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I thought I’d be the second to post on this great new Forum.
One of my most favorite formulas, when dealing with Finances, is the Time Value of Money. This simple formula can determine our Future. At least how we are going to be spending our Future.
PV = Present Value of money. FV = The Future Value money. I = The interest rate n = The number of periods that the interest compounds.
For the Future Value of a given Present Sum the Formula looks like this:
FV = PV(1+I)n
For the Present Value of a given Future Sum the Formula is this:
PV = FV/(1+I)n
Let’s say I want to be a millionaire 20 years from now? I know that the SP500 has a track record of 11.5% Interest Compounded annually. I also know that Inflation has been around 4% compounded annually. If I really want to be worth what a Millionaire is worth today, 20 years from now; I’ll have to account for Inflation. So my true interest rate should be around 7.5%. Now lets plug this all into our handy “Time Value of Money” formula.
PV = $1,000,000/(1.075)20
PV = $235,413.15
Oh boy, I think I need to do something drastic to meet my goal! I just don’t have that kind of dough lying around.
One thing I do know is that if I’m willing to work at it I can get around 25% annual interest from wise investment in the Stock Market. If my investment horizon is still 20 years I can see how much increasing my interest rate helps.
PV = $1,000,000/(1.21)20
PV = $22,094.93
That’s more like it! By multiplying my interest rate by three I have decreased my seed money by close to 11 times. Of course an average of 25% APR on investment for 20 years isn’t an easy feet. Don’t expect any broker to be able to give you that kind of return, but it can be done. Just ask good old Warren Buffett.
CV
As I understand it, Warren got clobbered last year, thanks to his foolish devotion to Coke and Nike. Oh well, lucky for him he made himself a billionaire back in the days when positive earnings drove the market. What a strange concept!!
Go AMZN!!!
shooter
nt
William O'Neil has averaged 40% a year for the last 25-30 years
The fact that Warren Buffet made 25% returns in the stock market over 20% doesn't prove it "can be done" by you any more than the fact that crazy Greek guy built a $10 million bankroll playing craps means that craps is a good investment. Both are just outliers playing games with high standard deviations.
Of course, picking stocks has more skill than playing craps, but almost all of the rigorous analytical work done on the market supports the "efficient market" theory that essentially boils down to this: "The higher the risk, the higher the reward!"
I personally think the best market "angle" is to find an overlooked small cap growth stock before the institutional lemmings catch wind of it and pile in. The best way to do this is follow your "Buy what you know."
Good luck.
Bravo Michael 7.
CAPM theory is acknowledged to be as "true" as the market gets. But defining "risk" is the key issue. It's not simply variance or being a long-shot. Some long-shots don't give the equivalent of "pot odds".
But the ignorant sucker market is driving PE ratios to 500 and more. The rules are constantly changing. I'm more worried about the economy when the baby-boomers start cashing in their retirement investments and put massive downward pressure on the entire market.
Has anybody read the book The Great Boom Ahead? Comments?
I've read this book and I think it explains perfectly why we are having the great economy that we are. It's predictions of the future however are somewhat disheartning. But something to seriously think about.
Buying what you know might not make you a bunch of Dough, but it probably won't lose you a bunch either.
I think the "Buy what you know" slogan is a great start. I personally change it around to "Know what you Buy" Of course there are many other factors involved. Hey, if it was really so easy to make money in the Stock Market that a grade schooler could do it then nobody would be making much money. Does that last statement make sense?
I do think that making money in Stocks is easier than what most people think but harder than what some people believe. Especially where I live. Everyone wants to get rich quick, and they don't want to learn anything that seems too tough. The only thing that leaves them is the Con Artists. Wade Cook was a big seller at the local Church gathering last year. People were pulling out $3000.00 a pop to buy his garbage. I know where all their children's inheritance is going, I just wish I was smart enough to be at the other end.
One nice thing about the Stock Market vs. other games of chance is that it isn't a Zero Sum game. It just keeps growing and growing. That’s good for the Pass Line Idiots because as long as they don't move their money around too much they probably won't go broke.
CV
Chris I like your post a lot. A couple of comments. Yes buying stocks isn't a zero sum game but one has to look at it in light of other investment vehicles like CD's, bonds, etc. Also if you pick individual securities you have to evaluate your portfolio in terms of how it performs against an average that you could simply have bought outright. If you have trade a lot you have to evaluate your performance vs. buying and holding.
True, if we are going to actively manage our own money then we should at least be averaging well above Government Bonds. I like to gauge my Investments against the S&P500. The Motly Fool has a great on-line portfolio program that lets me see how my Stocks are doing vs. the S&P500.
CV
I don't know why everyone wants to talk about Warren and not The Time Value of Money which is much more important. Warren probably had some good luck to be as rich as he is, but his correct thinking of how the Stock Market works gave him the edge.
The fact is that the investors who have followed the Graham and Dodd approch to security sellection have had much better returns than the Market as a whole.
CV
Statement 1: The time value of money is very important.
Statement 2: In order to acheive superior returns an investor must take on greater risk.
Both statements are true and aren't contradictory from my point of view.
So is Warren Buffet a Craps player?
CV
I don't think so. But his historical results alone do not prove that he has any special talent or ability that will produce similar results going forward.
Its the old "give a hundred million monkeys a hundred million typewriters and one of them will write a Shakespeare sonnet" analogy. With tens of thousands of stock pickers out there, one of them was bound to produce impressive results, just like a gambler will occasionally break the bank.
One key difference, however, is that the stock market does not have the odds stacked against an individual player. The EV of investing in a diversified equity portfolio has produced returns of 5-7% above risk-free bonds in the US since the early days in the market, and the gap has been even wider over the last decade. So instead of a bell curve for craps shooters centered on a negative 1%, picture a bell curve for stock "sages" centered on +7%. Its statistically insignificant if one of the trials averages returns in excess of 20%, especially if they are making large bets on a small number of stocks, (as Buffet has).
This isn't my personal dogma, as I prefer to pick my own stocks rather than index. I'm just pointing out that the evidence compiled by efficient market theorists is pretty difficult to refute.
I'd suggest you read the Appendixes to "The Intellegent Investor" by Ben Graham. You will find an article, 'The Superinvestors of Graham-and-Doddsville' transcribed from a talk given by Warren E. Buffet. Basicly the article go's to prove that rather than Buffet himself, the other 3 employees of Graham-Newman Corporation from 1954-56 have all gone on to substantially beat the market at the end of 1984 when Warren gave the talk at Columbia University. Tables are given for each of the Funds and how they performed vs. the S&P500.
CV
I've read it; I've heard Warren speak on several occasions; I've taken a course in Investment Management based on his methods, among others.
I'm still skeptical about the ability for a 3rd party to profit from his methods.
I invested $5000 in each of two stocks in 1997.
1. Xerox, a classic value play that looked cheap according to its market position, growth, cash flow, etc. It is now worth $3570.
2. Cisco Systems, a classic growth play that looked extraordinarily expensive by every tradtional valuation measure. It was especially expensive if you did any long-term disounted cash flow model, even when using aggressive growth assumptions. The stake is now worth $71,000.
Not that this proves anything, but this is why the motto for th 90s and beyond is: "Value investing is dead."
I'd like to see how Warren's portfolio performed over the last 10 years. He had a lot of loot tied up in former blue chip equity market stalarts like Coke, Disney, USAir, Gillette, and a host of value stocks stocks while the tech sector was taking over the market and the world economy.
.K. I'll agree that the Buffett style of investment probably isn't right for the average Investor. I don't use Buffett's style. I don't have the time, resources, or the money right now to seek out the one perfect company and buy it. Warren can get much closer to the companies management than a small investor can. Since I don't get as much information as Warren gets I diversify.
The reason I talked about Warren is because everyone knows who he is, he was nobody special, and is now a Billionaire through the Stock Market. Try to do that playing Poker.
Its been proven to me time and time again that the market isn't all that efficient. I tend to go with undervalued small caps because that is where the least efficiency seems to be.
I still would like to do some Risk Arbitrage or what Graham and Buffett would call "workouts". I just haven't had the time to thoroughly study that aspect of investing. I'm having trouble just keeping up with the stocks I have, plus studying Poker, taking College courses, and working full time while trying to get laid every once in a while.
CV
I had a lot of trepidation about making this post. The reason is that it probably come across as pretentious but in reality it is somewhat embarrassing. I make this post in the spirit of sharing my somewhat limited knowledge and my experience. I have some 401k money that I moved into a self directed IRA. I did this in three stages. The first stage was in August of 1998, the second stage was in January of 1999 and the third stage was in December of 1999. The market was headed south in August of 1998 and buy October 8, 1998 my portfolio had declined 55% in a matter of about 2 months. I used a stock screen that I designed to give me a list of stocks. From this list I selected 4 stocks. I did a cursory review of the companies and what their products were. The stock screen was a simple one based on high growth and high margins. I totally ignored (on purpose) every other value measure like PE, returns on assets, return on equity, book value, etc. Basically I knew very little about these companies. Here is how this list of stocks has faired since the time I purchased them.
Stock A was purchased at 11 (it was at 5 on October 8,1998) and is now at 132.
Stock B was bought out by Cisco and I effectively purchased CSCO for $25. Today CSCO closed at about $115.
Stock C was bought out by Lucent and I effectively purchased LU for $22. Today LU closed at about $55.
Stock D was purchased at $18 and today it closed at about $50.
My wife who has never looked at an income statement in her life and doesn't even know what a PE ratio is wanted me to buy 3 companies. Two were ones that she had discovered in doing a history project regarding the MSFT anti-trust suit. The third was a company that she used to have an MLM business with.
Stock E was bought out by AOL and I effectively purchased AOL for $15. Today AOL closed at about $60.
Stock F was purchased at $12 and today closed at about $81.
Stock G was bought out by TGO which give me an effective price of $27. Today TGO closed at $28.
I picked two "value" stocks which had low PE's blah, blah, blah.
Stock H was purchased at $24. Today it closed at about $5.50.
Stock I was purchased at $34. Today it closed at about $20.
From August on my wife started saying that we needed more Internet stocks. Now from what I could see and what all I read Internet stocks were severely overvalued. I got to be very good friends with a guy I work with and he started pointing out a bunch of Internet stuff that he liked and stuff that he had heard about. When I put the second batch of money to work in January of 1999. This seemed like the craziest and riskiest thing I had ever done. I didn't know that much about the Internet etc. I did some cursory research and bought the following stocks (mostly Internet) of which I didn't know that much.
Stock J - bought it at $24 and today it closed at $120.
Stock K - bought at $125 and today it closed at about $330.
Stock L - bought at $62 and today it closed at about $102.
Stock M - bought at $61 and today closed at about $108.
Stock N - bought at $120 and today closed at about $250.
Stock O - bought at $51 and today closed at $16.
Stock P - bought at $5 and today closed at about 11 (this is a bio-tech company).
This past December I bought 5 more stocks of which 3 I picked from a screen and 2 my wife picked because she liked their products. I used some different criteria for the screen this time as I want to see how these stocks perform given the expected and hopefully greater than expected earnings and revenue growth. Basically I ignored every traditional value measure. Again I don't know all that much about these companies.
Stock Q - bought at $33 and today closed at $19.
Stock R - bought at $133 and today closed at $ 145.
Stock S - bought at $146 and today closed at $117.
Stock T - bought at $21 and today closed at about $21.
Stock U - bought at $70 and today closed at $120.
I guess the old saying don't confuse brains with a bull market applies here. Also it seems impossible to me to predict the market movements short term. And I am pretty sure that a lot of knowledge can be helpful if you know how to use it. I am also pretty sure that complete understanding of a company and their business does not automatically equate to successful investing. To be honest I have been in the hole quite a bit on almost every one of stocks I own, however, they have bounced back and then some. There is a tremendous amount of volatility and only one of the stocks that I own now (stock U) is trading at it's all time high. In other words this stuff has been a lot higher. I guess what I am trying to get at here is that I didn't know all that much. I do understand a lot of issues with technology so that has helped me some in understanding why these things are in demand and from plain old curiosity I have learned a lot more about them than I did when I first purchased them. The right sectors and the right time is all that it amounts to. Nothing to do with being brilliant. I do have a margin account that I have experiment with day trading which I convinced myself would only get my broker rich. Now I am devoting it to fallen angels and it is doing pretty well still learning a lot.
There is no question in my mind that knowing a lot about a company is virtually irrelevant to making good stock picks. What is important is knowing one thing that others don't know, or having one insight that others don't. It is analagous to seeing a horse go five wide around the last turn in its previous race while the program doesn't show it, or knowing (hypothetically) that fillies improve by three lenghts when there is a three your old colt racing on both sides of them. These would be good bets since you can assume that the public has on average properly evaluated the other factors. Likewise for stocks.
or knowing (hypothetically) that fillies improve by three lenghts when there is a three your old colt racing on both sides of them.
Are you serious about this or just making up a hypotheitical. I have never heard this.
SeLL!!!! Take the money and run!!!
Vince.
David is accurate for short term plays. Long term success in a retiremnt account more often than not is achieved by diversifying a portfolio, and establishing reasonable goals based upon acceptable risk. Speculating (or high stakes gambling) should only be done with a small percentage of your retirement assets.
I beg to differ. Making many short to moderate term plays with the best of it, without overbetting your bankroll leads to greater long term success.
David please tell us about a few of your many stock market successes.
well, we agree that not overbetting your bankroll is a form of risk management. To successfully play the market one must have a solid tempermant, and not be averse to dumping when the situation moves against the bet. Obviously, David, you have a personality that plays these situations well. Not everyone does. For retirement investing, I think the average investor should diversify and gamble with a small percentage of the roll. This isn't a form of maximizing expected value, its a matter of living comfortably in old age.
True if you can find that big insite you talked about in the other post. It is hard to beat the extra vig of short term capital gains tax though.
D.
Hey Vince I'm a greedy pig what can I say. From my somewhat limited experience I believe that David is undeniably, unquestionably correct in what he states. BTW this experience has gotten me into Portfolio Theory which I am struggling with but making progress. There is a lot to it and of course a good working knowledge of mathematics is essential to understanding this subject. So again I am kicking myself for letting some of these skills, that I acquired earlier in life, slide.
The best example for me personally occurred when I was in the Mirage one Sunday night a couple of years ago. They had just installed a bank of brand new slot machines that were obviously on trial for the first time. They had a Monopoly theme and had important characteristics that I expected from experience would lead to success. Much more importantly, the people were lined up to play one of these six machines! This might not seem like much of a sample but I knew otherwise. They were made by WMS which was a small enough company to be greatly affected by a block buster hit. That was all I needed to know. I bought a bunch of shares the first thing Monday morning and watched the stock quadruple in a few months.
I was trying to buy some XMAS presents on Etoys in early December. The system was absolutely bogged down with traffic and I couldn't get through to place an order.
However, the contrarian play here was to SHORT etoys as they obviously didn't have the infrastructure to handle the Christmas orders and the equity market was looking for these e*commerce stocks to book some real profits during Christmas. To exacerbate it, a lot of so-called day traders ran the stock up because they misinterpretted the traffic jam as a leading indicator of blow-out results for the Xmas season.
Sure enough, the stock got whacked by about 70% after Xmas because they announced massive losses because the had to take extraordinary spending measures (hiring extra help, emergency warehousing, etc. overnight freight) to maintain customer service.
I gave this play out to a few buddies, but missed it myself due to my disdain for short selling.
No real point, except to build on what DS highltighted. It's not only important to have more information than the overall market, but you can sometimes make a nice play based on a unique interpretation of that info.
I've founf that looking for stocks that have a big investor bagged hard can be a good play. For instance: US Air was trading below $5.00 a share after a series of accidents a few years ago. British loans were drying up. The company had one huge factor in its favor: Warren Buffet was an insider with a big bagged position. The stock eventually rose above $70.00 . I'm not sure where it trades now.
Warren took a bath on that one. UScare is in a very cyclical industry and as the high-cost operator, suffered the most at the botton of the cycle. Plus they were getting attacked by Continetal's Continental Lite strategy at the worst possible time.
There stock (along with other airlines) rose simply because the economy starting booming, fuela costs started dropping, and the industry had restructured itself into a series of hun-based oligopolies. This was a "play" based on company, indutry, and economic fundamentals if ever there was one.
they also sold off several planes to lower long term debt, and stabilized. The idea I had, which has worked before,is to tailgate by bying below what the haymaker is in for. They support the stock, and thus the opportunity for gains exists from that support. Clearly, the fundamentals of the industry help also.
I have a rather small IRA and am going to manage it myself. I am going to select an online trading company and make my own selections. Any suggestions, recommendations? Please!
Vince
I use Scottsdale. They seem ok to me. Not a lot of bells and whistles like charts etc. A friend of mine likes NDB a lot. I'd go for the best price on limit and market orders.
TD Waterhouse
ranked high, low costs, good service and info
and good for you for investing yourself.
buy the book "Random Walk Down Wall Street".
It's all about how the market can't beat the market and thus mutual funds that have high fees (as a whole) underperform the indexes (or average investors' investing).
Thanks. One of the things where I have changed is lengthening my time horizon and changing my mentality from that of being a trader to that of being an investor. Since I literally cost myself my first million as a trader I realized that I needed to change. I've read the book, A Random Walk Down Wall Street, cover to cover twice. Excellent book IMO. As I stated in a previous post I've been studying Portfolio Theory now. Highly interesting subject. I hope to be posting a couple of things soon when I have a firmer grasp of the subject.
For what it's worth, I also like Waterhouse. Trades are a flat fee of $12. One of the reasons I picked them was because they have a local office in my City which is a plus in my book. I also like the free S&P and Zacks Analyists reports. I don't have my 401k with them though because my employer uses Fidelity.
CV
Hey, I'm a humanities professor at scott's school, and we HAVE discussed poker with each other. Your post is ignorant on many fronts. For example, you don't understand the process of undergrad curriculum at all. College isn't like that Rodney Dangerfield movie, where you can run off and take whatever class you feel like. There's a strict major and core group of classes that declared majors have to take. scott is not a business major, therefore he may not be able to take any Finance sections. Second of all, the advice he's received hasn't all been 'wretched' (with the exception of those posts by Cisco). In fact, he's received one good bit of advice: Go to fool.com and start reading up on the basics.
To be honest, some posters here have just as little knowledge of poker as they do of the market. What's wrong with the free flow of ideas, even if it's sometimes lousy? If you really want bad advice on the stock market, try the AOL or Yahoo message boards. They're overrun by the ignorant.
shooter
Dear Mr. Elitist humanities professor. What advice of mine do you find wretched? Read Investors Business Daily? The markets aren't efficient? Please elaborate and then give us some specific examples of your exemplary stock market success.
I figured my post on the other board would bring you and I to blows, Cisco. I'll try to keep this as civil as possible, even though I think you're trying to pick a fight.
First of all, I'll disregard your calling me an elitist, since you don't know me personally at all. You know, 'sticks and stones'? Second of all, I never claimed to be an expert stock picker. I attribute your thread title to you feeling threatened by me, which you shouldn't be. I'm sure I'll catch heat from you for this observation.
The comment that struck me on the other board that gave me the impression of your advice being poor was your smug reply to someone recommending TWA stock. Rather than explaining why it's a questionable investment, you insulted their intelligence by claiming that you'd short the stock the next day. That struck me as arrogant.
