Posted January 20, 2011 at 6:00 pm
by Cullen Roche:
“If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time.” -Chinese Proverb
As a society we have been conditioned to believe that there is a difference between gambling and investing. Of course, this partially true, however, the degree to which we “invest” and “gamble” is smaller than most are likely comfortable admitting. The majority of us have been conditioned to believe that buying a share of Bank of America is vastly different from placing a bet at a roulette table.
A closer inspection of “investing” and “gambling” shows that the two are closer than the Wall Street sales machine would like you to believe.
60 Minutes aired an excellent piece this past Sunday about Billy Walters (video attached below). Walters is a Las Vegas gambler widely acknowledged as one of the greatest gamblers Vegas has ever seen. He’s so good that he has to bet anonymously through partners due to the fact that most casinos won’t take the other side of a bet from Walters.
The few casinos that do bet with Walters do so mainly because they want to know what he’s thinking. But Walters isn’t truly a gambler. Walters is so good that he feels safer gambling than investing.
And ironically, it isn’t the casinos in Vegas that have taken Walters for a ride over the years, but Wall Street. Walters claims that it is not Vegas where the thieves live, but rather the men in suits on Wall Street.
Posted January 15, 2011 at 2:59 pm
by Peter Brimelow:
NEW YORK (MarketWatch) — After 45 years, Harry Schultz has just published the last issue of his International Harry Schultz Letter.
He’s superbearish but opportunistic.
Schultz, now 87, is one of the legendary characters of the investment letter industry: a hard-driving promoter who specialized in bold, radical high-concept stands. ( See Sept. 16, 2010 column.) I named him Letter of the Year in 2008, because he indisputably predicted the Crash (a “financial tsunami”) although paradoxically failed to benefit very much. ( See Dec. 28, 2008 column.)
But Schultz is also a trader, with a great respect for short-term trends. In this respect, if no other, he’s like the Aden sisters, to whose Aden Forecast he will be contributing occasional columns. ( See Dec. 30, 2010 column.)
The International Harry Schultz Letter has been something of a tsunami itself, with dozens of recommendations and opinions on an amazing range of subjects. Its relationship with the Hulbert Financial Digest’s monitoring system has been complex and sometimes strained.
Posted January 13, 2011 at 10:18 pm
by Dynamic Hedge:
Being a contrarian means having a healthy dose of skepticism. It’s necessary in the trading world. Contrarians don’t take things as they come. They don’t chew and swallow every morsel spoon fed to them by the media. They don’t blindly act on every analyst research note. In a world where every thesis can be slanted with near-ideal scenarios, few roadblocks to success, and a long-term trend in their favor, a critical mindset is required to temper all the BS.
Great contrarians are invaluable team members and collaborators. They force you to consider counter arguments by highlighting perspectives you may not have considered. They tend to dig deeper in their analysis than average, especially when the consensus is heavily against them. This contrarian persistence has uncovered information that may have never seen the light of day (see Enron, WorldCom, etc.). They can be inspiring in their fearlessness, conviction, and bravery, armed only with their due diligence and intellect.
Not all are contrarians are created equal. In my experience I’ve come across three types of contrarian:
The Natural Contrarian has skepticism and intellectual curiosity from birth. They have a competition in them that drives them to “take the other side” when they know they’re right. One of the defining characteristics of a Natural Contrarian is that they know where to pick their battles. The work hard to confirm or disprove their thesis and aren’t afraid to walk away when proven wrong. Contrarian opportunities are intuitively obvious to them, and being right in the face of the consensus comes naturally.
The Trained Contrarian is different in that skepticism is not second nature to them. They force themselves to be more skeptical and to against their naive and trusting tendencies. They can become even better at spotting contrarian opportunities than the natural. They work much harder and dig deeper into their analysis than the naturals — not only to prove their thesis, but to convince themselves.
A terrible condition exists for those that take contrarianism too far. They make it a part of their identity and wear their cynicism as a badge of honor. The identity of being a skeptic determines how they view all events in life and business. Give them any consensus and they will fade it. Present them with any situation or opinion and they will argue against it. They see the world as perpetually incorrect.
New term: COIF, (Contrary Opinion Indifferent to Fact) (Pronounced kwäf)
The main difference between contrarian and COIF is that the COIF doesn’t hold the same standards for logical and intellectual analysis to see if they’re correct. They carpet bomb cynicism because their internal contrarian gauge is uncalibrated. The kiss of death is when COIFs have been correct enough times by simply betting against others that they believe that “betting opposite” is all that is required for success.
Contrary does not equal correct, although it can appear so in the rear view mirror. COIFs appear right more than wrong because they are unafraid to take bold stands against popular modes of thinking. Being right about something as serious as a financial crisis can appear critical and timely after the fact if the observer doesn’t realize that they are dealing with a COIF. Being correct about big events is addictive and being a COIF offers a high probability of doing that. If you bet against everything you will be right about many things. More importantly you will be right about things that many others were wrong about. They will wonder what the COIF saw that they missed, and to them the COIF looks like a hero/genius.
