (and thus negating the 1330-1340 support zone -- typically 10 SPX points below the band signals to me a break), then plan B was to short a reactive move back up to 1340 (in TA, the best time to short is on a retest of broken support level, in this case 1340; it never quite broke, hence no retest).

And I'm glad you're interested.  Like I've been saying, we're just having a dialogue, not attempting to brain-wash anybody.

smedleyb

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Re: Efficient Markets, RIP
« Reply #252 on: August 02, 2012, 01:07:26 PM »
If you were willing to double your current position today at 19.90, but not 19.91... why would you not be willing to do so tomorrow?  Is it going to change that fast?  If it does change by a few percent, are you going to sell that fast?

One big reason why day trading doesn't work is both the costs involved in frequent trading as well as the tax liabilities incurred.

My prediction of it going lower is based on the next few weeks and months.  Not on what it'll do today or tomorrow.  I have no clue what it'll do in the next 48 hours.

(Un)fortunately, this is the busiest week and weekend of the year for my business, so I need to prioritize.  If I can't be available to manage my risk every 10-20 minutes, I cut back the size of the trade.

Doesn't mean I won't double down over the next day or two, just means not right now.

Still long from 20.30 (got a better fill than I originally thought).

arebelspy

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Re: Efficient Markets, RIP
« Reply #253 on: August 02, 2012, 01:10:11 PM »
Pure tap reading instinct at work, nothing more.

You say it's going lower, I say it's going higher first. 

Loser buys the other a beer!

It very well could go higher before lower.  I have no idea what it'll do in the short term.  I'm talking about a (slightly) longer time frame (though still what I would traditionally call a very short time frame).  But even that I could be wrong.

Next time you're in Vegas, I'll buy you a drink regardless of what FB stock does.
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Mr Mark

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Re: Efficient Markets, RIP
« Reply #254 on: August 02, 2012, 01:27:09 PM »
Facebook stock now less than $20...

Just sayin'..

smedleyb

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Re: Efficient Markets, RIP
« Reply #255 on: August 02, 2012, 01:37:22 PM »
Facebook stock now less than $20...

Just sayin'..

The question is, have all the weak holders who bought at the $38 IPO price puked up the stock yet?

Yup.  Right here and now.

mechanic baird

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Re: Efficient Markets, RIP
« Reply #256 on: August 02, 2012, 01:38:39 PM »
It's going lower.

But I have the discipline not to bet on it.

(This is my analysis.  It's based mostly on my gut feeling, along with recent readings about mobile advertising and Zynga issues.  Those are already priced in, but I don't see them getting better.  Ot, to put it another way, it's past the head and shoulders and moved on to the knees and toes.)

Here is my gut feeling.. The social media stocks like Facebook, LinkedIn, whatever will go down to single digit.. Let's see who is right.. LOL This is fun!

BTW, smedleyb, I don't disagree with your investment approach (active management I think is the proper term). It does take a lot more work and it's not anybody's game... Given the current side step market trends, this might be a way to make some money, but takes a lot of work.
Since you are into TA, I do suggest you read Mike Stathis' work and his two books he published in 2006. Especially his investment book might gain you a lot more insights to make you a better TA trader. I find his work very fascinating. This is the guy who has 95% accuracy in market forecast based on independent thinking and ironically, you have seen the same thing.. that is the market will have a pretty big correction in the coming short years.. So I think you stand a pretty good chance in making some good money.

Good luck!

here is Mike's free article collection. majority are on his own site AVA Research and most are  restricted access.
http://www.marketoracle.co.uk/UserInfo-Mike_Stathis.html

You can find his books on amazon.
« Last Edit: August 02, 2012, 01:42:07 PM by mechanic baird »

smedleyb

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Re: Efficient Markets, RIP
« Reply #257 on: August 02, 2012, 10:21:50 PM »
Here is my gut feeling.. The social media stocks like Facebook, LinkedIn, whatever will go down to single digit.. Let's see who is right.. LOL This is fun!

They may or may not sink that low; what I do know is that social media will grow much quicker than any other part of the economy over the next decade; anyone interested in growth or achieving above average market returns needs to look at the space for possible investment opportunities.  Perhaps the leaders in the space have yet to emerge (twitter); perhaps they're already here (FB).  At some point, it might make sense to buy a basket of these stocks and let them ride for the next 10 years.     

arebelspy

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Re: Efficient Markets, RIP
« Reply #258 on: August 02, 2012, 10:39:54 PM »
Here is my gut feeling.. The social media stocks like Facebook, LinkedIn, whatever will go down to single digit.. Let's see who is right.. LOL This is fun!