As for my market success, I won't give away all my secrets, but I've done well by investing in large cap, high P/E tech stocks and having very little sector diversity in my portfolio. It's not 'safe' investing, but I'm young and less afraid of wide swings in the market. In short, I'm not retiring for another 40 years, so I can take risks. In fact, Cisco is one of my main holdings, along with Oracle.
I hope this post will not enrage you, as I don't want to be at odds with anyone on this board. Still, I welcome your reply.
shooter
I own Cisco too. I bought it at 99 last year. (Up $6 today to 132 in after hours trading on good earnings and a split announcement.)
In the last 30 years had I shorted every $3 stock recommended to me by a broker (or anyone else) I would be very well off. I would short this stock for no other reason than it is cheap and a broker recommended it. Cheap stocks are cheap for a reason. Yes, another William O'Neil quote.
About 10 years ago I automatically shorted any cheap stocks recommended to me on the assumption that anyone that thinks that this cheap stock (that they probably got on a tip from someone else) is going to go through the roof will almost certainly have a better chance of going bankrupt! My success rate has been about 9 out of 10.
I still don't believe in random walk or efficient markets. I DO believe IBD is a great publication. William O'Neil and David Ryan have a great winning system. His newspaper is a reflection of his system and his beliefs. In my opinion it should have 10 times the circulation of the Wall Street Journal instead of vice versa. If you want to learn how to pick great winning stocks just start reading this paper and you will see where great "new" ideas come from. Their charts and stock tables are also unsurpassed.
I posted my beliefs about the markets hoping for some serious debate. Why am wrong about random walk? Efficient markets? Buying cheap stocks. IBD. Instead people just say I don't know what I'm talking about. Interesting. When I post a dissenting viewpoint I'm arrogant and unknowledgeable. Interesting. I really don't care what people think of me but if I have some flaws in my reasoning or if there are some valid points in theories that I don't believe in I would expect to see them posted. Instead--nothing. I have a feeling that those that are very knowledgeable in these subjects are remaining silent. You are right about the other outside "message" boards. Nothing but spam and solicitations. I thought here some serious debate would arise. But it hasn't. There was only one post in response to my query about the book "The Great Boom Ahead." Interesting.
Oh well.
By the way. I thought all professors were elitist just by their nature. Wrong again I suppose.
"I posted my beliefs about the markets hoping for some serious debate."
This will probably sound 'hokey', but there's an ancient maxim in the Tao ta-Ching that says "Those that know do not speak, and those that speak do not know". I think the real reason that there's so little serious hardcore discussion on subjects as complex as the stock market is two sided:
1. Most people don't have the knowledge of the subject required. Discussing the stats of every starter on the NBA all-star team is just a matter of reading the sports pages every day. Keeping up with every sector of the market, as well as its history and all of the theories written on economy, trading, industry, etc is an enormous undertaking. You read IBD every day, and very few people are going to be comfortable discussing the market with someone as well informed as you.
2. Those people with an equal knowledge sometimes have a hard time discussing the subject, since the amount of information required for such discussions is so vast. What I'm trying to say is, in many fields specialization sometimes equals isolation. I know it's true in my particular field, which is modern abstract musical composition. I often have a hard time discussing the latest trends in the compositional world, since there are so many schools of thought and techniques. It's simply impossible to keep up with the diversity of information. One of my engineering students mentioned today that there are currently conferences being held to take large quantities of 'jargon' out the math field, so that mathematicians can discuss ideas with each other with fewer problems. I think the same is true for market economics.
"By the way. I thought all professors were elitist just by their nature. Wrong again I suppose."
I'm used to the stereotyping: Ivory Tower Snobs, Nerds, Elitists, etc. And although I've met and worked with people who fit all of these brands, the majority of us are quite down to earth.
shooter
"This will probably sound 'hokey', but there's an ancient maxim in the Tao ta-Ching that says "Those that know do not speak, and those that speak do not know."
In the bible it says, " A wise man walks with his head bowed down."
I would agree with your sentiments about people in the "know" withholding knowledge if wasn't for the fact that you see so many posts on correct poker strategy. Could it be that most of these people have no idea what they are talking about. Or, is it true that poker is a much easier game and people (for whatever reason) are much more willing to share their knowledge.
I could generate no meaningful debate on "outside" message boards regarding the stock market. The same was true for options and futures. Lots of chaff and no wheat.
By the way, the best horse player that I know is a psychology PHD. He gets irritated when I call him Doc.
First buy the book "A Random Walk Down Wall Street" by Burton Malkiel
You don't play poker for real money without reading Sklanksy and Malmuth so be smart about your other "investments". Every economist and Wall Street trader has read it.
There are better sites for hardcore wallstreet debate but I'm all for people thinking critically about the market.
Here's some basics...
1) By definition the majority can't outperform the median average. So when you include mutual fund management fees, trading costs etc. MOST people underperfom the indexes (This includes most mutual fund managers).
2) The market has balooned not only in terms of value but also number of investors and trades. Just like a casino rake the ones who really benefit from more trading are the Banks & Exchanges (the house). Remember the more often you trade the more you give to the house. The dirty little secret is that most day traders lose money. (ask 'em they have to admit it).
3) We poker players know better than anybody that any given sucker can hit a lucky streak even with trash hands. Similarly you should note that the investors that most consistently outperformer the market have a "buy and hold" strategy. (See multi-billionaire Warren Buffett). They pick fundamentally strong and advantaged companies and ride them until the data changes. There are NO consistenly effective "market timers". And the investors who have the different strategy of attempting to outmanuever the market admit that they take advantage of methods the average investor can't (see George Soros).
4) The biggest danger is that the stock market is acknowledged to be based more on perception of future events than on appraisel of present reality. That's why PE ratios are so high. People expect the earnings to increase enough to justify the premium they're paying. (Read about the old "Tullip economy" of Amersterdam). The danger is that perceptions can change (paranoid) faster and more irrationally than reality but it becomes a self-fulfilling prophecy.
5) Buy big diversified indexes (S&P 500, Russell 2000 etc. --- Not the 30 stock Dow) Or pick a bunch of diversified solid companies and wait. Don't stress about the week-week. And if you're like me and think most PE ratios are absurd and prohibitive, invest in real-estate or start a business. Or you can play poker!!!
But I could be wrong. Do your own research.
There are NO consistently effective "market timers".
How can someone make a blanket statement like this. Of course there are some effective "market timers."
That's like saying there are NO effective poker players or real estate investors or no successful business people.
There ARE some effective market timers who have spent many years perfecting their trade. It's not something you can do by just stepping in off of the street. In much the same way you can't just "step in off of the street" and win at poker, or real estate, or business.
Like all things you have to pay your dues and be dedicated.
NAME ONE!!!
Seriously, name one investor who is a consitently effective market timer beyond expected statistical variance. I will then do research to confirm or reject your example.
And let's define terms. A market timer is an investor who moves massively (if not entirely) into and out of given markets. I am not talking about traders of individual stocks.
Your argument attempting to dismiss my argument by likening it to ignoring "effective poker players or real estate investors" is fallicious.
Poker has limited variables (52 cards and under 9 opponents). The stock market as well over thousands of highly influential variables.
Just because some investors made money on the old Amersterdam Tulip economy doesn't mean they were intelligent or right.
I believe there are "better investors". But just because you made a killing on Amazon doesn't mean you're one of them. Are lottery winners smart investors?
Amazon just lost more this past quarter than it has ever in its history. It has numerous competitors and doesn't sell anything unique (only fungible goods).
Consumers will buy the same Clancy book from any reliable seller. And what happens when authors continue to self publish and distribute (as they have at an exponential rate)?
But I digress. I am challenging you to find a consistently effective market timer.
Prove me wrong. If I am I clearly should be studying different sources.
Thanks in advance.
I was hoping I wouldn't have to read "Random Walk". How does the book account for the fact that low multiple Stocks whether it be P/E, PSR, ect. consistently perform better than high multiple Stocks? If the Market was Efficient then there shouldn't be any difference.
CV
Low Price-Sales Ratio Stocks
Screening stocks on the basis of price-sales multiples has been incorporated by some investors into their investment strategies. In recent years, evidence has been accumulating that this strategy may yield excess returns to investors. In a direct test of the price-sales ratio, Senchack and Martin (1987) compared the performance of low price-sales ratio portfolios with low price-earnings ratio portfolios, and concluded that the low price-sales ratio portfolio outperformed the market but not the low price-earnings ratio portfolio. They also found that the low price-earnings ratio strategy earned more consistent returns than a low price-sales ratio strategy, and that a low price-sales ratio strategy was more biased towards picking smaller firms. Jacobs and Levy (1988a) tested the value of low price-sales ratios (standardized by the price-sales ratio of the industries in which the firms operated) as part of a general effort to disentangle the forces influencing equity returns. They concluded that low price-sales ratios, by themselves, yielded an excess return of 0.17% a month between 1978 and 1986, which was statistically significant. Even when other factors were thrown into the analysis, the price-sales ratios remained a significant factor in explaining excess returns (together with price-earnings ratio and size).
The significance of profit margins in explaining price-sales ratios suggests that screening on the basis of both price-sales ratios and profit margins should be more successful at identifying undervalued securities. To test this proposition, the stocks on the New York Stock Exchange were screened on the basis of price-sales ratios and profit margins to create 'undervalued' portfolios (price-sales ratios in the lowest quartile and profit margins in the highest quartile) and 'overvalued' portfolios (price-sales ratios in the highest quartile and profit margins in the lowest quartile) at the end of each year from 1981 to 1990. The returns on these portfolios in the following year are summarized in the following table:
Year Undervalued Overvalued S & P 500
Portfolio Portfolio
1982 50.34% 17.72% 40.35%
1983 31.04% 6.18% 0.68%
1984 12.33% -25.81% 15.43%
1985 53.75% 28.21% 30.97%
1986 27.54% 3.48% 24.44%
1987 -2.28% 8.63% -2.69%
1988 24.96% 16.24% 9.67%
1989 16.64% 17.00% 18.11%
1990 -30.35% -17.46% 6.18%
1991 91.20% 55.13% 31.74%
1982-91 23.76% 15.48% 17.49%
During the period, the undervalued portfolios outperformed the overvalued portfolios in six out of the ten years, earning an average of 8.28% more per year, and averaged a significantly higher return than the S&P 500.
I believe if you did this same study from 1990-2000 the results may be different but who knows. A Random Walk Down Wall Street does state that there is SOME evidence that low PE stocks will outperform. IMO if you are looking at a bunch of numbers only to determine what a good buy is you are destined to underperform. Also if you are looking at the wrong numbers watch out below. It would be interesting to note how some of thses have done in the 90's. I do know that a lot of "Quants" screen for low Price-To-Sales ratios. An opinion of mine that I can't with a lot of evidence is that these types have been getting clobbered.
I believe using the knowledge that low multiple stocks out perform high multiple stocks can be used to screen out stocks that I would be wasting my time with.
If the market were Efficient then even this would be a waste of time.
CV
F.Y.I- I also have "Quant" data from 90 through 96 that shows Low PSR stocks were still beating the Market and clobbering the High PSR stocks.
William O' Neil has said many times that if you weren't willing to buy stocks with what seems to be high PE ratios then you would have missed out on virtually ALL of the biggest percentage winners of the last 30 years.
Personally, I think that "The random walk" and "efficient market" theories are complete hogwash.
What I CAN'T belive is that I am alone in this assesment.
There are always going to be exceptions to the rule. A company may be coming off of a period of poor earnings because it's young and is about to make some incredible growth because it's small. This would disort the P/E ratio and make it look incredibly High.
In the other direction, a one time tax gain that one of my company's has right now is making its P/E look relatively low. I've had to make two spread sheets on the reported earnings and true earnings for the year.
CV
I used to think that the fact that stocks are extremely volatile more or less proved that the market wasn't effecient. For arguements sake say that the valuation of a company was based on the following formula:
K * (( 1 + Earnings_Growth_Rate - Risk_Premium)**N)
Where N is a number of years and K is a proportionality constant.
If N=15, then a valuation of a company with 50% earnings growth rate and a risk premium of 9% would be K * (( 1 + .5 - .09 )**15) = 173K.
Say an investor comes along and says, you know 50% isn't exactly right is is more like 53% and this investor is more certain than some other investor who thought the risk premium should be 9%. Say the more certain investor thought the risk premium shoul be 7%. K * (( 1 + .53 - .07)**15) = 291K would be this investors valuation of the company. As you can see for a seemingly small difference in growth and risk, can resulst in a much higher valuation. IMO this phenomona explains the volatility of many stocks. Does this mean the market is ineffecient? I don't think so because of the uncertainty of predicting future prices leaves "wiggle" room for valuations. In the book, A Random Walk Down Wall Street, the author gives three different viewpoints of the random walk theory which are the strong, semi-strong and the authors own viewpoint. I think it is fair to say that the author has many concerns about accepting various aspects of the effecient market theory. My own viewpoint is basically inline with the authors. I believe that the pricing of stocks has some uncertainty. I also believe that the market is very effecient in valuing "tangible" assets where as it may not be so effecient in valuing "intangible" assets. I have no proof of this so it only amounts to another opinion.
As for what Chris writes about. There is no question that those investors who have acheived superior returns have taken greater risk to acheive those returns. From what I can gather from Portfolio Theory so far, this is in and of itself not that important. What is important are what is called the investor's utlity function, the amount of wealth (consumption) the investor currently has, the amount of wealth the investor needs to attain, the rate of return the investor needs to acheive the difference in wealth, and the appropriate amount of risk the investor must take to reach that rate of return. Managing risk is very important and what I would call effecient diversification is the key to managing risk. The topic of managing risk and constructing effecient portfolios is, at least for me, mathematically intensive. So if your stock screen yields stocks where you can construct an "effecient" portfolio to meet your investment objectives, it is doing it's job. Note that this is a long way from buying what you know.
x
x
I'm surprised you didn't mention any of the research done by Jim O'Shaughnessy. He used the S&P database from 1954 (somewhere around there)-1994 to find what selection criteria work the best in selecting stocks for the long term. Of all the single criteria that he used, P/S ratio was clearly the best. You can find all the info in "What Works on Wall Street", the book he wrote. I'd be glad to provide specific data from the book for those who are interested.
Jim O'Shaughnessy does write about this in his book. I believe he has a "Quant" background. I have thought for awhile that Quantitative Analysis isn't a very valuable tool in selecting stocks but again I have no data or proof to back this up. I wonder how others feel about how valid using past market data is for picking stocks that will perform well in the future.
I believe they mix. You need both to find a good stock that isn't pure speculation. When I think of Quantifiable data I'm mostly talking about the Financial Statements of a business. Stock picking certainly will never be an exact science. I never let certain Ratios pick my stock for me, but I do use them to narrow my search and monitor my Companies.
If I was (or thought I was) an expert speculator I might take a different stance. Successful speculation is more fun than Investing any day. Anyone who has had the foresight to buy and hold Amazon.com has had a fun and profitable ride.
CV
Eight years ago, discount brokers were starting to get a lot of business. Charles Schwab's commissions were about a third of full service brokers, often less than one percent of the trade. As people realized that broker's recommendations were not worth paying all these extra commissions for, Schwab's business expanded. It seemed like buying stock in the Charles Schwab Corpopration could be a good idea. But there was a problem. All of a sudden discount brokers were springing up all over the place and they were charging even less than Schwab. Thus if you expected that more and more people would be getting commission conscious, it stood to reason that buying stock in Schwab might not be that smart after all. One might expect that investors would either go for full service and advice, or go for the lowest commissions. Schwab had become neither of these.
Here was where the insight (actually knowledge of human nature) comes in. I realized that the great expansion of discount brokers would actually help Schwab in spite of other's lower still commissions. I reasoned that while it had now become fashionable and smart to use a discount broker to save 70%, any further savings were not that big a deal especially if it forced you to do business with a less well established firm. After all these places were holding a lot of your money. I realized that a lot of people would feel more comfortable paying basically an insignificant amount more to trade, if that meant they kept their capital with Schwab. I bought Schwab stock in 1992 and it has appreciated about at least 40% a year compounded if I am not mistaken.
I have a friend who moved away to Oregon that I used to discuss the market almost daily with for years. I have told him more than once that an imagination is very important to getting superior performance. He would give me the strangest looks. Perhaps I'm using the wrong term when I use imagination but the kind of thought process you used in selecting Schwab was exactly what I was trying to describe to my friend. And 40% compounded since 1992 is a lot of dough.
A famous investor/writer named Philip A. Fisher wrote a book in 1958 called "Common Stocks and Uncommon Profits".
One of his favorite methods of gaining insight into a company is to make many phone calls to key customers, suppliers, ex-employees, and competitors. He calls this the "scuttle-butt" method. He then makes plans to talk to the company executives using what he has learned. I'm sure this gives him more insight than the general public.
CV
Your insight is right on the money. It's why I still use Schwab currently.
I imagine you'd have just as good a read on me at the hold'em table too Dave.
These have been getting a lot of publicity lately due to attacks on various sites. There are companies that provide for security of transactions and they are on a roll right now. However, a lot of these don't offer the kind of security needed for denial of service attacks. There are a few companies that sell software that addresses these problems directly. Also there are some possible candidates that I don't think have been considered that much yet. You know that more money is going to be invested in this area. Any insight or imaginative ideas?
if one of the security companies of the type you describe actually iniated the attacks. in any case, I think it is too late to get a good jump on these products. Its been on the front page of the times for the last three days.
alex
Sitting back and waiting for the ones you want to come down in price from the current rush is definitely a viable option.
As it turned out all the big name Internet "security" stocks were up big today, even the ones that don't have a solution to this problem. Best strategy was to buy some calls and sell some puts.
Aaaah! Don't do it Tom. Don't become a trader on us.
The next thing you know, you're sitting down at the Hold'em table, and thow away 2s,3s in Middle position. The flop comes 4s,5s,Ad. There's a bunch of action! The As is the turn and there is even more action! The river is a 5c and the betting is capped! There was, Ac,4c and 5d,5h turned over. You just sit and shake your head. But what happens if you start playing 2s,3s in Middle Position in the long run?
CV
lkj
Chris I do a little trading just to keep myself interested. I had my bases covered anyway with a stock that has performed the best for me so far. Bottom line is that 20-20 hindsight is widespread.
you write a book entitled no foldem holdem
Since it can only help advertise your favorite companies, is there any reason not to post your current insights for others to consider investing also?
If I get a current insight I will post it too.
D.
Shufflemaster-SHFL. (note-I have 40,000 options)
Can you say a bit about why you like it? Was this the company selling your Poker video game you mentioned a long time back? Is that picking up speed?
It doesn't look too bad just reading the obvious stuff.
D.
I don't know large this position is relative to your portfolio, or what kind of options you used. But why did you buy options instead of stock?
Do you think the volatility will increase? Or do you think the distribution is skewed in a manner that makes the option cheap? Or did you want the implicit leverage or some other advantage of the option?
Options are similar to dynamic trading strategies. If your insight will change if the position goes against you then options might be the best vehicle for expressing your view. But if you would merely buy new options then stock would be better.
This company is so small, I doubt that it has publicly -listed options. (I could look it up but I'm too lazy).
I'll bet thet DS got them as compensation for consulting or other services rendered. Companies generally grant options in these cases rather than the underlying common for accounting purposes. And these options are usually long-term in nature and as such are more equity-like than listed options.
Could be wrong, though.