Contrarianism needs to be tempered with fact. Cynicism can only masquerade as intelligence for so long. There is a time to be a contrarian and, believe it or not, a time when the consensus is actually right. You do NOT need a COIF on your team, because they’ll never be able to tell the difference.
[ orginal source ]
Posted January 7, 2011 at 8:46 am
Introduction Via Nancy Miller @ Fortune
Richard Bookstaber, veteran Wall Street risk manager and hedge fund manager, made a splash on the eve of the financial meltdown with the publication of Demon of Our Own Design, a book that warned the markets had grown too complex and were headed for a crash.
Last year, Bookstaber left Wall Street to join the Securities and Exchange Commission as Senior Policy Adviser in the newly formed Division of Risk, Strategy, and Financial Innovation – a job he calls the most fulfilling of his career.
In what spare time he has, Bookstaber trains in Brazilian jiu-jitsu, pens a broadly read blog, and during his New York-Washington commute is working on a novel that explores the limits of human knowledge.
Posted January 6, 2011 at 12:14 pm
by Jeff Miller:
Should investors pay attention to the turn of the calendar?
Putting aside the seasonal effects — the Santa Claus rally, the January effect, and the Presidential mid-term rally — it is an important psychological time. People reflect and plan.
Posted December 31, 2010 at 6:13 am
by Sara Glakas
It’s time to prepare for 2011.
But before we do, first let’s look back to the lessons learned in 2010.
As the S&P 500 climbs to levels not seen since September 2008, it’s easy to forget the massive uncertainty that confronted investors at the beginning of this year. With so many conflicting trends and disparate prognostications, it was easy to become paralyzed — afraid to make the wrong move. Needless to say, in 2010, I learned the value of having a plan and relying on it to counteract the forces of investing inertia.
Jeremy Grantham, chief investment strategist of global investment manager GMO, is one of my all time favorite investors and financial commentators. He wrote the following in a newsletter titled “Reinvesting When Terrified,” way back in March 2009 when the S&P 500 plunged below 700:
“…a simple clear battle plan — even if it comes directly from your stomach — will be far better in a meltdown than none at all. Perversely, seeking for optimality is a snare and delusion; it will merely serve to increase your paralysis. Investors must respond to rapidly falling prices for events can change fast.”
I printed out that piece of advice, taped it into the notebook I carry around with me, and look at it whenever my stomach is in knots.
Which brings me to another lesson I learned in 2010: seek out the best and brightest financial minds before wading into the deep waters of investing. It’s a world largely populated with sharks.
Luckily for us here at InvestingAnswers, our family of publications, including StreetAuthority.com, TopStockAnalysts.com and SmallStocks.com, draws on the expertise of some of the country’s most thoughtful and experienced financial talents.
I can just walk down the hall (or send an email) to ask our writers what they learned in 2010, and more importantly, how they hope to apply it in 2011.
Posted December 10, 2010 at 11:34 am
From an interview with The Gold Report:
Jeff Howard (CEO, Global Resource Investments): Rick, let’s start with the precious metals markets because it’s been a glorious time the last three months or so, and it may be a good opportunity to get your thoughts on where we’re going from here.
So starting with gold, you know we’ve always joked over the years that when you start reading about gold in the Wall Street Journal or the Los Angeles Times and you start hearing about it on CNBC, that’s a sign of a market top, and that’s kind of what’s happening right now. It’s a popular topic out there. However, the actions of central banks and the growing distrust of paper currencies suggest that the strength in gold may continue for much longer than what we’ve seen in the past. So, what’s your take on the future direction of gold prices?
Rick Rule: Well, sadly…
Posted December 1, 2010 at 5:07 am
by Barry Goss:
There he was, like a clock, ticking away with the noise.
I simply took a break from the office, sat down with a bag of gluten-free pretzels, turned on the TV to keep me company, and almost choked at what I heard:
“Ya see, today is a perfect example of why bears aren’t to be heard. Most, on the institutional side, even have a hidden agenda to talk a stock, or even the broader market, down. Because they’re undercapitalized, and sitting on too much cash.”
I yi yi… the master spinner of “See, I told ya so,” when the market rallies, was at it again.
Today, for instance, stocks got off to a gangbuster December start. The Dow Jones industrial average rose 249 points, its sixth biggest gain of the year.
And arm-flailing Cramer was speed-talking his way through the next great coming rally.
Yup, even in the face of a worldwide credit crisis (which equates to a currency crisis throughout), declining income / employment, and no real, durable, stable growth in the U.S., he’s still the ringmaster for… er… well, for the U.S. stock market as a whole.
Those are stocks that have, naturally, already hit a big run due to recent events. Yup, Mr. Mad Money is almost blind to crucial longer-term trends.
If you’re AFTER an analyst who has his TIMING down, rest assured, it’s not Cramer who you want to follow.
For instance, in this piece (and video clip) from July 30, 2008, Cramer boldly proclaimed that the stock market lows hit in mid-July marked the end of the stock market’s downturn!