IIRC FB should be at $7 based on current earnings (though obviously forward projected P/E is different).

They may or may not sink that low; what I do know is that social media will grow much quicker than any other part of the economy over the next decade; anyone interested in growth or achieving above average market returns needs to look at the space for possible investment opportunities.  Perhaps the leaders in the space have yet to emerge (twitter); perhaps they're already here (FB).  At some point, it might make sense to buy a basket of these stocks and let them ride for the next 10 years.     

Too bad there is no way to invest in "social media" - pick individual ones and you could lose big, even if "social media" does grow.  For example, if you had thought social media would be big a few years ago, and you bought a bunch of MySpace stock (if that were possible).  What if google+ is the next big thing?  Or something not invented yet displaces twitter or FB?  You can't just invest in the idea of "social media," so there's no real way to take advantage of your feeling.

Plus, even if you think it will grow over the next decade, that's irrelevant to what FB does in the next 48 hours, which is complete speculation (unlike the idea that it'll grow in the next decade, which could be based on other info).

I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

smedleyb

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Re: Efficient Markets, RIP
« Reply #259 on: August 03, 2012, 11:29:34 AM »
Buying Facebook (FB) here at 20.36.  Buying half a position.  Entering a buy order at 19.90 for the other half.

Selling entire position as it breaks over $22.00.

smedleyb

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Re: Efficient Markets, RIP
« Reply #260 on: August 03, 2012, 12:58:26 PM »
Too bad there is no way to invest in "social media" - pick individual ones and you could lose big, even if "social media" does grow.  For example, if you had thought social media would be big a few years ago, and you bought a bunch of MySpace stock (if that were possible).  What if google+ is the next big thing?  Or something not invented yet displaces twitter or FB?  You can't just invest in the idea of "social media," so there's no real way to take advantage of your feeling.

Invest in my feeling?:

http://www.huffingtonpost.com/2011/09/01/growth-social-media-infographic_n_945256.html

Graph after graph showing the tremendous growth of social media sites over just the past several years; real, hard facts supporting my contention that social media is the wave of the future.



mechanic baird

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Re: Efficient Markets, RIP
« Reply #261 on: August 03, 2012, 02:51:53 PM »

Too bad there is no way to invest in "social media" - pick individual ones and you could lose big,

you can actually, buy social media ETF  - SOCL
but be aware by buying SOCL, you are putting a lot of bets on FB, which I am sure will sink even lower.

mechanic baird

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Re: Efficient Markets, RIP
« Reply #262 on: August 03, 2012, 02:56:41 PM »
Too bad there is no way to invest in "social media" - pick individual ones and you could lose big, even if "social media" does grow.  For example, if you had thought social media would be big a few years ago, and you bought a bunch of MySpace stock (if that were possible).  What if google+ is the next big thing?  Or something not invented yet displaces twitter or FB?  You can't just invest in the idea of "social media," so there's no real way to take advantage of your feeling.

Invest in my feeling?:

http://www.huffingtonpost.com/2011/09/01/growth-social-media-infographic_n_945256.html

Graph after graph showing the tremendous growth of social media sites over just the past several years; real, hard facts supporting my contention that social media is the wave of the future.

You really should read this following article before you lose your undies on social media...maybe wait till the bubble bursts and wait for the real leaders to rise.. Nothing can deviate from the fundamentals for too long... dotcom bubble? hint hint.. and true leaders do rise from the ashes ... amazon anyone?

So please do yourself a favor, and read this piece.
http://www.avaresearch.com/avanew/articles/1093/Did-You-Profit-From-Shorting-Social-Media-Stocks-If-Not-You-Havent-Been-Paying-Attention..html

arebelspy

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Re: Efficient Markets, RIP
« Reply #263 on: August 03, 2012, 06:08:50 PM »
And even if social media grows, that growth very well could be already calculated in current prices, so any slight under performing loses you money.

Also, it may grow, but not profitably so.  Just because it becomes bigger doesn't mean it scales profit-wise.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

smedleyb

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Re: Efficient Markets, RIP
« Reply #264 on: August 03, 2012, 06:09:35 PM »
Mechanic, thanks for the link and I did read it. 