You are probably right. 40,000 options on a company that small would be all of the available options and then some. If indeed it was listed.
Yes, they were granted by the company in return for consulting and are good for quite awhile.
How do your options work? The stock closed at 9 and change today. Does the stock have to reach a certain price before you can even exercise them? If so at what price? We can sweat them with you.
The chart seems to be in congestion but just a couple of pennies higher, and i would probably buy it and ride a hopeful uptrend.
I’ve recently been buying a Casual Apparel Retailer called “The Buckle” (BKE). The company sells medium to better priced clothing for young men and women. It’s a lot like American Eagle Outfitters (AEOS).
If you look at this company’s Stock price recently you will see that it has become a real dog. It went from a high of $32 to a low of $13 and is now trading at ~$14. A lot of this has to do with recent poor SSS(same store sales).
The interesting part of this company and why I’m making a Value play at it is that it has never had a terrible year. It has just been steadily chugging out profits for the last 10 years with no debt funding and has had a growth rate of 32% averaged over the last 5 years. It is now trading close to its all-time low P/E of 7 (its currently at P/E ~ 8.6). The company’s average P/E in the last 5 years has been 17.8. If the company ever goes back up to its average P/E for FY 2000 earnings I’ll be making over 100% on my investment. Of course it may take some time, but even taken out 3 years from now I’m looking at a 25% APG on my investment.
There has been plenty of new competition that has popped up but the 12-24 year old population has also grown and is expected to keep growing for the next 13 years out. I’ve visited the company’s local store and like what they are doing and the employees are happy to be working there. I believe this company has quality values that make the P/E of 17.8 or higher a reality. Its current low price to earnings makes it a very safe place to keep my money right now and the analyst consensus of 5-year growth is 16% per year.
As long as this company stays relatively the same I’ve got to figure at least a 16% growth with the potential for 25% or higher in the coming years.
Comments?
CV
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Quarterly Tracking |
Q3 |
Q2 |
Q1 |
Q4 |
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30-Oct-99 |
31-Jul-99 |
01-May-99 |
30-Jan-99 | |
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Price Ratios |
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12-Feb-99 |
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Stock Price |
$13.940 |
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Analysts' Growth Expectations for the next 2 years. |
13.2 |
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Analysts' Growth Expectations for the next 5 years. |
16.7 |
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|
Price to Sales Ratio |
0.81 |
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P/E |
8.8 |
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True Price to Earnings |
||||
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True (P/E)/G Ratio |
0.66 |
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|
YPEG |
||||
|
Price to Book |
1.9 |
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Income Statement |
||||
|
Sales Growth |
11.0% |
12.9% |
18.9% |
22.2% |
|
EPS Growth |
10.9% |
3.8% |
33.3% |
23.3% |
|
True EPS Growth |
||||
|
Gross Margin |
35.9% |
33.5% |
34.0% |
37.3% |
|
Operating Margin |
16.7% |
12.4% |
12.3% |
17.9% |
|
Net Margin |
10.7% |
8.0% |
8.1% |
12.0% |
|
R&D |
||||
|
Tax Rate |
37.7% |
37.4% |
37.6% |
|
|
Shares Outstanding Growth |
-1.9% |
0.4% |
0.5% |
3.6% |
|
Dilution of Shares |
4.6% |
6.0% |
5.8% |
5.3% |
|
Balance Sheet |
||||
|
Cash and Cash Equivalents Growth |
-38.0% |
|||
|
Long-term Debt Growth |
N/A |
N/A |
N/A |
N/A |
|
Days in Receivables |
4 |
4 |
3 |
4 |
|
Days in Inventory |
103 |
108 |
101 |
83 |
|
Operating Cycle |
107 |
113 |
103 |
88 |
|
Current Ratio |
3.6 |
3.9 |
3.8 |
3.6 |
|
Quick Ratio |
1.90 |
1.99 |
2.12 |
2.31 |
|
Debt to Assets Ratio |
N/A |
N/A |
N/A |
N/A |
|
Book Value Per Share |
$7.41 |
$7.22 |
$6.90 |
$6.52 |
|
Liquidating Value Per Share |
$4.94 |
$4.92 |
$4.86 |
$4.74 |
The market does seem to be going through the process of lowering multiples on at least some of the retailers. Perhaps a slowdown in consumer spending is being anticipated later this year. The revenue and eps growth are good. Seems like a buy to me.
What do you guys think of Harrah's?
I like their all-you-can-eat Buffet.
CV
Harrah's seems to be a well run corporation. It's stock price started it's decline when the Fed started tightening. This company has a lot of outstanding debt which detracts from its value possibly. I like to give stocks 1 of 3 ratings buy, hold or sell. I would rate Harrah's as a hold.
I've got the devil on my shoulder and he's telling me to buy Philip Morris. I've always considered myself a socially responsible investor and the idea of putting my money on this company troubles me. I consider myself to be alligned with the Democratic party (though frustrated with ALL politicians), and MO is a HUGE Republican funder. I'm also a non-smoker and VERY against the advertising tactics of tobacco companies. In short, this company stands for a lot of things that I resent.
However, as an emotionally detached investor, this stock looks terrific. It's now trading at a P/E of LESS THAN 6. The yield is a full 10%. Ten percent! As an income play alone, it's a monster. And as a growth play, it's trading close to a 5 year low, yet earning over $3/share with over 2 billion outstanding shares. In short, the financials look pretty sound, and when value investing comes back in style, I forsee this being one of the big movers.
Any thoughts?
I haven't checked into it since all the litigation came out. I'd love to buy it, but I think there are less risky stocks out there.
CV
As far as the long term prospects for MO I have an opinion that is not particularly well informed but I think this puppy should be sold even with all of the bad news out on it. However, someone with a better insight may have a different perspective. P/E of less than 6 means nothing to me since I pay little attention to them although an abnormally low one does indicate problems to me which MO obviously has. A yield of 10% doesn't look all that attractive to me either. There are four reasons for this:
1) The dividends are taxed as income.
2) In order to get a compounding effect on the dividends they would have to be reinvested and it is probably not practical with your position (no offense) and I don't like pumping money back into something that has this much risk.
3) There are many high yield bond funds for instance that pay a 10% dividend and will reinvest them automatically if you want them to. These funds also have price appreciation potential (and depreciation potential) as well. If the 10% dividend offers you a revenue stream that appeals to you, my opinion is that the bond funds offer you a better, less risky revenue stream.
4) The MO dividend may not be secure. There is a lot of Chapter 11 speculation about MO which would put this dividend in jeopardy I would think.
I don't worry about the political leanings of management. I do have an opinion that tobacco, oil companies, and others of that ilk if you will are all sales and will not do well long term. I'm not a rabid environmentalist either but this is what I envision long term. Apologies in advance for any mispellings as I typed this off the top of my head. I will get to Harrah's and BKE shortly.
There is one thing that could happen that would make the stock skyrocket. That is that they figure out a way to make a safer but equally pleasurable cigarette. It was hard to do too much research on this subject while they were denying the dangers, but now they can go all out. On another front there is now so much anti cancer work being done that it is plausible that new breakthrougs to prevent or treat lung cancer are on the immediate horizon. Yes there are lots of other bad things that cigareettes do, but take away the main killer and a lot of addictive personalities will flock back to their habit. If so, MO may go to 200.
The fact that MO has a 10% yield makes me very nervous. Historically, I belive, high yield stocks have performed amazingly poorly.
You must first ask yourself, "Why is this yield so high?"
I remember many years ago T. Boone Pickens stock, Mesa Petroleum always had a very high yield. I thought it couldn't miss. I never did buy it though but watched it very closely as it went to almost nothing. I have no idea what eventually happened to it.
Cigarette companies today are highly diversified. The main bulk of sales and new sales are to foreign countries.
I don't see much in the way of "growth" for MO. Personally, I hope they go bankrupt, cigarettes are made illegal, and all smokers are put in jail. We can dream can't we?
"Mesa Petroleum always had a very high yield. I thought it couldn't miss. I never did buy it though but watched it very closely as it went to almost nothing."
True, but I think the large number of products that MO puts out besides tobacco will keep them from financial ruin. The only thing I can see putting this company under is the lawsuit settlements, which, if they lose them all will cost them billions.
"Personally, I hope they go bankrupt, cigarettes are made illegal, and all smokers are put in jail."
Prohibition taught the American government a stiff lesson: Americans want their booze and smokes, and they'll do anything to have them. Imagine, $5 a pack and they're still selling strong. To me, a non-smoker, it's incredulous.
x
ss
I've owned MO in the past as part of a Dogs of the Dow portfolio but not anymore.
I then went short on the stock a month ago.
Keep in mind that MO has already lost the Phase I of the Engle Class Action lawsuit in Florida. Phase II to determine the amount of damages is currently being decided for the potentially 500,000 member class.
If the jury decides to award more than $10,000 dollars for each class member in compensatory and punitive damages, it could bankrupt MO (worth about 5 billion dollars).
Sure, MO can (and will try to appeal) the Engle verdict. But it depends upon whether they will have to post a bond in the amount of the verdict (see Texaco lawsuit). If a bond is required, they may not even be able to get bonding to appeal. Thus, bankruptcy and say bye, bye to your dividend.
And Engle is only one of many lawsuits against MO. A lawsuit cloud will hang over MO for a long time.
MO is a complicated stock to access with only value investing parameters (that currently and for the past year or so are not being rewarded by the market).
You should be able to find a tech stock with less risk and as much growth potential as MO.
At least wait until after the Engle damages verdict in month or so before you put money into MO.
Also, as a socially responsible investor, you should see the Insider movie before you get involved with a tobacco company. Good Luck, Gerald
"You should be able to find a tech stock with less risk and as much growth potential as MO."
That's the whole of my portfolio at the moment. All large cap, high performing techs. I was considering MO for diversity, which I have NONE of.
"you should see the Insider movie before you get involved with a tobacco company"
Every February when they announce the Oscar nominees, I get off my ass and see all the ones I missed. First two on my list are American Beauty and Insider.
good post. . .thanks for it.
Netvalue Holdings ( NETVE now but NETV when it gets on NASDAQ )
I read an article about NETVE in the Red Herring mag and picked up a small position. This is a very risky stock but I liked the idea. The article is not online it seems.
They are a kind of venture capital company in internet startups. If just one or two investments go public they will have a huge stake. Perhaps none will though.
The other interesting thing is that the stock is traded OTC now but will be on the NASDAQ in March they say.
The stock already has moved 10 points since I got in but who knows, maybe it is another CMGI.
BTW, I am not very interested any any direct owning of internet stocks but I like this investment holdings angle.
D.
This is the really hot sector in the market right now and I only have one biotech company which has more than doubled in a year since I've owned it which is and of itself not remarkable. Admittedly I don't feel as comfortable investing in this sector as I do in other technological areas. However, there are some incredible developments in biotechnology that and neglecting these as investment opportunities seems wrong to me. I freed up some cash yesterday by selling some losers. It seems like I have 4 options here:
1) Find a mutual fund that specialized in biotechs and buys the kinds of companies I want to invest in.
2) Put a smaller amount of money into about 5 companies say $2500 per company.
3) Buy one company I like right now and put $6000 into it and leave some cash on the sidelines.
4) Use a combination of 2) and 3). I hate to have cash as I like to be fully invested at all times.
Tom, why spread yourself out so much?
Actually one of my personal favorites (and has about 20% of my total worth) is a little company called Embrex (EMBX). They make a machine and drugs for delivering vacinations to chickens before they even hatch. Other than the company's apparent undervaluations what I really liked was that their Patents were/are protecting them from any serious competition. They have 80% of the market in the US and are seeking further growth from around the globe. I'm kicking myself because I could have gotten in a $4 but talked myself out of it at the time because I was having doubts about their oversees growth potential. After another steller Quarter and seeing the price double I buckled down and looked seriously at the companies prospects. I believe that the company being the only one in the world that sells a machine that can inoculate >50,000 eggs per hour, with other cost saving devices in R&D, like sexing and candling in the egg, has to be a good bet.
Right now I'm debating on whether I've made my money and it is time to get out. The price just took off and I've doubled my money, but I'm thinking the momentum may be getting a bit unrealistic even for such an inovative company.
CV
Don't you dare sell that stock. Intellectual property such as patents can be worth a lot of money. If there is anything I have learned is to ride my winners and be very greedy. Heck you should probably double up on that sucker. As to why I have so many stocks. First of all the value of my portfolio justifies it. When you consider that I have over half the value of my portfolio in 2 stocks because they have appreciated so much you can see that the amount I own of each stock isn't proportional although I invested equal amounts when I started out. I know that if I keep the bets fairly small I can afford to lose a lot of money in any one stock as long as I find one that will appreciate a lot. My readings of Portfolio Theory so far have convinced me that my portfolio is probably not optimally balanced for risk and reward. Chris I'm always trying to find the next MSFT. BTW biotech was smoking today.
Tom,
As an alternative to option #1, you may want to check out BBH. BBH is traded on AMEX and is a "basket" of major biotech stocks. Its largest equity holding is AMGN, but also holds many others, including CRA, PEB, and HGSI.
Is your dilemma in picking individual biotech stocks, or do you already have the stocks chosen and are just considering how to invest in them?
I have read most of the messages on this board, and I have got a feeling that most people believe that it isn't too difficult to achieve 25% return over the long term. If this is true, why is it Buffett is the ONLY person on the Forbes 400 to have made all of his money in the markets - and he has achieved 24.7% for the last 45 odd years?
Acer
Is Bill Gates in there? If so he qualifies even though he did it with basically 1 stock. Anyone who bought MSFT when it went public and still holds it now has achieved a compounded rate of return around 60%. Is Larry Ellison of Oracle in there? Ditto for him. A lot of guys in the Forbes 400 I believe have basically achieved their fortunes by building companies and having their wealth reflected in ownership of their stock. BTW Buffet has done the same thing albeit with a different type of company. No 25% compounded is not easy to realize on a long term basis but what you say about the Forbes 400 is just wrong.
I wasn't clear - my fault. What I was trying to say is it seems that the pursuit of above average returns in the markets, via investing (as Buffett does) seems to be percieved as an overly easy endeavour on this board. I understand Gates' company is listed, but his success is derived from being an astounding entreprenuer. I am referring to researching a company, be it through fundamental or technical analysis and making an investment decision.
BTW, this topic reminds me of a broker I was once speaking with. I mentioned to him there is a man named Ed Thorp (he didn't know who he was) who created card counting etc who is now in the markets. I proceeded to explain to this know it all, that Thorps average compounded return has been around 20%, with an S.D of 6%. Do you know what this guy said? That is that good, I am aiming for 60 - 70% this year!!!!!
My point is, if the likes of Thorp and Buffett are returing 20 -25%, and these guys are geniuses, I think it is fair to say the game of investing is a little harder than most people on this board seem to think.
Acer
Acer writes: >>I wasn't clear - my fault. What I was trying to say is it seems that the pursuit of above average returns in the markets, via investing (as Buffett does) seems to be perceived as an overly easy endeavor on this board.<<
First of all Buffet's approach isn't the only approach to superior returns in my opinion. Second of all expecting to do as well as Buffet has done by emulating his style and techniques seem very wrong headed to me. I think it is the individual, Buffet, that is noteworthy and not his methods. There is always something to be learned from an expert but trying to emulate an expert doesn't guarantee success either.
>>I understand Gates' company is listed, but his success is derived from being an astounding entreprenuer.<<
His wealth has been achieved by building a monster company whose stock has appreciated a great deal. Most of Gate's wealth is realized through ownership of Microsoft stock. Buffet's wealth has been achieved by building a monster company whose stock has appreciated a great deal. Most of Buffet's wealth is realized through ownership of Berkshire Hathaway stock.
>>I am referring to researching a company, be it through fundamental or technical analysis and making an investment decision.<<
You've probably read the book, A Random Walk Down Wall Street, but if you haven't I would recommend it. In that book the author discusses the "efficient" market theory. One of the findings in the academic world in doing research on the market is that there is no proof that fundamental analysis or technical analysis will result in above average returns. The author goes on to describe several views of the "efficient" market theory. He does state that there is evidence that there are certain individuals who outperform the averages consistently and that this evidence does cast some doubt about the markets being totally efficient. Warren Buffet would certainly qualify as one of these individuals.
>>BTW, this topic reminds me of a broker I was once speaking with. I mentioned to him there is a man named Ed Thorp (he didn't know who he was) who created card counting etc who is now in the markets. I proceeded to explain to this know it all, that Thorps average compounded return has been around 20%, with an S.D of 6%. Do you know what this guy said? That is that good, I am aiming for 60 - 70% this year!!!!!<<
Of course you make a very good point. Say you bought Q balls when they first came out and made 90% last year. If the NASDAQ 100 declines 80% this year you're 2-year return isn't that spectacular.
>>My point is, if the likes of Thorp and Buffett are returing 20 -25%, and these guys are geniuses, I think it is fair to say the game of investing is a little harder than most people on this board seem to think.<<
Of course this is true. I will say that some of my stock screens have basically been based on filtering those companies that have characteristics of other companies that have grown and became great investments. Again this isn't rocket science but it seems to make a lot of sense and my results so far have been very good. Certainly there are many people who have become wealthy by investing in the market that would be considered less than brilliant.
Don't forget that one bad year where you (or your fund) loses 50% requires a 100% GAIN the next year just to recoup.
This point is well taken and I believe it Acer's main point. Show me consistent gains where you can outpace the market by a wide margin for a lot of years and then one can start talking about how well one has done.
That is exactly what I am trying to say.
peace
Acer,
I understand your concern. Only big , big winners access this site. The same is true in the other forums. No one here ever, ever loses!
I don't suppose it would do any good to enumerate all of the references to losing trades I can think of off quickly but I'll try.
From my post, Didn’t Know Much About These:
The market was headed south in August of 1998 and buy October 8, 1998 my portfolio had declined 55% in a matter of about 2 months.
I picked two "value" stocks which had low PE's blah, blah, blah.
Stock H was purchased at $24. Today it closed at about $5.50.
Stock I was purchased at $34. Today it closed at about $20.
Stock O - bought at $51 and today closed at $16.
Stock Q - bought at $33 and today closed at $19.
Stock S - bought at $146 and today closed at $117.
I do have a margin account that I have experiment with day trading which I convinced myself would only get my broker rich.
From my post, Biotech
I freed up some cash yesterday by selling some losers.
Michael 7’s post Re:Michael 7
I invested $5000 in each of two stocks in 1997.
1. Xerox, a classic value play that looked cheap according to its market position, growth, cash flow, etc. It is now worth $3570.
of course Warren Buffet is just a conservative buffoon..you out trade him year in, year out. Good for you, Tom!
Never said I did. In what post are you referring to?
bbbbb
acer:
You are right on. The last few years have deluded thousands of people into thinking they are geniuses. I know a guy who couldn't spell computer who made $100k last year on tech stocks and is now a full time "day trader." The bubble will burst, and in a few years people will realize just how good guys like Buffett are.
Look, the NASDAQ went up like 80% last year. So if you bought the big tech stocks like Cisco and maybe got lucky on a few smaller ones, you could have easily made 100% or more in 1999. That doesn't mean a thing. The long run is what matters, unless you are terminally ill.
SW
Yes that guy who made a 100k last year was really dumb and so were the idiots that made 100%+ last year on their money. I agree more than doubling your money in a year doesn't mean a darn thing.