The worst part of the 2008 stock market decline didn’t take place until the late summer and early fall, and in fact the market dropped another 30+% from the low which Cramer predicted was the bottom!
And, you might think that Cramer’s advice on investment banks, where he has lots of contacts and used to work, might have led him to have some insight before that sector imploded in 2008.
But, on 8/17/2007, Cramer recommended buying Bear Stearns at $118.20 per share. He lost 95 percent on this one — selling at just under $6 per share on 3/20/08.
And, his picks on Lehman Brothers, Morgan Stanley, and Merrill Lynch are just as atrocious!
So, while I could cite a bunch of head-shaking references (links and videos) about his merely overall average record, while exuding unabashed confidence, I won’t.
What I will say, however, is this:
If you’re into the “feel good” thrill of being jazzed-up by a TV authority figure who has the ability to push your emotional hot buttons, continue watching Mad Money on CNBC.
If, however, you understand that there are no-nonsense, results-driven TRADERS out there (not nicely-dressed, fast-talking stock pickers who love their bright lights and big noises) who are only compensated when they ALSO produce results for you, click here…
The link above will take you to a very short educational video about the underground (non mainstream) world of professional MTAs — select investment vehicles that won’t keep you awake at night because you made a hasty decision, due to a wild shoot-from-the-hip recommendation by a TV personality.
Posted November 30, 2010 at 11:54 am
Biography: Terry Shaunessy is President and Founder of Shaunessy Investment Counsel, a Calgary based money manager, specializing in quantitatively derived domestic and international investment portfolios for institutions, corporations and ultra high net worth families.
Prior to founding his own firm, Terry gained extensive capital markets experience in his roles as President of Gordon Capital, Director of Equity Research, Merrill Lynch Canada, Executive Vice President, Institutions HSBC Asset Management (Canada) and Managing Partner and Portfolio Manager, Gryphon Investment Counsel.
Q: Let’s start off by getting to know your macro outlook of the markets.
A: The short version is that there is a global economic recovery underway. There is no double dip, the recovery is unstoppable. It will be slightly different in as much as the United States will not be the engine for this recovery. The engine of growth will be in Asia, India and Latin America and that is something that will persist for the balance of this century. Under those circumstances, we tend to ignore most of the hand wringing that’s occurring around traditional ways of looking at market cycles. So while we are not looking for the U.S. economy to do particularly well, (expect it to expand at a two and a half(ish) kind of growth rate), we never confuse what’s happening with the economy with what’s happening with the capital markets.
Given these conditions, our asset of choice is equities. We do think that earnings will drive equity markets. Export oriented equities will do the best. We know that with regards the S&P 500, 50% of sales right now come from outside the U.S. That will only get bigger over time. Earnings will continue to surprise on the upside, due to a combination of better than expected earnings from the banks, as their loan loss provisions keep dropping given that they are such a big component of the S&P earnings.
This is something most strategists have got wrong. The other reason for better than expected earnings is that generally analysts in the U.S. are underestimating the earnings power of export oriented big cap S&P 100-type companies that dominate that index. So we really like the S&P 500. By virtue of the fact that about two thirds of the TSX Composite is either in energy or materials, this index is obviously going to do well. The banking system here in Canada is just fine and we’re not concerned about that. The U.S. market will probably do a bit better than the Canadian market and the only thing that we really are a bit cautious on is the fixed income market.
Q: Given this outlook, what is your current asset allocation strategy as it pertains to your benchmark portfolio?
Posted November 20, 2010 at 2:59 pm
by Hans Wagner:
Where do you get your stock investing ideas? Inspiration can come from many places, and while some resources make a lot of sense, others are a sure path to financial ruin. Here is my list of the five most dangerous places to get your investing advice.
1) Internet Message Boards
If you’re currently turning to an online message board for investing advice, stop right now. The people posting on these web forums are notorious for making over-the-top predictions with little, if any, rationale supporting their claims.
The majority of posts can be broken down into a few categories: baseless claims, bragging, spam, and name-calling.
But the biggest problem with online investing message boards is the rampant manipulation. Some users post comments to purposefully manipulate the trading activity in their favor. For many companies, especially those lightly traded, it might be possible for the right comments to move the stock price in one direction or the other.
There are even cases where executives of companies use the message boards to influence the price of a stock by making inappropriate comments. Papers filed by the FTC revealed that for several years Whole Foods Market (NASDAQ: WFMI) CEO John Mackey posted highly opinionated comments under the pseudonym “Rahodeb” on a Yahoo! Finance message board.
Investors who make buy and sell decisions based on the message boards are playing a dangerous game.
2) Penny Stock Spammers
Right up there with the internet message boards are those annoying emails claiming that some new discovery (still widely unknown to the media) is about to send this $1.00 stock soaring into the stratosphere, quickly making millionaires out of anyone who buys shares.
That’d be fine, except for there’s never very much information to substantiate the claim. But these emails are still going around, so someone must be taking the bait.