Jewish insiders sold millions of shares of Facebook, Zynga, Groupon prior to the collapse in these stocks.

Meanwhile, insiders of LinkedIn have played yo-yo with shares, selling high, piling back in at the lows and repeating the cycle. But mark my words, there are only so many of these cycles available to these crooks. And at some point in the not so distant future, insiders will sell and not buy back shares. LinkedIn too will be much lower than it is today. That is a guarantee.


No qualms at all with the author's negative view of SM stocks over the near term -- short has been right for the most part (although I've been reading about plenty of sharp traders who got crushed shorting LNKD today -- up 20% on great earnings, and I think headed higher as shorts will continue to panic and cover).  Definitely some qualms with his reference to "Jewish insiders."  Not sure what that was all about...

But you're right -- I'm looking for the next Amazon, the next Google, the next Priceline in the social media space.  I think we have a multi-year window to begin separating out the pretenders from the contenders.  I think there will be many winners in this space.

smedleyb

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Re: Efficient Markets, RIP
« Reply #265 on: August 03, 2012, 06:53:39 PM »
And even if social media grows, that growth very well could be already calculated in current prices, so any slight under performing loses you money.

Also, it may grow, but not profitably so.  Just because it becomes bigger doesn't mean it scales profit-wise.

Is there a specific specific reason you think social media can't grow it's profits at a rate equal to if not greater than its revenues? 

arebelspy

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Re: Efficient Markets, RIP
« Reply #266 on: August 03, 2012, 07:18:54 PM »
Is there a specific specific reason you think social media can't grow it's profits at a rate equal to if not greater than its revenues?

Not in particular, other than the idea of their product being mostly based on a free service based on ads, which may or may not have a very profitable future.

The main point of my post is that you noted:
Quote
Graph after graph showing the tremendous growth of social media sites over just the past several years

And I was pointing out that fact doesn't necessarily translate to profits for the investor.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

smedleyb

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Re: Efficient Markets, RIP
« Reply #267 on: August 06, 2012, 07:51:46 AM »
Dipping my toe in the water with some Nov SPY puts.  Nothing crazy, and I would describe my position as being roughly 5-10% of a normal short bet.  But with 1400 here and now, and with 1420 being ultimate resistance, I feel compelled to act.

grantmeaname

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Re: Efficient Markets, RIP
« Reply #268 on: August 06, 2012, 07:56:06 AM »
a free service based on totally ineffective ads
FTFY.

arebelspy

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Re: Efficient Markets, RIP
« Reply #269 on: August 06, 2012, 09:50:19 AM »
a free service based on totally ineffective ads
FTFY.

Been talking to GM, huh?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

grantmeaname

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Re: Efficient Markets, RIP
« Reply #270 on: August 06, 2012, 09:52:43 AM »
Yeah, us generals are pals.

Or something.

smedleyb

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Re: Efficient Markets, RIP
« Reply #271 on: August 06, 2012, 03:09:12 PM »
Oh, the irony of bashing social media on social media...

grantmeaname

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Re: Efficient Markets, RIP
« Reply #272 on: August 06, 2012, 03:11:48 PM »
I see nothing contradictory about it, although when you state it like that there is a superficial irony.

tooqk4u22

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Re: Efficient Markets, RIP
« Reply #273 on: August 06, 2012, 03:13:37 PM »
Oh, the irony of bashing social media on social media...

Nobody said social media wasn't a viable form of communication - the question is whether or not it is economically viable.   

smedleyb

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Re: Efficient Markets, RIP
« Reply #274 on: August 06, 2012, 03:17:55 PM »
Oh, the irony of bashing social media on social media...

Nobody said social media wasn't a viable form of communication - the question is whether or not it is economically viable.

Right, because 100 billion dollar IPO's scream "not economically viable."

 

grantmeaname

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Re: Efficient Markets, RIP
« Reply #275 on: August 06, 2012, 03:20:49 PM »
Weren't you just smug like twenty posts ago about how you knew the stock was going to drop and it wasn't worth its asking price?

smedleyb

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Re: Efficient Markets, RIP
« Reply #276 on: August 06, 2012, 03:24:18 PM »
Weren't you just smug like twenty posts ago about how you knew the stock was going to drop and it wasn't worth its asking price?