Think long term, man. Think long term.
But do you know what is even more remarkable about Buffett? He doesn't have a team of analysts, runners etc like some of the huge funds. There are 13 people working at head office - that is 13 people for a $100 billion odd company!
He obtains all of his information from the newspapers, magazines and what he sees on cable.
In other words, he is proof that ANYBODY has available to them enough information to become very wealthy!
It is what you do with the information that counts.
Acer
One more thing. Buffett's goal is to make a 15% return p.a. That is all.
If the second richest guy in the world has a goal of 15% p.a. what business do rest of us have expecting much more?
Acer
I know people at Microsoft who HAD shares and NO 25% is not too difficult - holding onto your shares i.e. being a long term saver is difficult especially in the US where you are bombarded zillion ways to spend your hard earned dollars. With buffett is not so incredious that he picked those winners but he held onto them for a hell of a long time. My friends who had MSFT had to sell beacuse either thay were buying a house or a car or a new wife etc. etc. Us mortals have expenses i.e. it's easy to be thifty for Gates when he started with so much (shares). I admire buffett not the best investor but the THRIFTIEST person in America !!!
Apparently my statement about having a biotech company I own double in a year not being remarkable triggered some negative reactions. If this is the case please read on. The NASDAQ 100, a broad index of 100 NASDAQ stock that is weighted by market capitalization, was up 85% last year. For the most part this index is comprised of technology companies including biotech. This index can be bought as a whole as this investment product was introduced last year. The symbol is QQQ (nicknamed Q balls) and can be purchased like any other stock. I believe you can short Q balls on a down tick as well. From the time Q balls were introduced until the end of the year they appreciated 90% I believe. Now if you can buy a whole basked of stocks that represent a widely followed index that goes up 90% how hard can it be to double your money if you are buying stocks in groups that are contained in this index? I have talked to several people who know don't follow the market very closely that made upwards of 80% in their mutual funds last year. Of course this index won't go up 90% every year so the much venerated Warren Buffet and his record remain intact as something to be respected.
A downtick isn't required to short the QQQ.
I've spent a lot of time and effort defending the decisions of Alan Greenspan to fellow investors, but now for the first time I'm beginning to wonder if he's doing the right thing. In the Hawkins testimony yesterday he set the market spiraling downward with his comments on the overheated economy. At this point, the Dow has corrected over 12% and closed today at the level it was at last October. A rate hike in March, IMO, may be too much preventative medicine, and could bodyslam the market from bull to bear. It must be remembered that rate hikes take about 6-9 months to be fully reflected in the economy.
Any thoughts?
PS-I'm looking at this whole situation as a buying opportunity, especially in the financial sector. The bank stocks are currently trading at bargain basement prices, and I'm hoping to buy as close to the bottom as possible. Of course, timing this will be tricky, if possible at all.
I agree with you shooter. one other aspect that you could complain about is that a little inflation of the dollar would help to ease the US's awful trade deficit.
alex
>>I've spent a lot of time and effort defending the decisions of Alan Greenspan to fellow investors, but now for the first time I'm beginning to wonder if he's doing the right thing.<<
I've had those same doubts. I have been critical but surprisingly I have become less critical as time has gone on. This probably sounds dumb but I have a lot of faith in Greenie.
>>In the Hawkins testimony yesterday he set the market spiraling downward with his comments on the overheated economy. At this point, the Dow has corrected over 12% and closed today at the level it was at last October.<<
One could argue about the Dow being overvalued (still) and I don't think a 12% decline is anything that is that unusual. The Dow is an index that I don't think is very good in representing the economy. The S&P is down this year as well though.
It's hard to say, I'm not an economist. I expect that the consummer is going to be slowed down some and that Greenspan's policies will work to produce the slower growth and little inflation that he is seeking without an economic downturn in the near future. Things should be interesting in regards to the dollar in the coming months as well.
My thoughts are that if Greenspan can make the market correct with just words than the market is probably overvalued a bit.
CV
TRading is muck akin to poker. If you are an inverstor with a long term view - you still a trader if you ever sell any of your holdings. Poker taught me a great deal about how you do this business - despite that I dabbled into the market for ten years now. The similarities. Don't stick you neck out too much in any risk taking venture. more you do it more of the chance if will be cut. The frequency of your activities has to be controlled like playing too many hands - and scalping for 1/16 or 1/8's is sure way to lose your shirt. The 'wig' is very important - we who played poker can atest to the wig can kill the best games. trade with a very high commission you will also pay even if you are a good trader. Fundemental analisys is BS. Well drawing any paralel with poker is difficult - but think of it this way hands are beaten all the time. Fundemental analisys is only so good if all the people all of the sudden think and act that way. If you have a straight and it is beaten you used fundemental analisys and you missed the point that someone may have a even better hand. Like the stock is going down and even if it's a bargain and great fundementals exists - no one wants it anymore. People want to buy whats *going up*. Suckers buy what's bargain today - it may take years for it to turn around. The same sucker is having a great hand but forgets that an even better hand may exists in someone else's hand.
Buffett is the biggest sucker of them all.
CV
Fundemental analisys is only so good if all the people all of the sudden think and act that way.
Fundamental analysis is a set of tools designed to gain insight into the nature of a business. Most people value stock based on the prospect of future earnings, and expect others to value stocks in a similar fashion. Fundamental analysis is intended to provide insight into how a company runs its business, and has nothing to do with how the market thinks.
The strategy known as "value investing" attempts to value a company based on certain fundamentals, purchase companies that are currently "undervalued," and then wait for the market to catch up. Many value investors have been frustrated in recent years by the market's fascination with growth stocks. However, value investing should be not be confused with fundamental analysis. Fundamental analysis is a set of tools; value investing is a strategy based on the use of those tools.
Like the stock is going down and even if it's a bargain and great fundementals exists - no one wants it anymore. People want to buy whats *going up*.
Your analogies between Poker and investing are tenuous at best.
To the short-term trader, recent price movements are extremely important. Many traders use a great deal of margin to leverage their positions, and every downtick is that much more money lost. Most traders base their decisions on either momentum or technical analysis. So yes, traders want to buy the stocks that are increasing.
Investors, however, are willing to wait out corrections in the market. They base their decisions based on the long-term prospects of the business, and they believe that the market is inefficient in assessing these long-term results. A decreasing stock price, without a corresponding fundamental change, is simply an opportunity to accumulate more at a reduced price.
Suckers buy what's bargain today - it may take years for it to turn around.
Value investors should be willing to wait that long. Many investors in general are willing to wait years before enjoying a significant appreciation in the value of their holdings.
The difference is your time frame. You want to make a quick buck in the market. I'm willing to wait.
The same sucker is having a great hand but forgets that an even better hand may exists in someone else's hand.
The stock market is not a zero-sum game. My objective isn't to find the hottest stock pick of the year; my objective is to secure investment returns that outperform the market averages over the long run. I pick the companies that I believe provide the greatest reward-to-risk ratio (expectation, if you will), and I bet on them. I bet on their long-term prospects, not on short-term price movements.
heihojin
To DEFENDERS of value investing. Your stock or your house for the matter is WORTH exactly what your buyer (if any) is willing to pay. If you seriously think value investing is not passe you are not reading the financial papers. Buffet started investing in the sixties - his performance has no bearing wheather you and I can make money anymore !!!! The profesionals (i.e. specialist market maker are all shirt term traders - why because on the average that makes money !!! I am sick that all you nimwitts are always bringing up Buffet !! What about your own portfolio ?????
I posted mine earlier. I don't think many individual "value" investors would be buying a lot of the stuff in my portfolio.
Here is an excerpt from an e-mail that I sent to Chris:
Warren Buffet deserves his due in the investing world. Some of his critics would point to the fact that his company Berkshire Hathaway sells at a too big of premium to it's asset value. They would also point to his recent investments gone sour. I think this kind of criticism is wrong headed for a lot of reasons. It is just as wrong as saying since Buffet has done so well you will do as well by copying his methods.
I see Andras is getting some response to his post. The response besides yours discusses "value" investing. I'm a "value" investor as well. However, the mistake that I see a lot of individual "value" investors make is that they place too high of a value on tangible assets and too little value on intangible assets. Rest assured there is a lot of value in intangible assets that will never show up on a balance sheet. How much is a key individual really worth? How much is a highly competent and focused management team really worth? How much is intellectual property really worth? These assets in the information age are very important IMO.
end of excerpt.
One thing about stocks dropping in price without any changes in fundamentals. Price fluctuations are normal because of different and changing investor attitudes. When the price drops precipitously without a change in fundamentals from my experience it means 1 of 2 things:
1) The perceived risk has increased a lot.
2) Insiders are trading on information that is not public.
Number 1 is the most common in my experience. The price should go lower if the risk increases. Whether the perception of increased risk is based on a rational assessment doesn't matter. What matters is the market has perceived higher risk.
When the price drops precipitously without a change in fundamentals from my experience it means 1 of 2 things:
1) The perceived risk has increased a lot.
2) Insiders are trading on information that is not public.
You forgot to mention profit taking. Which can last from one day to weeks.
Q was dead on! Underneath all the swirl of supply and demand on any given day is the company and its product. Microsoft has a market cap over 600 billion because they were able to sell their product to the masses. If one was able to recognize this in 1990 ...
I just saw the charts of Berkshire Hathaway (prefB?) some poor guy called in to CNBC and asked if he bot@2200 as a hedge of the tech bubble - IT'S selling now at around 1400 !!!! The moron on CNBC said just hang in there !!!! I mean people are stupid or what ? In a down market you can't be a value investor if your 'values' are getting cheaper and cheaper. I mean how long do you think you'll live !!! I suspect there is no bear market now but even if we are correcting for a longish period - your drawdowns are very hard to make back if your timing is wrong !!!!!!! You guys are math weenies - check out the stats for the return calculations and drawdowns of portfolio management !!! if you had 3 years of performance and you made %25 percent the first year and had a %50 down year next. you need to double your money to break even next !!!! That's a 100% for the 3rd year !!!!!!
I have a small account where I try to buy "fallen angels." Otherwise good companies who have some short term problems that the market gets overly bearish on. When I was looking to deploy some capital last December I did a stock screen and one of the many stocks that turned up was VISX, a company involved with laser eye surgery. As I weeded through the companies that were output from the stock screen I finally weeded VISX out because I decided that their business was out of my realm. At the time VISX was selling for 90. I think it was back in January when VISX received an unfavorable patent ruling from the ITC. The ruling wasn't final but the stock dropped to 50 the next day. I thought to myself I'm glad I didn't buy it but I started to think that the outcome of the patent ruling was still in doubt and it seemed to me like a lot of fundamentals were still in place. I still passed on the stock but I was getting interested. The stock was trading at around 45 when it's quarterly earnings report came out. Growth in earnings and revenue were still very good but the new procedures for the surgery were flat from the previous quarter. The stock plummeted to 32 then next day. I started thinking that this is ridiculous and it was getting beat up way too much for some temporary glitch. I bought some at 32 but I didn't like the price action and sold for a small loss of 32. However, I planned to try and buy it again at around 25. Sure enough it got down to 25 and I snatched it up at 25 1/2. Soon thereafter VISX rallied to around 30 and gradually fell back to 25. I wasn't very thrilled about the price action but held on. Last week VISX went down to 23 and I was definitely not pleased about this but I felt that it could be normal volatility. Yesterday it hit 20 1/2 and I said this is not right so I sold it at around that price and took a bigger loss this time. Almost immediately after I sold it it rallied to 22 1/2 but ended the day a little less than 22. Then after hours yesterday VISX management announced a 60% cut in the fees they charge per procedure and today the stock fell to little over 16. I was thinking during the day that wow it is really cheap now and it may very well recover but I think I've gotten the message from Mr. Market about this one and I won't mess with it.
I don't know what to say execpt, ouch. Well, you know me. "I wouldn't have bought because the P/E, PSR, blaa blaa blaa, was too High."
One thing that keeps coming to mind is VISX's market share and protection of that market. If there is heavy competition and no protection by a Name Brand or Patents then the company has to start cutting prices to increase market share.
That's one of the big problems that my company is in right now (it will probably allways have this problem). Sure, everyone needs DRAM now days, but do they care about who it comes from? No. As long as its cheap they buy it from any company. That creates price wars and dumping of product on the market. Now look at Coke vs. Albertson's Brand Cola. Which would we buy even if Albertson's was half the price of Coke? I may be off on a tangent, but I'm wondering if VISX has this problem.
CV
In the long run this stock may turn out to be a good investment. I threw in the towel because I knew this was out of my realm. My first decision in weeding it out from my screen data was right. I'm experimenting a little with a small amount of money and this seemed like a good shot because I considered putting a lot more money into it when it waa a lot higher.
I use the same theory to buy . I look at the down grades and see if there is going to be reason for a rebound or if the downgrade is for good reason In Dec I bought into the laser eye market to , only I jumped on TLCV [the laser eye center] . bought at 12 sold this week at 19. lost all that profit though on MPPP, can't win them all!
As I posted in my response to CV, in the long run VISX may still be a good investment. I sure won't be around to participate though if it is. You're right you can't win em all.
I'll never understand why so many people wanting to go uptown try to get there by taking a cab that's going downtown.
MGC
Every now and then I get this idea that the collective knowledge about a company that the market has to be wrong and that I am right. After an experience like this I have a lot more respect for that collective knowledge. Prices flucuate a lot and VISX may recover someday but I guess it will be obvious when the cab is going back uptown. Anyway I won't be on the VISX cab.
Tom,
you may be very right but your timing may be far off. i try to include the idea that a change in the company is happening. then decide which way that change will impact the stock and go that way. just because a sock is a fallen angel doesnt mean as you know that its value is above its stock price, although it could be.
Here's a link to who Fortune thinks were/are the best investors in the world. Hmmmm... They all seem to be Day Traders.
http://library.northernlight.com/PN19991210040000325.html?cb=13&sc=0#doc
CV
Maybe your are being sacrcastic or something, but that article consists MAINLY of long term buy and holders.
Did I miss something?
Acer
What is the E.T.A. for the NASDAQ to cross over and surpass the DOW JONES average?
I say 5 years.
Never!!!
it depends on what the people at the dow do to change their index over time. Adding INTC and MSFT makes the indices more similar. If they continue to put top nasdaq stocks in the dow their correlation will increase.
A rather volatile stock is selling for $50. The call that gives you the right to buy it at $30 expires in a month and cost $20. That makes sense. But the call expiring in a month that gives you the right to buy at $40 bucks sells for $11 not $10. Who can explain why in words a 12 year old can understand?
Actually, the option with the $30 strike price selling at exactly $20 does *not* make sense; as we'll see, it should sell for a bit more than $20.
Anyway, here is an answer to your question:
If you could buy the $40 strike option for this stock at $10, you essentially would be buying for only $10 a stock that should normally cost you $50. So, whoever sold you that option is in effect giving you a $40 loan for 30 days. If he is a good businessman, he should be charging you interest for that loan. Hence the price of the option should include his interest charge as well, and thus the option should cost more than $10 ... in this case it cost $11.
Now we can also see why the option at $30 strike should cost a bit more than $20 as well ... you are in effect being given a loan here, too, but now only a $30 loan. So an interest charge should be added to the price here as well, but not as much as with the $40 strike option.
Yes, this is probably a bit of an oversimplified analysis, but I think it fits the "so a twelve year old can understand" qualifier pretty well.
Mark Courtney
Sorry but the answer I was looking for has nothing to do with interest rates. There would still be the discrepancy if there was 0% interest. Why?
x
Is the reason because the 40 strike option will yield a higher percentage return for every dollar for dollar increment in the stock?
The deeper in the money the option, the closer the option will represent a point for point move in the stock.
For example: if this "volatile" stock goes from 50 to 55 very quickly the 30 strike option will go from $20 to $25. A 25% increase.
Because these options are in the money the 40 strike option will go from $11 to $16, a 45% increase.
Therefore, the 50 strike option which might cost, say, $5, will go to $10,a 100% increase.
The closer to the money, the more downside risk you incur, and the greater chance of losing your entire investment, but you are paying more money for the greater leverage. Otherwise, if the premiums were all the same, everyone would simply buy the at the money options. For $1 you would get a tremendous bang for your buck. The option SELLER would be taking way too much risk. For every option you buy--someone had to sell it to you. The deeper in the money the option, the less risk for the seller and the buyer. Therefore, option sellers are willing to accept a smaller premium. This is because there is less chance of it getting to the money as evidenced by the smaller percentage increases. As you get closer and close to the money the risk keeps getting higher and higher. Sellers must be compensated for that risk; hence the incrementally higher premiums.
(I'm assuming this is for precocious 12 year olds as you yourself once were.)
This is kind of what I was thinking. The option seller is taking on more risk with the $40 call option.
I'm sort of surprised at you guys. Hint: Suppose you were staking a poker player for a year and giving him a freeroll. With a month to go he's up pretty good but you feel he is only a break even player (on average) in December. Thus you look to sell your position to another investor. See the analogy and the ramifications?
So if the player is a break-even player, I would want to sell my stake in the player at a higher price than my expected value for holding the stake.
Are you saying that the seller of the option is hoping you'll pay $11 for a $10 bill?
Q
Here is my take:
The $30 option has more at risk so it is cheaper. If the stock price were to drop below 40 you could lose more money while the $40 option would be capped at $11 (the whole price ).
D.
Deeply in the money options usually cost merely the difference between the stike price and the cost of the stock. If they cost more, it is because there is some chance that the stock will fall below the strike price. For instance suppose the expected value of the price of the stock in my example (one month from now) is $50 with a standard deviation of $7 dollars. This would be about in line with the prices I quoted. Using a simpler but more contrived example, suppose the stock had a 10% chance to be $70 in a month, an 80% chance to be $50, and a 10% chance to be $30. If you bought the 30 call its expected value is $20. But the 40 call has an expected value of $11 rather than ten (.1x0 + .8x10 + .1x30). Another way of looking at it is that the buyer of the 40 call saves $10 the 10% of the time the stock falls to $30, which adds one dollar to his expectation and is thus tacked on to the price of the option. The interesting bottom line is that the excess of cost of an in the money call compared to the difference between present price and strike price has little to do with interest, taxes, or leverage. It also has little to do with optimism about the stocks future. Rather it has to do with some PESSIMISM about the stocks future, since there is no real added cost unless there is perceived to be some possibility that the stock could drop below the strike price.
Also, it’s always good to remember that, give or take a few complications, Puts and Calls at the same strike price are the same instrument and can be converted into each other.
Sometimes, when a Call or Put price looks goofy, it’s a good idea to look at it’s mirror image.
Inside Info can lurk through the looking glass.
If a 12 year old could understand that then I'll go down on you. I'm 47 and I still can't figure it out. I thought some of the other answers were good too.
My answer was not meant to be understandble to twelve year olds. (And I don't lie to 47 year olds.) The twelve year old answer would basically be that deeply in the money options move exactly like the underlying stock does, but that moderately in the money options command a premium, because you sometimes save yourself some money when you buy the option rather than the stock.
"I'll go down on you. "
Is that offer only good for David? If I knew the stock market forum was this good I'd have checked here more often. Oh, I should have known. Monica, huh! Hey how's Bill? I thought you were in your twenties.
Vince.
huh?
Suppose the $30 strike call costs $20 and the $40 strike call costs $10. Then sell the first option and buy the second. This gives you $10 cash today, with a maximum outflow of $10 in 1 month. You get a freeroll and make money whenever the stock ends up below $40.