If they priced Facebook at $20, it would be at $40 today.






grantmeaname

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Re: Efficient Markets, RIP
« Reply #277 on: August 06, 2012, 04:33:29 PM »
Because the company would be automagically worth twice as much!

Mr Mark

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Re: Efficient Markets, RIP
« Reply #278 on: August 06, 2012, 08:49:49 PM »
Weren't you just smug like twenty posts ago about how you knew the stock was going to drop and it wasn't worth its asking price?

If they priced Facebook at $20, it would be at $40 today.

Nice idea SmedleyB!  You may well be right.
Psychology and all.

 
If only they had taken expert advice...


smedleyb

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Re: Efficient Markets, RIP
« Reply #279 on: August 06, 2012, 09:54:15 PM »
Weren't you just smug like twenty posts ago about how you knew the stock was going to drop and it wasn't worth its asking price?

If they priced Facebook at $20, it would be at $40 today.

Nice idea SmedleyB!  You may well be right.
Psychology and all.


If only they had taken expert advice...


Morgan Stanley was the point man on the IPO but most of the big names got a piece.  Gotta feed all the dogs I guess.   

The scenario I'm describing (pricing it lower) is similar to the psychology which drives stocks higher after announcing a stock split; obviously no fundamental value has been created, but the stocks rally nonetheless.

More importantly, the more shareholders who get a favorable price at the outset, the less compelled they feel to sell since as the stock drifts higher and rewards the buyers rather than punishing them, they become more confident (profits tend to do that) and thus "strong holders."

My recent trade in FB was based on what is known as a 50% Fibonacci retracement level ( http://en.wikipedia.org/wiki/Fibonacci_retracement) which worked to $19 (low was 19.80 vs. IPO price of $38), but it also relied on the idea that the guys buying at $38 or higher became weak, scared holders and started puking it up at $19 and change.  As you can see the stock is up nicely since then (10%) and might have another couple points in the tank.  Granted I'm no longer involved since I caught a quick move, but I'm attempting to show the logic behind the entry point, which was a subtle mix of TA and behavioral psychology (and even "fundamental" since FB is the unquestioned king in the social media space and I think a valuable company).



 

smedleyb

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Re: Efficient Markets, RIP
« Reply #280 on: August 07, 2012, 08:07:47 AM »
Dipping my toe in the water with some Nov SPY puts.  Nothing crazy, and I would describe my position as being roughly 5-10% of a normal short bet.  But with 1400 here and now, and with 1420 being ultimate resistance, I feel compelled to act.

Expanding short bet at SPX 1404, 25% short.  Tentative stop above 1420.

edit:  bank index (BKX) attempting to break out of near-term trading range (top of range 46.5, currently at 46.86), but running into multiple resistance points at 47 (downtrend line and lows from mid-April).  In our financed based economy the financial stocks often hold clues as to the market's next move.  Bonds selling off too, signaling a "risk on" menatlity.  If I seem sheepish on my short side bet, it's because these other variables do not support a sustained downside move.
« Last Edit: August 07, 2012, 05:01:32 PM by smedleyb »

smedleyb

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Re: Efficient Markets, RIP
« Reply #281 on: August 08, 2012, 11:31:47 AM »
Dipping my toe in the water with some Nov SPY puts.  Nothing crazy, and I would describe my position as being roughly 5-10% of a normal short bet.  But with 1400 here and now, and with 1420 being ultimate resistance, I feel compelled to act.

Expanding short bet at SPX 1404, 25% short.  Tentative stop above 1420.

edit:  bank index (BKX) attempting to break out of near-term trading range (top of range 46.5, currently at 46.86), but running into multiple resistance points at 47 (downtrend line and lows from mid-April).  In our financed based economy the financial stocks often hold clues as to the market's next move.  Bonds selling off too, signaling a "risk on" menatlity. If I seem sheepish on my short side bet, it's because these other variables do not support a sustained downside move.

Since nothing much has changed since I wrote this, I'm lowering my stop on my sheepish SPX bet to just above yesterday's high (1408).  The SPX is about 6 points away from that level, and it's right where my cost average from my short is (1402).  Right now I have little confidence my trade is going to work, but I'm removing the emotional element by placing a stop above yesterday's high.  If it triggers, I'm out of the trade regardless what my gut tells me (that it should be going down).

smedleyb

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Re: Efficient Markets, RIP
« Reply #282 on: August 10, 2012, 01:34:46 PM »
Since nothing much has changed since I wrote this, I'm lowering my stop on my sheepish SPX bet to just above yesterday's high (1408).  The SPX is about 6 points away from that level, and it's right where my cost average from my short is (1402).  Right now I have little confidence my trade is going to work, but I'm removing the emotional element by placing a stop above yesterday's high.  If it triggers, I'm out of the trade regardless what my gut tells me (that it should be going down).

The longer the SPX can stay above the 1400 level, the better the odds for a sustained move to 1425 and beyond.  This phenomenon is know as basing above a resistance level (1390-1400); not to mention the averages are working off their overbought conditions by just trading sideways, and therefore gathering strength for their next move (little base camps to use when climbing a mountain). 

I'm still involved, but even though I shorted right at these levels I'm slightly down due to the theta (decay in time value) of the SPY puts I own.  Thankfully it's a small bet, with tight parameters (stop above SPX 1408), even if it looks more and more like a loser each passing day.  I was even getting ready to sell the puts this morning at SPX 1390 ( I thought it was heading there this morning) but the market never really came close (1395.62 was the low) to hitting that number.

There's a glimmer of hope the bears might knock it down over the next several sessions but I'm not holding my breath. 







 

arebelspy

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Re: Efficient Markets, RIP
« Reply #283 on: August 10, 2012, 05:47:02 PM »
If it's predictable like that, why doesn't one just write a computer program to trade based on certain conditions (note: I am not referring to HFT)?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
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smedleyb

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Re: Efficient Markets, RIP
« Reply #284 on: August 10, 2012, 08:29:52 PM »
If it's predictable like that, why doesn't one just write a computer program to trade based on certain conditions (note: I am not referring to HFT)?

They do:

http://en.wikipedia.org/wiki/Technical_analysis_software

arebelspy

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Re: Efficient Markets, RIP
« Reply #285 on: August 10, 2012, 08:45:40 PM »
So why aren't there more people getting rich off of that?

And why don't a sufficient number of those reduce the opportunities?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

HowMuchCanAKoalaBear

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Re: Efficient Markets, RIP
« Reply #286 on: August 11, 2012, 07:06:54 PM »
People don't get rich off TA because it makes Astrology look good.  Most money made from Technical analysis is from chartists selling their books and systems to the gullible on how to do it...:)

smedleyb

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Re: Efficient Markets, RIP
« Reply #287 on: August 13, 2012, 08:04:49 PM »
People don't get rich off TA because it makes Astrology look good.  Most money made from Technical analysis is from chartists selling their books and systems to the gullible on how to do it...:)

TA is just one piece of the market puzzle.  Investor psychology and company/sector/macro-economic fundamentals are the other two core pieces that every investor should factor into their market outlook and long-term investment allocation. 

But yes, there is a large industry out there dedicated to selling traders techniques, systems, and strategies which are ultimately designed to separate wanna be traders from their dollars.  But in that industry there do exist pockets of genuine people who seek to clarify the market mechanism to novice investors possessing a desire to understand Wall Street, not in order to profit from its short term gyrations, but for the sake of formulating and implementing long term investment strategies. 

TA is a real force that moves stocks just as much as stocks move the charts.  Nobody is saying anybody has to bow down at the altar of TA, but to dismiss it as irrelevant or as a bunch of superstitious BS  is like an atheist pretending the world is devoid of theists because in his mind God is dead. 

smedleyb

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Re: Efficient Markets, RIP
« Reply #288 on: August 14, 2012, 08:56:23 AM »
I'm still involved, but even though I shorted right at these levels I'm slightly down due to the theta (decay in time value) of the SPY puts I own.  Thankfully it's a small bet, with tight parameters (stop above SPX 1408), even if it looks more and more like a loser each passing day.  I was even getting ready to sell the puts this morning at SPX 1390 ( I thought it was heading there this morning) but the market never really came close (1395.62 was the low) to hitting that number.