The freeroll occurs because either the call you sold is rich, or the call you bought is cheap. The $30 strike option couldn't be any cheaper, because then you could buy it and exercise immediately at a profit. Therefore the $40 is too cheap at $10.
Again, this is not the main reason.
This has probably been answered already but what the heck:
The premium paid on the option price is due to the unlimited possible gain from an upwards movement of the stock but a limited downside gain. For example, if there is a 50% chance of the stock moving to $70 and a 50% chance of the stock moving to $30 the buyer of the $40 call would average $5 per call purchase if there was no premium and the call cost $10 ((20-10)/2). The higher the volatility of the stock, the more likely the stock is to move rapidly in one direction or another thereby enhancing the possibility of profit. Notice that with the $30 call one would average $0 profit with the same stock movement as above. The closer the strike price to the current price of the stock, the larger the potential gains from volatility.
It wouldn't be fair to have one $10 option and one $30 option. Why? Because the guy buying the cheapest option would have an extra $20 to invest in other things during the coming month. This has to be compensated for by making the cheapest option more expensive.
This concerns a post that Tom put up about a month ago that I didn't have a chance to comment on at the time. But I need to bring it up because the principle is so important. Chris V. had mentioned that he had a very nice gain on a particular stock that he named, involving eggs. He was pondering whether to sell, given its runup. To which Tom Haley replied "Don't you dare sell that stock. Let your profits ride on." Or something to that effect.
So did you buy that stock Tom? Did you recommend others who don't own it to buy it? If you didn't you are being illogical.
The bottom line is that almost any stock that is worth holding is worth buying. The only exceptions arise on very close decisions because of commissions and bid and asked spreads, or because of tax consequences. But Tom didn't indicate it was close or bring up taxes in his vigorous instruction to Chris not to sell. But if Tom himself did not buy the stock I fear he fell prey to a fallacy that has many analogies in the gambling world (for example basing your halftime bets on what you bet at the start of the game.) Hopefully I do not need to elaborate.
Actually I did buy it.
they are getting off please let me know I do have some cash available.
Alan Lewis's recent book on option pricing under stochastic volatility has a comprehensive analysis of Cox's constant elasticity of variance model. It confirms some curious old numerical results by Emmanuel and MacBeth.
In those results the value of a call option does not go to zero as the strike price increases to infinity. Yet these are the only "arbitrage-free" option prices. How can this be? I'll post the correct explanation later.
The curious option prices occur only because the stock price process itself permits arbitrage. When valuing options relative to other securities you need to be careful the original securities do not permit arbitrage themselves. This difficulty appears in David Sklansky's example below. Sklansky wanted to note the difference between option prices must be less than the difference between strike prices. But Mark Courtney showed the first option was mispriced by this relationship if we consider the stock to be an option with a strike price of zero.
The constant elasticity of variance example depends critically on the definition of arbitrage. What is wrong when call option prices do not tend to zero as the strike prices increase to infinity? You can get an arbitrarily large mean and arbitrarily small variance by selling these options. But you must risk unlimited potential loss. So this really depends on your definition of arbitrage.
Does anybody have any thoughts on the book 'Beyond the Zulu principle'?
Acer
I've never heard of this book. Who wrote it and what was it about. Did you like it and would you recommend it?
I have read it many times. I believe it is an excellent book.
Jim Slater is an Englishman. He runs a newsletter, plus he has run a number of funds. Apparently, within England, he is classed as a real authority on the markets. Anyway, what people think isn't all that important. What is important is his results. To my understanding, and there is no clear cut figures because he has done so many different things, his average annual rate of return for the last 25 or 30 odd years is approx. 25% and above. In other words he is very successful.
He is primarily a value investor - specifically seeking value in growth shares. He doesn't go for asset plays and turn arounds etc. He primarily focuses on companies who have had good growth, and the prospects for the growth are intact. He has developed his system largely based on the correlation between earnings and the share price. For those who have read One up on Wall St, Lynch shows a number of graphs outlining the earnings curve and the stock price. Over long haul, there is almost a perfect correlation between the two. In other words, over time, the share price will follow earnings. So Slater, as a value investor, purchases companies that are growing at a good rate, but whose share price is divergent from earnings. Obviously, this is a huge oversimplification. He has a number of criteria that the company must meet for him to consider it.
I haven't done the book justice in this brief summary. The only thing I can say is go grab it from the store - you will not be disappointed!
Acer
Sklansky's example below shows the difference between option prices must be less than the difference between their strike prices, otherwise you can get a freeroll when the stock ends up blow $40. Unfortunately the $30 strike option is so cheap it allows a freeroll when the stock ends up below $30. So let's raise the price of this option a little to eliminate that freeroll.
Let the stock price equal $50, the $30 strike call equal $20.875, and the $40 strike call equal $11. What's wrong with that?
I guess this isn't the placed to post option quiz's.
Buy the stock for $50, sell four $30 calls, and buy three $40 calls. You make $.50 today with no chance of loss in the future. Whenever you get the $30 calls exercised against you, you can always exercise the $40 calls.
This illustrates the rigorous way to answer option questions. Option prices might seem "strange", but be perfectly acceptable. For example, the call option price might drop when the stock increases. It may not seem "right", but does not necessarily provide a way to make money. In contrast, an arbitrage opportunity indicates there is something fundamentally wrong with the prices.
A lot of tech companies have some very high valuations when compared to their earnings and revenue. At least this is true when traditional measurements for valuations are used. A few examples:
CRA - Celera Genomics valued at $12.5 billion with a net loss ($-107.9 million) and Price/Sales ratio of 523.74 to 1.
AKAM - Akamai Technologies, Inc. valued at $23.5 billion with a net loss ($-55.8 million) and Price/Sales ratio of 3,699.43 to 1.
CMRC - Commerce One valued at $15.3 billion with a net loss ($-63.8 million) and Price/Sales ratio of 271.37 to 1.
BRCD - Brocade Communications valued at $15.2 billion with a PE of 2211.43 to 1 and a Price/Sales ratio of 126.26 to 1.
YHOO - Yahoo! valued at $85.3 billion with a PE of 1572.82 and a Price/Sales ratio of 145.75.
WAVX - Wave Systems valued at $1.56 billion with a net loss ($28.1 million) and a Price/Sales ration of 7,886.35 to 1.
Some more well established companies:
QCOM - Qualcomm is valued at $101.1 billion with a PE of 341.1 to 1 and a Price/Sales ratio of 24.94 (what a bargain!).
CSCO - Cisco is valued at $446.7 billion with a PE of 178.61 to 1 and a Price/Sales ratio of 30.49 (dirt cheap!!).
AOL - America Online valued at $138.3 billion with a PE of 149.32 to 1 and a Price/Sales ratio of 27.41 to 1 (bargain of the century!!).
A lot of stocks in other areas have suffered steep declines and their valuation metrics would make them appear to be cheap. I believe that the PE of the Dow Jones Transports is something like 8 for instance. However, I think it is fair to say that the Hi Tech stocks have, for the most part faired much better. The divergence between the NASDAQ and the S&P is pretty wide right now. So what the heck is going on here?
PS: for the record I am long CRA,YHOO,AOL and CSCO.
I don't want to start talking over my own head here, but I believe much of the value on these companies comes from the Present Value of percieved Cash Flows that may or may not be generated in the future.
One Book that I'm really studying right now is "The Quest for Value", by G. Bennett Stewart. The theory is that Accounting Valuations like EPS growth, Book Value, ect. are flawed! Go figure. What really matters is the Economic reality of the business. This means taking out all the (GAAP) Accounting distortions and looking at the Return on Total Invested Capital minus a charge for the use of that capital. Much like a savings account.
Anyway, this book is taking me away from the false god of Accounting Valuation which is more helpful for Creditors, and more into Economic Valuation which looks at a company as a going concern. This seems like a better tool for the Equity Investor IMO.
CV
nt
BRCD - Brocade Communications valued at $15.2 billion with a PE of 2211.43 to 1 and a Price/Sales ratio of 126.26 to 1.
This is a company I work with a lot. They produce a fibre channel switch, which creates storage area networks for Unix and NT servers. This is well established technology in the mainframe area, (where they use ESCON), but it is now being introduced to Unix and NT servers.
A very high PE is justified, because this is just starting to ship in volume in the last few months. Brocade has competitors (Ancor, McData, Vixel, and some others) but Brocade has a significant lead, particularly in OEM deals. You can order one from Dell here: http://www.dell.com/us/en/biz/products/series_sanet_storage.htm, and they have other big name OEM deals, too.
There is no doubt Brocade has a successful product that is just beginning to ship in volume. A Brocade share is not a tulip bulb, by any means. But they are a company with just one product. $15 billion for a one product company. Dunno about that.
Jaeger
I agree that Brocade is very far from a "tulip bulb." They are the clear leader in Storage Area Networking (SANS) and I believe that the bet is that this market will be huge.
you might consider StorageTek (STK - NYSE). They have recently announced some SAN products of their own, as well as OEM agreements with Brocade. Even considering their >$2 billion annual revenues they have a market cap of just over $1 billion.
There are lots of things wrong with this company, but they do have some solid products. It seems strange in this market to see a high tech company with a market cap at less than half the annual revenues. If they could refocus on their core competancies (or get bought out), it seems the underlying value should be higher than that.
Jaeger
David Sk.
SHFL has moved up nicely since your mention, anything else we should be buying?
D.
commonsense says CGNX
Now this is interesting, I have used and followed Cognex products in past years. What makes you like them so much at this time?
D.
COGNEX ENTERS THE MACHINE VISION SENSOR BUSINESS
Cognex targets rapidly growing market for low-cost, vision-aided automation on the factory-floor
Natick, MA, January 13, 2000—Cognex Corporation (NASDAQ - CGNX), the world's leading supplier of machine vision systems, today announced that it is entering the fast-growing, and potentially very large, market for low-cost vision sensors. The first product to be introduced by Cognex specifically for that market is In-Sight™ 2000.
In-Sight™ 2000 is an innovative, low-cost machine vision sensor that puts the power of Cognex’s proven vision technology into the hands of manufacturing engineers who need relatively simple and inexpensive machine vision sensors to control manufacturing processes at numerous points on their production lines. In-Sight was designed to bridge the gap between single-purpose "smart cameras"—which typically lack the power and flexibility to solve all but the most trivial vision tasks—and general purpose machine vision systems which are higher in price and which are more complex to use.
Maybe, but this kind of thing is arround. The "Gap" they are bridging is pretty small.
Cognex always did OK because of proprietary computers even though the market prefers to use open systems.
I would like to see something bigger before I dive in.
D.
I put it in the wrong place. Please read it on the "one question option quiz" thread but reply to it here.
First of all I agree 100% with what David wrote in his post “Tom Haley Fallacy” as I will get to that later on. Back in December of 1999 I got some cash distributed from a 401k account to my Individual IRA account. I decided to put the money to work and did a stock screen that filtered companies based on growth. During this time period I encountered a poster on one of the Yahoo message boards who was bragging about his performance in the market and one of the stocks he mentioned was CREE (Cree Research). He stated that he had sold all of his stock and was sitting on the sidelines waiting for another opportunity to buy. One of the stocks that showed up in the screen was CREE. I started thinking to myself that I have seen this so often, a novice sells something they double up on to lock in a profit and the stock continues right on it’s merry way and the novice makes a small fraction of what they could have made. I evaluated the CREE growth potential according to my criteria and it looked like a buy. The clincher was the guy on the message board bragging about how he had doubled in the stock. I bought CREE in December of 1999 at 70 and it closed at 193 last Friday. All this proves is that the guy who sold should have waited. At least that is my take. I realize that there are circumstances where one might have to sell. The reasoning that this poster gave was that CREE was too high. My present plans on CREE are to hold it. It may or may not work out. I would recommend CREE as a buy.
I consider Chris to be a friend of mine. We have exchanged quite a bit of e-mail for over a year now. One of the things that we discuss is investment philosophy and stock selection. Is this a fair statement Chris? Based on what Chris and I have discussed I know the type of things that Chris is investing in. One of them is small cap stocks with a lot of growth potential. I also know that Chris is extremely focused on making good investments in the market and is a person that does his research. In fact I am quite sure he is more diligent than I am. With that said I assumed that when he picked EMBX he was making the choice based on his diligent research and the growth criteria that we have discussed from time to time. After I posted I thought well let me investigate this stock because my initial reaction wasn’t based on my own analysis. I looked over this company and I sent Chris an e-mail stating that I definitely didn’t think EMBX was overvalued. In fact I liked it. Apologies to Chris but the clincher for me was when Chris gave me a reason for selling that in my opinion was not very good. Now EMBX is below the price where Chris sold it so he is right so far. I bought some and we will see how it does long term. So assuming that Chris had done his diligent research and used the growth criteria that we have discussed was perhaps a mistake before stating what I stated. However, after reviewing the situation I believe Chris made a mistake in selling EMBX if I understand his reasons correctly. Now if Chris bought it back on it’s recent pullback more power to him because I am not smart enough to predict these pullbacks accurately.
As far as what David wrote. I agree that if a stock is not a sale it could definitely be bought. I say could because you might have a fixed amount of money to invest in one stock only and you are convinced another one will do better. Does this make any sense? Now I own a stock, CHKP, that I bought at 11 and it closed at 229 on Friday. Perhaps I should put all my money in CHKP because it has gone up so much. If I knew how it was going to play out I would. I certainly had no idea that when I bought CHKP that it would increase 20 fold in a year and 9 months. I sure am going to stick with it. Would I recommend it today? In a heartbeat. I’m kind of foolish so I really don’t have price targets and such but when I do well in something I stick with it. I will say that there are some stocks that I have done very well with that I would consider selling. The big cap names of LU, CSCO, and AOL might be sales for me. They might be sales because I’m not convinced their growth rates will be all that great. At the present time I don’t have any better ideas. And that is where I am coming from.
For now my choice to Sell EMBX and reinvest into other stocks was correct. EMBX is a great company, but I have questions about its future growth potential. I reinvested in companies that let me "sleep a little better" by having a further Growth "Reach". I have also made money on those investments since I Sold my EMBX stock and reinvested in them. Again this my just be STD.
CV
Some late notes. Just noticed that CREE closed Friday at 137, down from its high of 202, and CHKP closed at 185, down from its high of 295. Tom, I'm curious just how high the stock would've had to go before you would consider bailing out. It would seem that a stock which jumped as much as CREE did (70 to 193, wow!) surely was overvalued and due for a correction. Isn't success measured by the point at which one jumps out?
I believe in only investing in 5 or less companies at a time. My reason for this is so that I can concentrate on the best companies and have a portfolio that roughly Optimises Risk and Return. Anyway according to the Capital Assets Pricing Model I believe that having more than 10 Stocks doesn't decrease Portfolio Variance that much, but can be very costly to Returns. Right now I'm only invested in 2 Stocks with some cash in my Money Market waiting for me to get on the ball.
CV
This is a completely erroneous interpretation of the CAPM. The standard deviation of a typical stock is about twice that of the market, with a beta of 1. So portfolio theory shows a random portfolio of 2 stocks will have about 58% more risk than the market, a random portfolio of 5 stocks will have 25% more risk than the market, and a random portfolio of 10 stocks will have 14% more risk than the market. The CAPM says you could lower your risk by moving your stocks to a market index fund, and then optimally increase return by moving some money market assets to the index fund.
I love/hate the answers I get when I start talking out my ***! Usually keeps me from doing it.
I should have said the Markowitz Portfolios rather than CAPM. I'm probably still wrong.
CV
I have a portfolio in my 401K plans that only allows me very limited number of single stocks to invest in(other than mutual funds). I already have done very good with GMH, my other stocks are GM, DPH (delphi automotive) and CI (cigna), RTN.A (raytheon common A) and EDS (electronic data system).
My opinion reading the experts is that no stock other than GMH is worth a strong buy righ now. However, I see DPH as being a steal.
Should I buy more GMH ? Do you think still have much more potential?
I don't have a strong opinion ( or basically I do not know enough about the others to make a decision)
If anybody has done any research on these stocks I will appretiate your comments.
Do you have any good recommendations for a How to invest book in stocks?
Thanks in advance
Sme
If you don't do the analysis yourself then you should only invest your money in an Index Fund (a fund that tracks the S&P 500). You may be able to find someone who will invest your money for you, but your gonna have to pay them well. Most just want your money, and will under perform the S&P anyway.
I wouldn't take any on-line "advice". If you really don't enjoy diving into a company's last three 10K's (and that's just a piece of what's involved) then just let your money compound on the Market Index. Not many people can beat it in the Long Run.
CV
Chris:
Well, I guess I am trying to get familiar with investment that's why I was asking for a good book..:). In your post what do you mean "diving into a company's last three 10K's "
I am looking for two things right now:
a) Maximazing my return in the 401K plans with the limited choices of mutual funds and stocks (Fidelity funds and the stocks mentioned above).
b) Start getting smart to invest outside my 401K (using my poker wins..:))). Any books you can recommend?
Thanks again
Sme
For the Novice: If you have no clue about how the Stock Market works, what EPS, or ROE stands for, you should read these.
"Learn to Earn", by Peter Lynch and John Rothchild
"You Have More Than You Think", by David and Tom Gardner
For the Intermediate: These books will get you into playing with various stock picking strategies, but don't make the mistake of thinking you are any good at picking stocks after reading them.
"Buffettology", by Mary Buffett and Dave Clark
"The Motley Fool Investment Guide" by David and Tom Gardner
“Common Stocks and Uncommon Profits”, by Philip A. Fisher
“The Intelligent Investor”, Benjamin Graham
"Rule Breakers Rule Makers", by David and Tom Gardner (though I hesitate to mention it because much of their strategy hinges on the assumption that you plan to hold a stock for at least 10 years which makes up for their lack of safety)
“Financial Accounting 101” Not a book but a College course. Any comparable introductory course in accounting will probably do.
For the Advanced to Expert: I’m starting to read these now, but I really need some more college courses in Business Finance before I can get their full value.
“Security Analysis”, by Graham and Dodds (this is thought to be the Investor’s Bible. The first volume was printed right after the Crash of 1929. Since that time 5 volumes have been printed, but only the 1st and 5th are still in print. Just one of the out of print volumes in excellent condition can cost as much as $800. The book a very tough read (because basically the authors take it for granted that the reader has a Degree in Finance) and you will probably need to take some College Financial courses to get much out of it.)
“The Quest for Value”, by G. Bennett Stewart, III (very good book on valuing stocks and ties in nicely with Security Analysis)
“Investment Valuation”, by Aswath Domodaran (if you understand this book you can value any asset)
There are countless others, but those are currently my best picks.
CV
Read _A Random Walk Down Wall Street_ by Burt Malkiel. Many superficially sensible investment ideas are unsound. For example, a few years ago this board would probably have suggested the Beardstown ladies investment books. Unfortunately their self-reported investment results were grossly wrong, and their defense is they were too stupid to know it!
Benjamin Graham repudiated his philosophy of detailed security analysis in a Financial Analysts Journal interview before he died. While he still advocated simple value screens in a diversified portfolio, he stated something like "To this limited extent I am a convert to the efficient markets school."
I guess that I'll have to read that damn book. Some of the Efficient Market concept seems flawed to me.
Isn't that like saying that in the long run Poker isn't beatable because everyone plays the game with all the knowledge that has ever been written about it?