Note: stop triggered above 1408 this morning on small SPY put purchase for a small loss. 

mechanic baird

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Re: Efficient Markets, RIP
« Reply #289 on: August 14, 2012, 10:38:36 AM »
People don't get rich off TA because it makes Astrology look good.  Most money made from Technical analysis is from chartists selling their books and systems to the gullible on how to do it...:)

TA is just one piece of the market puzzle.  Investor psychology and company/sector/macro-economic fundamentals are the other two core pieces that every investor should factor into their market outlook and long-term investment allocation. 


Here is what I see why trading is so hard for average folks. You have to be good at:
- valuation
- behavioral finance
- macroeconomics
- risk management

And TA plays a huge part to assist.

97% of folks are gonna suck at it. Just like most of the engineers I encountered are not that great.
Investment is just as hard as all other skills to master. It takes years of dedication, studying, making mistakes and long hour of work to make one a great investor. I just don't see majority of the people would have either the time or the dedication to achieve it.

If you think you can put 2 hours a day aside and trade for 3 years make you a good investor, you are fooling yourself.
so for majority of the folks out there, your best bet is to dollar cost averaging into low cost funds that spread across different investment classes., hence asset allocation.  When market takes a huge dip and got you wet your pants, you can pump in some extra dollars to lower your cost basis.. You may come out ahead one day.
« Last Edit: August 14, 2012, 10:42:01 AM by mechanic baird »

grantmeaname

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Re: Efficient Markets, RIP
« Reply #290 on: August 14, 2012, 11:51:45 AM »
Although there's no evidence that putting work in makes it possible for you to beat the market.

HowMuchCanAKoalaBear

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Re: Efficient Markets, RIP
« Reply #291 on: August 14, 2012, 06:29:32 PM »
^^ No evidence and why don't the 3% of  experts get hired by and  help the large fund managers to always beat the market? The evidence is in it doesn't work!

smedleyb

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Re: Efficient Markets, RIP
« Reply #292 on: August 14, 2012, 10:12:42 PM »
Note: stop triggered above 1408 this morning on small SPY put purchase for a small loss.

Fascinating how the SPX has traded around the 1400 level for the past 8 sessions or so.  A level TA identified months ago as significant has proven its worth as the market has reached this point and has traded in the narrowest range for the longest period of time since February. 

It's like the market was magnetized to this 1400 number and now that it's here it can't decide which way to break. 

I confess I don't have an inkling of what the market wants to do next.  So I'm comfortable being 100% cash for the time being.

I mean when Marc Cuban and Bill Gross both tell you that the market sucks, that it's rigged, and to expect anemic returns going forward, why stay invested at all? 

But that's just me agreeing with them.   

arebelspy

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Re: Efficient Markets, RIP
« Reply #293 on: August 14, 2012, 10:30:43 PM »
Sell some puts.  Make money in a flat market off others taking insurance.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

smedleyb

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Re: Efficient Markets, RIP
« Reply #294 on: August 15, 2012, 08:20:57 AM »
Sell some puts.  Make money in a flat market off others taking insurance.

Covered call writing is the best strategy for extracting income in a sideways market, IMO.

And just like a moth to flame, reloading on some puts this morning (QQQ at 67.20).  QQQ NOV paper to be precise.  About equal position wise to the puts I sold yesterday.  I can't shake the feeling a violent jolt downward is right around the corner.  Pure intuition at work but contemplating placing a stop right above yesterday's highs just in case, although above NDX 2750 seems like the better cut and run level.

Keeping it small and tight for now.  Small losses are bearable -- until death by a thousand paper cuts.   

Mr Mark

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Re: Efficient Markets, RIP
« Reply #295 on: August 15, 2012, 09:54:55 AM »
I really hope all the readers understand that this sort of market timing 'investing' is speculation and is NOT Mustachian.

Your odds of beating the market long term is zero, and instead you'll be feeding wall street fees, while becoming disillusioned with the stock market as your bets loose, and thus becoming risk adverse and not investing in the stock market.

Vanguard. Asset allocation. Regular savings. Tax optimization.
Increasing saving rate. Lower spending. Reduce debt.


Ignore the market.

There is no need to gamble to achieve FI. Your odds are better at your local casino, either poker if you have skill, or craps if you don't.

Interesting as this discussion is, it is not representative of mustachian investing, and should come with large print health warnings.

arebelspy

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Re: Efficient Markets, RIP
« Reply #296 on: August 15, 2012, 10:13:04 AM »
Absolutely, Mr Mark.  Well said, and I 100% agree.

No one should be doing this at home, unless they want to lose money. (The rare exception due to the law of large numbers aside. Yes, sometimes people do win the lottery. No, that doesn't mean you should play.)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

smedleyb

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Re: Efficient Markets, RIP
« Reply #297 on: August 15, 2012, 01:11:47 PM »
I don't see how developing a set of tools to better understand the forces impacting markets -- historical cycles, psychological forces (greed, fear, and apathy), fundamental issues (balance sheets, management, income statements), technical analytical tools (charts move markets as much as markets move stocks), massive governmental stimulus -- is anti-mustachian.

Any one who bothers to read this thread -- and damn it's a long one, but good debates tend to last a while -- knows exactly what I'm all about.  I've tried to stimulate discussion/dialogue and to give  real-time examples of practices that may seem foreign to most. 

Fundamentally, I vehemently disagree with Mr Mark and Arebelspy on several core issues:  first, I think it's possible to see the stock market passing through various cycles which necessitates a different investment allocation depending where we are in the cycle.  While "timing" the market on a daily basis is a fool's errand and should be attempted only with play money, "timing" the markets based on their short and long cycles is an entirely different animal and a vital tool for good investing. 

Second, I believe that cash is an asset too, and that discouraging investors from maintaining high levels of cash is just bad financial advice given our current market, which includes:  flash crashes; opaque HFT trading; trillions in governmental liquidity (which you and I must pay back); toxic debts; "too big to fail" banks; sovereign debt collapse, etc.   These are the most rigged, artificially jacked up markets in history, so for me to say "yeah, just go ahead and pump your money into that index fund at these levels because over time you make money, etc," I need to suspend my better critical judgement. 

Third, I think introducing technical, psychological, and fundamental analysis into our ability to discuss stocks is not an invitation to go hog wild buying and selling stocks based on this or that indicator, but rather an attempt to demonstrate that the market does possess an inner logic which -- while not fully obvious to mere mortal investors -- is capable of being talked about intelligently and described. 

Or as Shakespeare put, there are more things in heaven and earth, than are dreamt of in any of our investment philosophies.  Mustachians out there know this and don't need to be told what to do by any of us. 






   

arebelspy

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Re: Efficient Markets, RIP
« Reply #298 on: August 15, 2012, 02:38:48 PM »
I think the difference is that we see that of all of the people that "understand" market timing (TA, psychological forces, etc.), there hasn't been any evidence that this understanding has helped them beat the market at all, and indeed, a mountain of evidence to the contrary.

Thus it's a promise of false knowledge, an illusion, a mirage, at best.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

smedleyb

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Re: Efficient Markets, RIP
« Reply #299 on: August 15, 2012, 03:13:35 PM »
I think the difference is that we see that of all of the people that "understand" market timing (TA, psychological forces, etc.), there hasn't been any evidence that this understanding has helped them beat the market at all, and indeed, a mountain of evidence to the contrary.

Thus it's a promise of false knowledge, an illusion, a mirage, at best.

In that case, here's some more peddlers of false knowledge:

http://seekingalpha.com/article/168895-shiller-s-cyclically-adjusted-price-earning-ratio-as-long-term-timing-indicator

A timing method that achieves slightly greater gains over index investing at nearly half the level of volatility. 

Schiller, of course, is the father of behavioral economics who argues that emotions and valuations have a much greater impact on asset prices than rational expectations do.  He correctly forecast the market implosion of 2000 and was all over the housing bubble in 2006.
 
http://en.wikipedia.org/wiki/Robert_J._Shiller
 
In 1981 Shiller published an article in the American Economic Review titled "Do stock prices move too much to be justified by subsequent changes in dividends?" He challenged the efficient markets model, which at that time was the dominant view in the economics profession. Shiller argued that in a rational stock market, investors would base stock prices on the expected receipt of future dividends, discounted to a present value. He examined the performance of the U.S. stock market since the 1920s, and considered the kinds of expectations of future dividends and discount rates that could justify the wide range of variation experienced in the stock market. Shiller concluded that the volatility of the stock market was greater than could plausibly be explained by any rational view of the future.

I'm not saying anybody is right or wrong.  I'm simply saying that these "illusions" and "mirages" you claim I possess are pretty widespread in both academia, and especially -- most definitely -- on Wall Street. 

In other words, stop shooting the messenger.