CV
I'm going to speculate beyond my direct experience now.
Yes, you'll find it especially true at the higher limits. The $500-$1000 games probably use everything that has been written plus a lot that hasn't. And capital markets are substantially higher-limit than any poker room.
I think it would take most clever people a couple years to learn to beat poker for $50 per hour. Indeed, many would abandon the attempt because they don't have the ability. The successful ones could then spend their time scouting games and playing in smoky rooms for $50 per playing hour, without benefits. If you are this smart and motivated then you could learn some computer skills and make more at an internet company. Bobby Baldwin [sp?] certainly put his skills to better use.
There are a couple exceptions. Some exceptional individuals (e.g. Doyle Brunson) have a natural or acquired talent for poker that cannot be as effectively exploited in other endeavors. Others simply enjoy the poker lifestyle so much they are willing to do it for a lesser wage than they could otherwise earn. This category might include a lot of retired rocks in Vegas. In this sense the poker market is efficient.
I think we may differ in our deffinitions of EMH. I'm going to Purchace Random Walk sometime today. Since many people on this Board have read it I might as well too.
Something that I find interesting in your Poker analogy is that the Higher limits tend to be more efficient. I agree that if everyone played as good or better then I did I wouldn't be able to make any money, and would most likely lose. Of course these these High limit players wouldn't play in an easy 2-4 game.
Think about this. The big money players (Professional Money Managers) in the Market can't get enough money into a Small Cap to make it profitable for them. There is a lot of times that certain big players complain that their buy order can't get through because there just isn't enough sellers. It would seem to me that some markets are more efficient than others.
One thing I do want to make clear, I think that all markets are at least Weak Form Efficient. That is that I believe Technical Analysis is a waste of time. I just don't think that all Markets are Strong Form Efficient and that a small investor can actually beat the Indexes. I'll see if I still agree with that after reading Random Walk.
CV
I used to play a lot of poker, mostly 30-60 and 40-80. I wasn't great but I beat the games for about a half big bet per hour and had two big scores in tournaments. I hardly play any more. Working full time and now having a family makes it real tough. I also notice the less I play the more my skills decline. For about the last five years I have been trading a lot. I have a real passion for the stock market. I spend a lot of my free time reading and studying about the market. I find it more intellectualy challenging then playing poker. Good luck trying to start a new internet company. It's a hell of a lot harder then it appears. The days are over where you are going to start one from your garage.
Bruce S.
Some of the Efficient Market concept seems flawed to me.
Over the weekend I posted on the BJmath web site that PALM had a market cap of $45 billion, while 3com owns 532 million of these shares (about 94%), and has a market cap of $28 billion. Buying COMS and selling PALM short would have made $4/share today.
The gap is narrower, but still exists. As of close today, 3com has a market cap of $24 billion, and PALM $33 billion. Obviously the market isn't always efficient.
Jaeger
There is one BIG problem with your trade. Getting short PALM. I am a floor trader at a major clearing house and tried to borrow PALM to do the trade you suggest. There was no stock to borrow. So, you just can't do that.
Danny S
Well I did read (skimmed) Random Walk today. I wasn't that impressed. Most of his ideas I already understand.
His brush off of the Low Mulitpal, and Small Cap Effects was increadible. When these Effects did show higher returns with equivalent Risk he blamed the inefficieny of CAPM to measure Risk. Go Figure.
I book that is close to Random Walk, but recomended by The Graduate School of Business, Columbia University, New York City is P. Bernstein's, "Capital Ideas" (New York, Free Press), 1992. I'll see if that one is any better.
CV
Get a subscription to Investor's Business Daily (a daily financial newspaper) and start reading and studying it. It has great educational information. I would also read William O'Neal's books about the stock market. He is the founder of IBD.
Good luck!
Bruce S.
From only a small selection of stocks it will be best to stick with mutual funds unless you just get very lucky and find one you like.
Chris mentions a lot of books I like too, actually I can't think of a single one that is great though.
D.
And the Winner Is…Independent Errors
A number of years ago a colleague at Columbia Business School, Paul Johnson,created an exercise to demonstrate the exquisite capability of markets to discern value. The game is based on the Academy Awards—the highest accolades handed out in the film industry. The basics are very simple:
· Each student receives a single piece of paper with a listing of 12 Academy Award categories and the nominees for each. On the front of the page are rela-tively well known categories, such as best film, best actress and so on. The back page has more obscure categories—best adapted screenplay, best cinematogra-phy and such. The forms are distributed roughly three weeks in advance of the actual awards event.
· Students are asked to select the winners in each category. In order to play, stu-dents must contribute $1 to a pot, with the student with the most correct answers winning the pot. Hence, there is a modest economic incentive to answer the questions right.
· About 125 students participated in 1998. All guesses were generated inde-pendently, as students were forbidden from consulting with one another. The results were impressive in 1998. Similar results have been generated year-in and year-out:
· The “consensus,” defined as the most popular selection for a given category, correctly identified 11 of the 12 actual category winners. Remarkably, the only category the consensus missed, it missed by only one vote.
· The best individual accurately picked 9 of the 12 category winners.
· The average individual only picked 5 of the 12 winners—less than 50%.
The message from this exercise is that lots of agents and independent errors in their judgements lead to efficient results. The market tends to be much smarter than the average person. In fact, the standard error in equilibrium prices declines with roughly the square root of the number of investors.
This observation is not particularly new—in fact Francis Galton made the same point in the late 19th century—but it is often overlooked. Further, this simple model does not include meaningful economic incentives or learning. If incorporated, these elements would make the results even more robust.
The whole report can be downloaded form
http://www.capatcolumbia.com/Articles/FoFinance/frontier1.htm
CV
What interestes me the most about this Theory about the Markets is that if it is true, then the way an indivdul of group would beat the market is the same way a individul would beat simpler games where the edge comes from knowing something the concensus doesn't yet know. This would make the market closer to resembling Sports and Track Betting. David S. did make this point earlier in the Forum.
In effect the Eduacted Contrarian Investor would have the biggest edge. This means not just a simple strategy of picking low P/E stocks, but possibly picking a stock from a Sector that is currently out of favor in the Media, or to have the foresight to pick stocks from a sector that has not yet shown its future potential to the general public.
This might also mean that certain Bio-tech, and IC Chip Industries are probably not a good area to be researching right now since they are a hot topic in the Media.
Comments?
CV
Well, an overexposed sector can be ideal if there are public misconceptions. If you knew which Internet stocks to short...
Who buys forest products companies' stock other than major investment banks and institutional investors? Would you rather go up against the Merrill Lynch research staff or against uninformed daytraders?
From what little I've seen of these guys and their ilk, I'd say they are more like an arm of the marketing dept. than real researchers. No doubt ML and other brokers have real research, but not for the retail customers.
What I meant is that in more obscure sectors, a large share of the trades are going to be by trading firms' own accounts, which are made using the full knowledge of those research departments. (Or by people who know the forest products industry inside out.) Compare that to Internet stocks, where many of the trades will be by individuals with little knowledge of finance or technology, and whose decisions are likely to often be inaccurate. I'm not referring to the broker reports they send you! Did you see "Boiler Room"?
By this reasoning, it wouldn't be possible to beat pro football betting. But I think some people do. Comparing the market to sports may be reasonable. It would probably be easier to beat books if you were the world expert on the Big Sky basketball conference than if you were an expert on the NFC east. Another interesting similarity is that a contra view is that with so much action involved in the bigger sets of either gambling venture, it may be easier to pick off the dead money. I get a kick out of gamblers who have worked years to hone their skill to a professional level and then venture into daytrading as if they're the smart money. One wouldn't do this for sports betting or BJ play unless one is an expert, but for some reason competing against guys with lots of education and experience causes the rules of who is the fave to be rewritten now. Sorry I'm drifting; I don't post that often so I had to get that off my chest. It was not aimed at any particular poster or group of posters.
JG
Your post made me think about where I'm going with this. I believe the big money to be made in Investment isn't by significantly beating the market over time, but convincing other people to let you invest their money for them while you take a percentage. If you show that you can at least do better than the Riskless Asset (government bonds) this should be enough incentive for most people to let you manage their money. This is basicly what Mutual Funds do eventhough they can't seem to beat the Stock Market they do beat the Riskless Asset. A small investor could take this concept to a limited partnership format and make a decent living as long as he could pull enough equity together.
CV
Funny you mention that.
After the "greatest investors" posts, I did a logarithm (base annual return) on Warren Buffet's net worth, and unless he already started out rich, he was supplementing his nest egg.
JG
Good observation! That is exactly how Buffett started.
CV
I could not find this specific article. In fact, several of the articles on site returned 404 errors. What is the title, and is there another source?
Its titled the "Invisible Lead Steer:....". You need to be able to download .PDF's. Some of the articles give errors, but most are downloadable.
CV
P.S. Forum, I'll be out of town till Late Tuesday. Heading to Vegas for my 30th.
In effect the Eduacted Contrarian Investor would have the biggest edge. This means not just a simple strategy of picking low P/E stocks, but possibly picking a stock from a Sector that is currently out of favor in the Media, or to have the foresight to pick stocks from a sector that has not yet shown its future potential to the general public.
Well duh!
I believe the big money to be made in Investment isn't by significantly beating the market over time, but convincing other people to let you invest their money for them while you take a percentage.
Well double duh!!
Whether picking basketball games, horses, or stocks or any decision for that matter, one must have both information about the subject and the ability to see how that information will lead to a conclusion. Quite often the first exists without the second. (Good examples exist in sports where a coach will incorrectly punt or bunt despite knowing all the relevant probabilities relating to that decision. He just doesn't know how to put these factors together.)
Though I am no expert on individual stocks or the financial markets for that matter, I am an expert in finding flaws in reasoning. Thus if someone tells me why he likes a particular stock, I might be able to show him why he shouldn't (or agree that he should) GIVEN HIS PREMISES. In other words I think I can help someone in evaluating their picks without knowing anything about the company in question but merely accepting the information he is giving me as true. Of course if the information turns out not to be true any conclusions reached, based on that faulty information, would be useless.
If I see that I am good enough at this endeavor I will of course start charging for it. For now, however let's all get some practice at it. Thus I propose that you guys throw out some stock or option picks (long or short) along with your reasons for that pick. Then the rest of us will see if we can find any flaw in your reasoning. If this works, we'll all get rich.
1) GTE has a substantial wireless network and is the only cell phone system that actually works, at least on the west coast. The others almost work but not quite everything.
2) It's P/E is 16
3) Telecom is hot.
4) People will continue to take up cell phone use over the next many years.
D.
Can't just look at GTE you have to analyze combined company prospects. Also statement 1 is not totally true. Statements 2 is irrelevant. Statement 3 is vague and irrelevant. Statement 4 is true and may be something you can "hang your hat on" but you need to make some projections regarding competition. GTE has had more or less flat revenue growth. Market won't get enthused until this improves. The combined company may be interesting though.
What is your top ten reading list for someone who wants to learn how to expertly spot flawed reasoning? English only, please. P.S. I am not asserting that this is necessarily a valid way to obtain said skill.
A good book is William J. O'Neil's, 'How to make money in stocks.' It has a lot of good fundametal and exit strategy info. Plus it has information on what to look for in a company as to why it may be a bad pick.
If can spare the money and want to do it the chart way, check out John Murphy's 'Technical Analysis of the Financial Markets.' Personally this is my favorite way to trade stocks (looking for buy/sell signals in the charts)
Lars
I've got one but it isn't a buy. It is a stock that I think should be sold short. The company is called TheStreet.com symbol TSCM. Here's why:
1. The business model will never be profitable. A few words about the business model. TheStreet.com is an online publication that provides news and analysis of the stock market. TheStreet.com relies on monthly subscription fees and advertising to generate revenue. I suppose that if the advise given would lead to vast riches then people would be subscribing en masse. This is obviously not the case as the main columnist is a hedge fund manager who's record is documented as being nothing outstanding. It is hard to quantify such advice anyway since he doesn't give buy and sell recommendations per se. The site offers nothing special and many other sites on the net offer similar if not better services and information to investors for FREE. I suppose that advertising revenue could do it but eyeballs will be limited due to the subscription based model. There are some neglibable revenues generated from print media and a television show (ratings aren't that good).
2. The company is not attractive as a buyout candidate because it generates too little revenue (maybe $12 million this year) and offers nothing unique except it's columinsts opinions comapared to a valuation of approximately $300 million. Yes the growth has been good but how long will it last? Also there have been questions about the objectiveness of a hedge fund manageer writing a column. A subjective opinion of mine is that there is nothing a prospective suitor would find of value.
3. Insiders have filed to sell a lot of shares. I will admit that this may be irrelevant.
4. Approximately 2/3 of the float is short right now and about 20% of the outstanding shares are floated. Some would say that having 2/3 of the shares being short makes it a viable candidate for a "short squeeze." There is no proof that I know of where this is a good indicator of a "short squeeze." If so please point out the study to me. Anyway you can possibly buy puts and limit your risk.
Ready to be shot down and to learn something.
>> GIVEN HIS PREMISES
If one of the items of true info, that the stock picker presents to you, does not include how well known his true info is already in the market, how can any amount of logical analysis help?
Erin is absolutely correct. Any reason to pick a stock or a game or a horse, must include an analysis of why those reasons are unknown to or misevaluated by other investors. Without that there can be no good bet er buy.
There is no risk premium for the unique risk inherent with an indivual stock. There is only a risk premium for the market risk.
David, the only reason you should EVER buy a stock cause it's going up with higher volume than usual - then pick at it on a smal sell-off. Conversly same for selling short 'dogs' - if they are going lower on high volume - sell'm on a bit of correction. That's it !! There is no big secret on when to buy or sell it's always way more difficulkt when to take profit !!!!!!
3com seems like an incredible buy right now. The value of their stake in the Palm is worth about $92 a share. They have about $10 a share in cash. They have ongoing networking business. The stock was off $4 today. They have repeatedly assured investors that the remaining Palm shares will be distributed to the holders of 3com. The stock has gone straight down since the day of the IPO of Palm. I think that it is an incredible buy, but each day it gets cheaper. Any ideas on what holes are being punched in my bullish 3com attitude?
For the long term, while the Palms are the current darlings of the handheld market, many programmers are still not convinced that Microsoft will not end up with the bulk of the market share for handheld device software. Microsoft is preparing a newer, more compact interface for handheld devices to replace the bulky CE software currently being used in other manufacturer's handhelds. With the obvious point being that 3Com's Palm interface is totally proprietary, when all the other manufacturer's eventually opt into Microsoft's interface, 3Com's stock might go totally in the toilet.
For the short term, I'm not sure what stock sales were allowed by employee shareholders, but many of them held only that large paper asset and were likely quite eager to sell their shares after the IPO.
I think you make a very good point. Do you think that they will do a better job than they did with Windows 2000? What you say may happen but the guys in Redmond are notorious for being long on announcements and short on product. There may be other candidates in this OS area too.
3com seems like an incredible buy right now. If it was a great buy before, it's an even better buy now. It's off about 25% since the Palm IPO.
The value of their stake in the Palm is worth about $92 a share.
It is a bit of a mystery how Palm shares can continue to trade at a higher value than 3Com. As of close today 3com's 532 million Palm shares have a market value $30.7 billion, 3com's market cap is about $18 billion. Go figure. I think there are a lot of tech shares trading purely on momentum, totally detached from their underlying value. It is partly created by the shortage of Palm shares released to the market. I don't know why they chose to go public and kept 95% of the shares out of the market. I would guess they were trying to engineer a high flying share price with a lot of hype and a shortage of stock.
Jaeger
Palm/3com is a arbitrage situation. The deal may be a different one when it gets finalized by the IRS and 3Com. Noone is buying PALM and even if you are a super bull you should buy COMS. The question is that it maybe too late as the record date is not announeced for holders of 3Com. Too many unanswered questions and you have to read the website for clues.
It sounds good to me, but if this is something even I now know, what does the smart money know?
what does the smart money know?
I think the smart money is now in the hands of the people issuing the IPO into a market that seems to be going a little overboard on them.
The gap has been closing, although slowly. The Palm premium is down to about $8 billion, down from $17 billion 2 weeks ago.
Jaeger
If one reads issuing as selling, then the smart money is short.
JG
This is a hypothetical question about value. To make it less complex lets assume there isn't any Inflation or Tax.
I have a note backed by the government that will give me $10 a year for infinity but will never return my principal. I could sell it to you to try to regain my principal. How much is the note worth?
This may seem simple to some, but I've noticed that many people's eye's glaze over when I ask them this. This is about as basic as valuation gets and I'll have to admit that until recently I didn't understand how to answer it.
CV
Be sure to multiply your answer by the probability that any government will last to infinity.
And, just to make sure you have the right answer, multiply by the probability that knowing the answer, or even knowing how to figure out the answer, will ever make you anything.
Well, maybe as a bar bet.
>>Be sure to multiply your answer by the probability that any government will last to infinity.<<
This may be more significant than it might first appear. There is something called "The Survivor Bias" which has had at least some influence on the long term returns from stocks. This is part of the reason why long term stock returns are much greater than what would be predicted by the Capital Asset Pricing Model.
>>And, just to make sure you have the right answer, multiply by the probability that knowing the answer, or even knowing how to figure out the answer, will ever make you anything.<<
You might be surprised. I have found that many people who trade don't have a grasp on something as simple as a basic DCF model for determining values for securities.
>>Well, maybe as a bar bet.<<
Only at the best watering holes.
It is worth about 170 dollars. I will let others ellaborate.
Actually I am just thinking it is roughly the equivalent of a long bond. However I am not sure how you theoretically calculate what it should trade at. Empirically, today it is about 6%.
Many market factors must be considered to come up with time value of money. It seems to come down to estimating how much money you make and with what risk by other investments available to you.
D.
Chris 8-)
David Stelle is correct in estimating $170.00 for an assumed long term interest rate of 6%. To be worth exactly that much it would have to have a life of 56 years and 2.88 months. (all-in-fun) For a 5% interest rate the annunity would be worth about $199 for a life spam of 60 years. For a 7% int. rate the value would be about $150 for 60 years. In essence, this gives you some idea about the value of money as a function on the interest rate. You can see that a lower interest rate makes your annunity or bond more valuable -- but you knew that. Also....
At 6% the annunity would be worth $78 with a life of only 10 years; $121.58 for life of 20 years, and $167 for a life of 50 years. From this you can surmise that the value goes up very little for the long , long term -- being worth about only $ $176.67 for infinity.
Regards(all in fun) Carl 8-)
You are correct in you thought process. There is realy no one number that would be exactly right, but comparing the perpetual annuity to a 30 year government bonds is good enough for me.
How David got his answer was to devide the $10 dividend by the required rate of return.
$10/.06 = $166.67
He will always be getting ~6% APR on his investment. If he chose to buy.
CV
This is the same as consol evalutaion. A consol is a bong that never matures. The way to calculate the value of a consul is to take the coupon rate (in this case $10) and divide it by the appropriate interest rate. The interest rate of 6% that others are using is as reasonable as any other. $10/.06 = $167
Without looking at the other answers, what you're talking about is a perpetuity. That's where a said amount is paid per a period forever. The real question is this: What is the present value of $10/year paid forever? And it's this: Firstly you have to assume an inflation rate. And to simplify things we'll assume uniform inflation of i (annual inflation applied once per annum) from now until eternity and we'll let the first payment be today.
So P = 10 + 10/(1+i) + 10/(1+i)^2 + ... = 10{1+[1/(1+i)]+[1/(1+i)^2]+[1/(1+i)^3]+ ...) = At this point I don't know the math off the top of my head. For Mason or David this infinite sum is probably easy to evaluate.
This can all be found in a rather innocuous looking book titled "The Theory of Interest". It's the book used in the 4th or 5th Actuarial exam.
But wait, Chris I just read your question again. If you assume no inflation and no tax and eternal life, it's worth infinity. You need to re-think what you're asking. You absolutely have to assume a rate of inflation. That's the only way $10 paid 1,000,000,000 years from now will lose any value today. In other words the present value of $10 paid 1,000,000,000 years from now is aprox. 0 given inflation >> 0. But the present value of $10 paid 1,000,000,000 years from now is $10 given inflation = 0.
Hey, is this a trick quesiton?
i=annual rate of interest, and not inflation.
The sum of the infinite series is 10/i, as others have pointed out.
If you're talking present value of future money ... you're concerned with inflation. If you want to use interest, that's fine. 6 of one 1/2 dozen of the other. It's all academic anyway. Tell me - what's the difference between inflation and interest? The infinite sum = 1/i not 10/i. Thanks for trying Mr. technical.
Crudely speaking, for valuation purposes the rate i is the interest rate per period less the inflation rate per period. (Chris assumed no inflation, so i=interest rate). To fully understand the difference between the two, I suggest a trip to Brazil.
In your first post you say: "and we'll let the first payment be today.
So P = 10 + 10/(1+i) + 10/(1+i)^2 + ... = 10{1+[1/(1+i)]+[1/(1+i)^2]+[1/(1+i)^3]+ ...) = At this point I don't know the math off the top of my head. For Mason or David this infinite sum is probably easy to evaluate. "
Well, we were both wrong! P is not 10/i, nor is it 1/i. You guessed right, Michael - it's 10+10/i.
Here you go:
http://invest-faq.com/articles/analy-fut-prs-val.html
Pay attention to case 2 of present value and then extend to eternity (perpetuity).
The sum is 1/i in general. In this specific case it's 10*(1/i) -- you factor out the common term first. Actually you derive the formula for a unit(1) and then you can apply it to any paymeny amount. You're way off base. But you're much more considerate than I. And for that I must commend you.
Your P comes to 10+10/i. Period.
check out www.sonic.net/donaldj
isn't gomez.com supposed to good for that too?
Gomez is just fair. I think lot of these sites are very biast by the companies they suppose to rate, some advertise etc. etc. just look at the site - see ads take it with a grain of salt.
Good sight. Thanks
Bruce
The standard quantitative investment approach back-tests an investment strategy based on preconceived ideas about value or psychology. For example, past advertising expenditures contribute to future sales but are not listed on the balance sheet. Therefore they may underappreciated by the market. You can easily construct historical returns to strategies based on advertising/price. There are plenty of other value candidates - earnings/price, book/price, dividend/price, leverage, analyst recommendations, etc. Just like sports angles, if you try enough of these then some will appear statistically significant.
Let's presume you have a simple measure of the historical performance, with the means and standard deviations. For simplicity, assume the strategy is uncorrelated with the market and has negligible transactions costs. There is still a terrible retrospective data-mining problem. So how do you determine whether the strategy is worthwhile? I know Mr. Sklansky has faced this problem with sports angles.
You're doing it again, 'Kim'! The term 'Data mining' refers to a perfectly respectable discipline. Data miners use things like 'clustering algorithms', search for 'association rules', and employ obscure arcana like 'bagging', 'boosting', and 'stacking'. Today's data miner is into hip new things like Support-Vector machines.
Please stop using 'data mining' as a pejorative!
I was wondering if anybody knew the soes limit on nasdaq. I read it was 1000 shares but I suspect that that info is outdated.....
Thanks in advance
Donny
It's a 1000. I think the nasdaq MM's tried to curtail it with no success. They are liable to fill only a 100 shares automatically. Remember many of these stocks are in the 200-300 range so very few will actually trade a 1000 shares.
Micro Strategy lost 61% of it's value on Monday by falling a staggering 140 points. The company issued a press release indicating that they would re-state earnings and revenues for 1999 and 2000. The company also said that there were no changes in cash flow and that they needed to do this to comply with SEC request to change their accounting practices before they did a secondary offering. Needless to say the secondary was postponed.
This is all well and good and doesn't necessarily indicate inefficiency. But this was not new news. For instance Forbes did an expose of this company and their questionable practices back on March 6,2000.
http://www.forbes.com/forbes/00/0306/6506058a.htm
The only thing that was really new was the agreement by the company to change their accounting methods. So today the market reacts to this old news. It seems to me that the realization of this at least potential problem should have occurred long before today. I am opining that it shows that the market is often driven to extremes of fear and greed which in my mind means that the market is very far from an efficient pricing mechanism.
Very true.
Fundamentals mean very little during a bull market. Look at the biotechs with their ridiculously high valuations before they hit the crapper and most of the tech stocks. When the mania ends or clearer thinking pervails we get a big selloff and we see the rotation from NASDAQ to the Dow where we have much better fundamentals (companies which actually make money). There is no way you can explain the run up in MSTR and its huge selloff rationally. If you subscribe to the market being an efficient pricing model you would be like Warren Buffet the last few years and you would have missed one of the greatest runs we have had of late.
Many have leveled similar complaints about AOL for many years. Yet from 1994 to today AOL has risen from $0.46 a share to $72.50 a share. I believe AOL was offered at about $0.10 a share in 1992. AOL is still maligned as an overpriced stock. If this represents irrationality and stupidity on the part of investors then they have been practicing this stupidity for almost 8 years! I submit that there is some other explanation besides the one that you offer. The arguement you make is an oft repeated one which should tell you that the conventional wisdom is wrong.
What matters how others preceive things and when they start to act. Bigger the players more of the effect on the crowd.
Stocks that have little or no earnings but might have a rosy future are evaluated not so much as to what they are worth or even simply their probabalistic expected value. Rather a key component is predicting what OTHERS think they are worth, whether they are right or not.
Here's an analogy: Suppose you could bet on the Super Bowl 5 years in advance. Suppose further that your betting ticket was freely tradeable. Somebody might buy your ticket for more than it was "worth" simply because he sensed that others would buy it from him for yet more (for whatever reason). If he had to wait until the game was played he clearly overpaid. But if this guy really does have a knack for predicting other people's opinions about the future, he priced the ticket "efficiently" while you didn't. For stocks that figure to coalesce to close to their true value within a reasonable amount of time,(or are already there)an ability to calculate its true value or expected value should reap rewards. But just as a poker player who assummes his opponent is rational, will cost himself profits compared to a player who assumes otherwise (correctly), so too for some expert and usually efficient stock pickers.
x
I told you guys to buy? Is anybody paying attention?
I bought SHFL and it is up about 30%. Thanks!
CGNX I was familiar with before and never heard a good reason to buy it. It is up though. What was the reason?
D.
Jaded is healthy, Jaded is good.... (just replace jaded with greed !!) and you'll have a speach of GordonGecko. So my jaded question - how come there are no sell recommendations by Brokerage Analysts ??? If you don't believe me check it out yourselves ?? Isn't this strange a bit ???? Considering that there are plenty of stocks that moved down for the last 2 years even as we had the big bull market. I will tell you - it's a con game of the public !!!! Surely selling short was legal the last time I checked. We are conned into that it's dangerous ???? It's unamerican ???? It's difficult (many online brokers will not even let you do it online) - this along with the selling the order flow is a big con !!!!!!! The media will manipulate you the public into some very false notions !!!!! Any wise investor (there are many) who will have say a portfolio of a million (at any given time may have 25% of their stuff in well placed short positions) EVEN IN A BUL MARKET !!!!! Yes short squeeze exist and then you must get out and look elsewhere. There is even a professional short trader I heard of who will fade (short) some analyst upgrades (as these guys are a sock-puppets) of the Brokers !!!!!
It's a good point, but as someone pointed out on here long ago (might've even been that rayzee guy), I think the idea is that the downside has a finite potential and the upside is theoretically unlimited. You're right though, it's a mentality, much like considering how many people play the Pass line at a craps table versus how few play the Don't Pass.
Earl, you are quite correct there is always danger in shorting (I think there are sometimes well planned short squeezes done by Wall Street firms) however if you consider the time value of money (i.e. time = $$) short side is sometimes 1/2 1/4 of the time of an up-move ;-) I am 40 so I don't have years to fuck around to make my doe. P.S. Today (wednesday) the buy hold guy got it up in a ass. Cheers
I forgot to add that great line from "Wall Street's" 'Gecko': "Their analysts wouldn't know preferred stock from livestock. ;-)
Andras,
Take your Ritalin! Just kidding.
First I think Analysts don't give Sell recommendations for polital reasons. Its not right, but thats the way it is. You and I know not to listen to them anyway.
The short seller is always going to be fighting against the flow of Management, the Market, and Inflation. All these factors push the stockmarket in an upward direction. So instead of the Investor playing a Positive Sum game, when he go's Short he starts playing a Negative Sum game. I think its just harder to play, and there are may good undervalued companies out there.
Later, Chris
Chris, Ritalin - is this anti paranoia drug ??? ;-) thanks. Hey man today and I suspect many days to come there will be fortunes made in a day like this and not by the investor public - so who is fighting the market today ???? I am short PALM since 102 and many bot it at 95+ and 60+ You have to do your homework but in an environment where holding nasdaq overnight is as dangerous as playing NL heads up with Doyle Bronson. You can't get hurt much - only buy holding stuff overnight - check out MSTR (a 120 dollars in the toilette a few days back.) Thanks for the prescription Doc ;-)
Andras, do you think in general that shorting IPOs is a good tactic?
p.s. If memory serves me correctly, Ritalin is anit-hyper meds.
Yes - if you do some study of it. It will run up (if it's hyped well..and always selling commences by the insiders (i.e.not the company insiders but those who own it at the unattainble price). They always give away some and the brokers get some they can sell right away. Later when the quiet period ends the insiders can sell but that can be quite further out (2-3 years ???) In a week 0r so you can try it, there is always a week or two when you can't short. Anyway let the hype do it's work and check the short stats usually it's a money in the bank. PALM was even better cause the ARB situation but that is not typical. Be carefull of the very strong ones, but any of these stocks are way over priced. QCOM and some are exceptions.
Hope you were short the last few days.
...but any of these stocks are way over priced. QCOM and some are exceptions.
Judging by today's performance, Qualcomm is not an exception. Apparently IBM (Isten Basza Meg ;-) is. Enjoy your posts....
inflation makes the market go lower. the market goes higher because partly of productivity increases which translates into higher earnings.
The primary reason analysts do not have reccomendations of less than hold I believe is two fold:
1) They don't want to be ostrecized by the company they are making the reccomendation on. These broker houses look to the IR departments of these companies for guidance - they don't want to be shut out.
2) The history of the market is to go up. So, the long term view is HOLD at worst. While the short term view might be "jump out the window".
Shorting:
I agree - but shorting is more dangerous than going long. Theoretically when you short you have unlimited exposure. Actually your exposure is limited to how long you can stathe off your brokerage houses margin call. But you will find that shorters have a FARFARFAR superior underastanding of the stock market and in particular the stock they are shorting than does the average investor.
My .02
This is about arbitrage of PALM and COMS the parent company who spun off PALM. ----If the 1.5 Palm per share of COMS distribution comes to pass (not yet a lock in - and check the date of record on it if it gets approved), then it seems you'd want to short 300 shares of PALM and buy 200 shares of COMS and pocket whatever the net difference was (you'd satisfy the short with the 1.5:1 distribution but you'd also have to deal with any devaluation of the COMS shares that resulted).
You could look at a kind of combo option position to see if it worked out - short 300 shares of PALM, buy 200 shares of COMS, and buy 2 contracts of at the money COMS puts with an expiration shortly after the distribution date to protect the value of the long COMS (you could also look at selling at the money calls instead of buying puts).
Whatever you netted from the position would basically be a locked in profit - but you've got to figure this will narrow to near zero as soon as the distribution is approved because the big arb firms will jump on it.
But verify that it will actually happen first. Here's the TSC article on it:
Holy Palm confusion, Batman.
To start, nothing is in stone. 3Com has said that it may give you 1.5 shares of Palm for each 3Com share you hold. The company still is waiting for the Internal Revenue Service to grant this spinoff tax-free status. A decision isn't expected until the summer, says 3Com spokesman Mark Plungy.
To spin off Palm in a tax-free transaction, 3Com must meet a laundry list of rules outlined in section 355 of the tax code. Among the requirements is that 3Com have a majority control of Palm immediately prior to the spinoff, that the spinoff is for legitimate business purposes and that both 3Com and Palm have been engaged in business for at least five years.
Although IRS approval is likely, if would be disastrous if 3Com announced final terms and the spinoff wasn't approved, says Robert Willens, a managing director and strategic tax guru at Lehman Brothers in New York. So sit tight and wait for the IRS decision.
Only at that point will you know how many shares of Palm you'll be receiving. There's a good explanation of all this in the investor relations section of 3Com's Web site:
The final ratio will be based on the number of shares outstanding of each company at the time of the distribution. If such ratio were to be calculated based on current outstanding shares, 3Com shareholders, as of the distribution date, would be eligible to receive approximately 1.5 shares of Palm for each share of 3Com. How'd they get 1.5?
3Com owns 532 million shares, or approximately 95%, of Palm. There are roughly 349 million shares of 3Com common stock outstanding. So 532 divided by 349 equals approximately 1.5.
Assuming the IRS approves the spinoff as tax-free, the shares essentially are a gift to 3Com shareholders. And you won't have to worry about tax implications -- until you sell them. That is the point when you'll need to know your cost basis. It may be based on either the average trading price or the closing price of Palm shares on the record date.
Let's say your Palm shares will be valued at 52 on the date of record. If you hold 10 shares of 3Com, assuming the 1.5 ratio remains valid, you'd receive 15 shares of Palm. The basis in your Palm holdings, therefore, would be $780 (15 x 52).
Keep an eye on the investor relations sections of 3Com's site. " -- "
P.S. anyone going to WSOP ?????
"You could look at a kind of combo option position to see if it worked out - short 300 shares of PALM, buy 200 shares of COMS, and buy 2 contracts of at the money COMS puts with an expiration shortly after the distribution date to protect the value of the long COMS (you could also look at selling at the money calls instead of buying puts). "
There is only one problem. Put-call parity is approximately $10 out of line in PALM, according to a fellow floor trader. This also indicates that the stock is basically impossible to borrow.
Danny S
P.S. I am going to the World Series, but for the first week only.
Well you could go short a while back, you had to have the right clearing firm to do it. i.e. your traditional brokers would not let you. All depends on the circumstrances...and where you trade..
It strikes me as odd that there has been very little if not any discussion of option pricing and the theoretical edge ( pos. ev ) that *sometimes* can be found in the options market. I mean come on, Fischer Black and Myron Scholes won a Nobel Prize for their model. In poker we look for and exploit situations with +ev why not look to the options market for the same theoretical edge? A quick and very simple look at the model. The model needs five basic inputs they are as follows: the stocks price, the options strike price, days till expiration, the stocks annual volatility and the risk free rate of return (tbills). Given these five assumptions the formula will grind out a “fair value” for an option. Let’s take a stock trading at 62 and look at a call option with a strike price of 65. There are 23 days till expiration and the stocks annual volatility is 90% and the risk free rate is 5.79%. With these inputs the Black-Scholes model gives us a fair value of $4.45. Now, we check the market and find that this option is trading at a price of $2.00. At this price of $2.00 the market is implying that the stocks annual volatility is only 51% ( implied volatility. ) If we can make a reasonable assumption that the stock will trade at its normal volatility 90% our option should theoretically be worth $4.45. This gives us a theo. edge of $2.45 ($4.45-$2.00) This is a simple explanation and option trades can become very complex, but this shows that actual +ev can be found.
You are very right !!!! I have to clarify options on nasdaq is very good deal !!!!! The volatility is huge and unpredictable. The premiums are thick but not as thick as the prices. You can do a lot of fancy options play (synthetic short = long one put ATM + short one call ATM - is a short) they can't squeezt it !!! WIN WIN !!!!!!!
dividend amount if any and when it is paid is also a cosideration when pricing options. The stock market is random and chaotic. But then again it's not - as there wouldn't be penalties for insider trading if it truly was a chaotic system. The problem is that the inputs in Black-Scholes equation are only a subset of the factors which impact the market price of a stock. B-S is the best -- but it's flawed. There are too many people using market knowledge (a critical variable that B-S does not consider) to exploit and extract money from options traders. Furthermore, the options specialist will buy and sale(short) shares to influence the price of an option that s/he has a significant position in. Then after expiration, they sale and buy(close short position). So, it just isn't that easy. I wish it were ... I'd be RICH! and playing 100-200 hold'em. :)
By no means do I think it's that simple nor do I wish anyone to think it is that simple. The Black-Scholes model makes certain assumption that are just not realistic, some of which you mention. However, the model can get close enough to reality to yield a statistical edge. Some traders feel that these pricing models are so much hocus-pocus they aren't even close to the real world. Still other traders will not even make a trade without a sheet of theoreticals in front of them. To use them correctly you must be fully aware of what they can and can not do. There are situations that arise in the options markets that do offer a statistical edge. After all don't we want the best of it.
Yes, I agree with you stan. One method I use is to look for exceptionally volatile stocks, but ones that I believe have longevity. I sale puts and have made some money using this method. But when the stock gets put to you, you have to be willing to endure the down waiting for the up. The nice thing is that with exceptional volotility, you can sale covered calls on the stock that got put to you. The premiums are so large that sometimes your cost basis has been cut in half in two sales (the put and the call). The trick is to be diligent and continuously watchful for when these opportunities arise. But to not be too anxious and to not get caught up in the "could of" and "should of" when you didn't pull the trigger. But I've noticed that I would have made more money had I just put the cash into a technology oriented mutual fund. Technologies are the place where the volotility offers high premiums on options. It's tough out there ... information is key!
Good luck.
-Michael
The problem with the ananlysis is that it is using the historical volatility as a guide. The reason an option will be cheaper than that is that other people don't believe that volatility will continue. Past volatility is important but not binding. The landscape changes and so does the volatility so be careful thinking you have a statisitical edge while using past results without mathematical knowledge of those past results. This is not to say the you don't have mathematical knowledge, just that no one can explain the past and use it as an accurate predictor of the future. If so, chartists would all be billionaires.
i WAS WONDERING IF ANYBODY HAS READ this book . I guess the original title of this book was "Poker,sex and dying ".it quotes Mason Malmuth in the intro from his book "gambling theory and other topics" .It caught my attention because I found it in the financial section .I'm about half way through it and I think it's alright.I'm just a newbie at the whole poker thing and was wondering if this book has accurate about I guess I would call them stereotypes , just looking for some feedback .
I hope you had the market short ;-)
x
This is not a game for the faint of heart. You need high threshold of pain to play in this game. Every housewife or self-proclaimed market genius that thinks the market is a piece of cake just because he/she as been lucky in bull market is going to be whipped around mercilessly until all the money is gone.
My congratulations go out to Andras for being able to predict every turn in the market accurately. Of course in 5 years this day won't be very significant. In 10 years those investors who hold stocks for this long are assured of being in the black and most likely out performing any other investment vehicle. This seems like the only option available to those who are not as fortunate as Andras to be able to predict market swings accurately.
Value guy take you head out of you butt for a moment. I have some value for you - the 'Brooklyn Bridge'. Those who buy and never sell if living long enough and holding only internet stocks may be back where they were on square one. I know a guy who started with ten G's five years ago and did nothing but short ipo's he has now a quoter of mill in cash. How are you doing ????
Mr. Sklansky,
CGNX has risen from 45 11/32 when you recommended it on March 1 to 60 3/4 today. Do you think it is still worth buying at 60 3/4? Do you have any other stock tips?
Thanks, Mike Watson
I still don't like it and he hasn't said why he liked it.
D.
Hey did you short TSCM like I said to? It's gone from 13 when I said to short it down to 7. I even gave all the reasons!! It's still a good short. You could cover here and get more aggressive at 7 1/2 on your short position. Nothing has changed with the business to change the outlook.
My reason was "common sense". IF David Steele knows something specifically about this company to overcome that, I won't argue. Mattel is another common sense play for reasons I won't spell out or discuss further. I will say that there will probably be many other similar plays in the ensuing years and you should probably jump on them the day of the germane news story.
I am just familiar with their procucts for many years and didn't notice anything particularly new from them. Perhaps I have missed the obvious.
D.
I looked over mattel and can't see any news that strikes my common sense as a buying op.
Can you narrow down the time of the news?
I saw one press release that looked interesting but it is fairly old now and I can't see how it wouldn't be factored in yet.
D.
Ok I bought Mattel.
Actually I still don't see anything that remarkable but I do like the old news about the Harry Potter license even though I am the only person on the planet ( aparently ) who didn't like the actual book while reading it to my kids.
D.
There was something on cnnfn.com recently where tax preparers were mentioning that a lot of day traders weren't aware of the tax consequences of their actions and not having planned ahead properly would be forced to liquidate their positions come early April. (That made me think, well then would they wanna do it right before everyone else, and then would everyone else think that and then... well you get the picture). Anyway, I'm wondering if this was coincident with market tank or completely orthogonal. Maybe the posters here can share their tax tales of woe or lack thereof.
JG (who despite considerable financial and gambling prowess has no reason to believe he would be the smart money day trading)
Day trading usually implies that positions are reversed by the end of the day leaving the trader flat. So I don’t know what they would have to liquidate.
Jim,
Funny thing, in 1999 I mostly sold stocks that I lost a little on, giving me a tax break. It was kinda a learning period for me though. Hopefully I'll start making better decisions so that I only make deposits. My personal favorite companies are the ones with infinite competitive advantages. When would an investor have sold Coke or Proctor and Gamble when looking in the long term? I don't know about you guys but I drink a Coke or Pepsi product about once or twice a day. I also brush my teeth with Crest (PG) and shampoo with Head & Soulders (PG). I don't own those companies, but maybe I should. I like letting my money compound without The Man taking a big slice.
Buy and Hold baby... Buy and Hold....
CV
p&g is certainly getting in the take a look at time. buy a few stocks and know alot about them. get in and out as you see changes within the company and the industry. watch out for interest rate changes even tough the current crop of investors seem to discount its effects.
Yeah, I'm thinking I'm going to need to take a MacroEconomic course before too long, maybe next fall.
Later, CV
Traders are selling their positions now to generate money to pay their taxes. Losing positions are normally sold in late November or December to offset winning trades.
I would be interested in reading thoughts on identifying changes in market direction. For instance the Nasdaq 100 has been up three days in a row now. I would like to know how to identify when this rally has ended? Previous to that the same index was in a decline that lasted I believe 8 days in a row. How was it possible to anticipate the at least 3 day rally?
Cmon
I think what David is saying is that: "You should know better, and now you probably wish you could delete posts here."
I've been reading a book called, "Capital Ideas", by Peter L. Bernstein. It's basically documents the evolution of the prevailing theories of how the stock market works.
I'm only halfway through. But to the Chartist's woe, there has been a huge collection of facts that support the "Random Walk" theory.
The best bet would be to Buy and Hold the NASDAQ index. Your results of jumping in and out would have an EV of 0 above what the Buy and Hold investor would realize. Of course this is before paying off he Market Makers, Tax Collectors, not to mention time lost for the pursuit of +EV endeavors. Actually, I think you would be making less money than the Buy and Hold investor every time you pulled your money out of the Market.
Sorry to be so negative,
CV
Indeed this is an appropriate response as it was a facetious question. I honestly expected to read some response regarding put-calls ratio or head and should bottoms or sum such. It seems to me that there is an endless amount of advice from many sources claiming to answer the question I proposed. Apparently Andras has a strategy to do this as well. Of course nobody would give it away if they really had a method.
I was reading a column by a chartist this weekend who was making these kinds of predictions based on his interpretation of the chart. He claims a 70% success rate. There are an endless amount of "talking heads" on TV who make such predictions. The "technicians" are always asked for their opinions after some kind of rally or decline. Why is that? It isn't because technical analysis has been proven to be a way to "beat the market." The only successful long term strategy that I am aware of is to buy and hold a diversified portfolio. Now Andras has suggested that routinely shorting every IPO has yielded an associate an above market average return. Surely there must have been some shorts he had to cover. However, I will concede that this is a strategy worth examining.
More properly the question should have been with a degree of reliability. In other words can an estimate be made of the odds of a change in direction. Personally I think a lot of price movements over a period of time are random in nature and this kind of assessment is not possible but I really have an open mind on this so I would be interested in reading thoughts on this if there are any.
Meanwhile for those who crow at the top of the trading range about the glories of being a bull and for those who crow at the bottom of the trading regarding the glories of being a bear please spare me the hype. When some "talking head" comes on the TV and insists that we will have to test the lows I always wonder if they can prove the reliability of their assertion. I dare say that the recent market highs will be taken out and the market will move higher at some point. I guarentee it and it is 100% reliable. It's the way markets works. I just can't tell you when. When it does happen all it means to most investors is that we have had a sideways movement.
Rich,
He he he.., you had me fished in, though something in the back of my mind was telling me your post was strange.
One thing I disagree with, and this IS nit picking, is your 100% assumption that the market will move higher. I'de have to say that the 100% chance is related to the assumption that life as we know it will stay relatively the same for as long as it matters to us. ;^)
CV
Yes I don't think that the Japeneese market has done this. My post wasn't meant to be a troll so apologies there.
shorting hyped up IPO's is much easier than predicting market turns when the big dogs will move markets. IPO shorting is also not that easy and you have to watch the stock charts have real time level II quite and direct access broker in order to try. There is no technique or special rule. You must look at the price and volume. If you see MM's actively selling on level II (if you see 5000 shares repeatedly traded by the same Market Maker you can be sure he is selling for the big dog or the house) either way you can just do the same. To see this for sure you must have time and sales information.
good brief concise response....
What David meant to say was, "technical analysis."
Hehehehehe
If I knew I'd give up my day job, take a second on the house, and sell the ranch.
flip a coin
if you look at the charts you always see these sharp peaks and gullies. the market has peaked when the chart is most pointed up and bottomed when the chart is all the way down. just sell when at the peak and buy in at the bottom of the gullie. you will soon be very rich and unhappy. or use the formula of 8-5=3. thats the number of days the market will be down from monday.:)
Don't laugh too hard at this one. A friend of my fathers got very wealthy just that way - i.e. buying at troughs and selling at crests. (This was about 20 - 30 years ago.) He would extrapolate for each next extreme. I believe it is just as simple as that. The catch to this approach is resisting greed and fear. It is human nature to hold when a stock is doing well and to sell when it has crashed.
You can bet that the smart ones are loading up right now, while the bulk of the market is trembling with fear while the market is 'crashing'. .
In retrospect I can understand why this person was able to do this so successfully. He had a room in his house where all four walls had hand drawn graphs of stock performance on the walls. He would point to each trough and crest and say "That's where I bought/sold".
He had already been fairly successful in his life through a business he owned. He began trading stocks after he retired and only for the benefit of his children. He himself did not care for money at all. So the factors of greed and fear were absent.
Ray Zee's post, in essence: "hindsight is 20/20."
The fact that somebody (Nick's friend) was able to consistently predict when the market has topped off/bottomed out begs the question of how difficult it is to attain this knowledge. Oversimplifying the meaning of such anecdotal "evidence" has been the downfall of many an investor. Or so it seems to me.
Does anyone know of a free web site to access live real time charts?
http://www.thomsoninvest.net/iwatch/cgi-bin/iw_page
This is a pretty good site. I think your request for 'real time' is a bit optimistic.
cnbc.com
your boss would fire you if he knew you were surfing when you should be on tv.
The boss told Sue Herrera to tell me that it's o.k. for me to surf around. He promised not to fire me but he will definitely give me a pay cut. I guess I'm just gonna have to postpone buying that badly needed topee till my next paycheck. If you notice, my hairline has been on a mean uptrend over the last few years and my technical indicators are telling me that the momentum is accelerating! Can anyone here please loan me topee money? I lost money going long (on margin) Amazon.com as well. Pretty soon I'm gonna be B $ B - bald and broke!
Free real time charts as far as I know don't exist. Open up an account with A.B. Whatley, minimum amount $10,000 and you get a pretty sophisticated real time software with a ticker and running real time charts and level 2 quotes for free. Best deal I know of.
Bruce
Someone stop the insanity!!! Bill Gates is down to $45 billion. Cash the welfare checks before there's no money left in the economy!
Alan
x
Monday is Doomsday!!! If you didn't wear your Depends underwear today make sure you wear it monday. You'll need it!!! Sincerely, Gorgeous George Churros Chairman, The Valium Fund
Since there is quite a bit of talk about a black Monday it probably won't happen. I think it is pretty easy to argue that the NASDAQ has crashed already. However, I'll admit that I do have some open puts (yes value guys speculate too or more rightly hedge) on the OEX which soared on Friday. Any other thoughts?
I have no idea what will happen on Monday, but I don't think you can argue that the Nasdaq has necessarily reached a low. Even with the decline, a lot of the stocks on the Nasdaq are still ridiculously overpriced. The Nasdaq was overpriced a year ago before it ran up 68%. Now it's lost back almost half of that gain, but it's still higher than it was just a few months ago.
The overpricing reflects the current belief that the future is incredibly bright for E-business. When a couple of big .COM companies go under, that whole model is going to be given a rough shake. And there are a few of them on the verge now (CDNOW, drkoop.com, buy.com, etc). If investors start seriously examining the business plans of many of these highly-valued companies, they're going to run like hell.
The future IS very bright for E-business, but not necessarily for any specific company. We may find that companies cannot dominate markets in an economy as fluid as the internet in the way that they could in the brick-and-mortar market. Sears gained a strong competitive advantage by having a huge infrastructure and a massive chain of stores. It's not clear to me that Amazon.com or Buy.com enjoys the same advantage. As soon as their pricing models come up to allow them to start making serious profits they may find their market erode overnight to other startups.
I think that this is a good analysis. What is really surprising to me is that the IPO's just keep on coming even after the severe downturn last week which is another indicator and I believe supports what you say. If you look at the S&P 500 by historical valuation parameters including PE it is on the high side as well. Although there are some mega high tech companies in with huge market caps and PE's to boot which probably account for it. The Dow Jones Industrial Average is far from dirt cheap too espeically in a hostile Fed environment.
One thing I did see last week is that some of the NASDAQ stocks were holding their ground on Friday. I don't think that it should be surprising that high growth companies are very volatile.
My comments were really directed at the markets next week. I've probably sold the bottom by going long OEX puts last week but if a severe downturn comes it will help and in some ways I actually am rooting for it. I looked over many traditional indicators like puts/calls ratio, the volatility index, trin, and odd lot short sales by the public and my interpretation was that they are starting to indicate some real bearish sentiment. As a contrary indicators they indicate a rebound is immenent but I can't verify the accuracy of using these.
Just a guess.
I second that. Definitely looks like a great opportunity to me.
Jaeger
DS never says but maybe you will!
I know this stock, used to own it but don't know what you guys are thinking.
D.
You may know more about the company than I do. I have no direct experience with their products, but my initial investigation suggests some promise.
There are significant gains to be had automating the back office functions of companies like Home Depot. Obviously lots of companies are investing in this B2B sector and it's anyone's guess how it will evolve. But if this company can implement and get a good reference from a company like Home Depot and some of their existing customers they may turn it into a real success story. Given the stock is quite cheap now, there is considerable upside potential.
Of course they might get snuffed out in an instant when SAP or Oracle bring their products to market. For a small investment I think it's worth the risk.
Jaeger
I'd like to know the reasoning behind this one as well. I had a look at the SEC filings, and it looks like a few principals have been selling a bunch of stock. I couldn't find any major news about the company. I think there is an earnings report coming out soon, so perhaps David is expecting to see something in this?
The B2B market is one sound area of Internet growth, and B2B e-commerce is working very well. Still, the market Optk is in is dominated by a few very big players with very mature software.
David just throws darts at the Wall Street Journal. He knows that short term price movements are random. Thats why he said it was just a "guess". ;^)
CV
Guess we can tout here. If so, you might want to take a look at CNC (Conseco, Inc.). It's one of the top-6 insurance companies and their stock has dropped from around 35 a year ago to around 7 1/2, mainly due to purchase of a lousy mobile home financing company (Greentree). Several large stockholders have sued the company since the drop, ostensibly for officers making "materially false statements", but it appears that their litigation has little or no merit. One other negative issue involves the company guaranteeing the loans of employees who bought stock in the company when it was near its peak. Nonetheless, with the current market situation, it appears that the worst has passed and the traders have already discounted the bad news. Compared to their next closest competitor, Torchmark (based on market capitalization), the Conseco stock is way undervalued. It may take some more slight dips, and I don't expect to see it rebound to 35 in the near-to-mid future, but a 5-to-10 point pop seems likely.
Getting clobbered today. Down to 5 7/16.
It's been bouncing between 5 and 7 since I made that post. Once the day traders leave it alone, and the bad news settles down, keep an eye on it. There has also been talk of a takeover and talk of canning the CEO. If either of those events occurs, I think we'll see the bounce up. Their balance sheet is strong and their core business is up significantly, so the depressed price is due to the bad news in peripheral areas. A buy anywhere around 4-5 should be a solid investment.
Still following this puppy. The latest tidbit: Financier bets on Conseco, buys 11 million shares. Stock rises 8.1 percent after Irwin 'Irv the Liquidator' Jacobs' disclosure of new 3.4 percent stake. Showing his confidence in the new management when discussing those who recently shorted 44 million shares of the company, he says, "They'll have to go out and buy a pair of shorts when this is all over."
The stock is trading at 5; the analysts still see it going to 24 within the next few years. The day traders nibbled at the bones for awhile, but it appears that they are done with it for now.
Financials are doing poorly due to you know who and what. There certainly are a lot of beaten down stock prices right now. Supposedly there will be consolodation in the insurance industry.
Last night at the clearing, the chicken didn't resist and the blood smelled of milk. This means only one thing: my houngan brethren in Wall Street haven't seen the end of that correction yet, not by a long shot. Them good money?! 'S all gone, fellas, best let bygones be bygones.
As to Ton Ton with Bald Head and Green Span? He powerless. He no can do. The pwin of widow and the three orphans will fall on his corps cadavre..
Let the rada drums roll. I have spoken.
--Zombie, The Undead
OPTK down 33% today, is the reason to buy still valid? It is certainly much cheaper right now.
D.
I was going to buy this today at 8. DS has been on the mark with SHFL,CGNX but this one will have to wait and see...
MJ
.
Obviously no one can predict a daily move. It may not be drawing to a great hand, but it appears to have sufficient pot odds, so to speak.
Jaeger
I'm wondering what affect will the long term shift away from paper have on Emedia sales since OPTK is identified with paper mgt software.
OPTIKA INC., Posts 1Q loss per share of $0.99 vs. loss of $0.04
That is the problem!
a blank. It appears dumping the busted draw would be wise. Obviously others knew more about the company than I did.
Jaeger
DLJDirect won't let me do it because they don't have enough stock in stock and won't cover me. Anyone know any brokerages that permit the PALM-COMS arbitrage play?
You should check out the syntetic short (short one call + long one put ATM palm = 100 short PALM. You also have to clear with a better clearing broker like Spear Leeds and Kellogg - on-line brokers are not very savvy in shorting.
Alright guys, let me make this as short as possible. Ive recently gained control of over 30 grand. Where should I put it??
AKLM AOL FUN
If your investing long term now might be a good time to start nibbling at the market. If your horizons are shorter term there is way too much volatility to start buying. Both the NASDAQ and S&P are in downturns and we still probably haven't hit the bottom yet. You may want to investigate LEAPS.
Bruce
If you have a while before you'll be needing the money, like >5-years. I'd say your best bet is a low cost Index Fund. Only 20% of professional investors beat the S&P 500.
So if you want a decent return I'd say Indexes and forget about it for 30 years for an aproximate $900,000 return.
CV
Never mind the over-hyped, overpriced electronic gadgetry market. Real growth and earnings at reasonable prices can be found in unlikely places. Check out Gildan Activewear (GIL, NYSE or GIL.A, TSE).
Good Luck, Jaeger
It seems I'm not the only one to pick this stock. Peter Chin of the 21st Century Growth fund seems to agree. He has reduced some of his tech holdings and added Gildan, among others.
http://www.thestreet.com/funds/funds/929724.html
Check out the link for his comments.
Jaeger
is there anyway to make money off that?
Buy a Ben and Jerry's franchise
tax lien certificates!!!!
Go to Binion's.
Last weekend, I saw at least 3 tourney stars looking for backers for the WSOP 10k event. Why mess around with those double-digit returns when surely an astronomical parlay opportunity awaits you.
JG
See if you can find a company that manufactures question marks.
I have always thought dollar cost averaging is nonsense. One benefit that I don't dispute, is that periodic saving ( and investment ) might cause some people to save where they might otherwise spend the money unwisely.
My claim is that the only thing that happens with dollar cost averaging is that you are less in the market so of course your risk is lower. This can be handled better by portfolio adjustment so that you always have the right amount of market exposure.
Here is one idea that makes me suspicious:
Lets say that by dollar cost avergaging you on average gained X dollars over an all-in stategy. Then this would imply that closing out the postion as soon as the averaging period was over and then starting the averaging again, you could make a second X dollars. So the best strategy would be to repeatedly sell and then average in ( ignoring transaction costs ). I think anyone that believes dollar cost averaging works should explain why this ( crazy ) scheme doesn't also work.
David
it's given many people several hundred thousand dollar bankrolls to retire on over the last 20 years.
That I doubt.
I expect those people would have made even more if they had been fully invested in the market.
Now if it gave them the disipline to save money then I fine but it is still silly.
D.
What strategy are you comparing it to? Dollar cost averaging doesn't have to mean you're not "fully invested in the market" in fact quite the opposite. You have a certain amount of extra money every month to invest - let's say it's the same amount every month. Dollar cost averaging means that you put that same amount into the market every month regardless of how the market is doing rather than trying to pick and choose your spots based on what you think the market will do next. Then over time it will turn out that you bought more shares when the price was low and less when the price was high which is what you want.
If you have more money some months than in others fine...put that in too. Dollar cost averaging doesn't tell you not to do that.
It finally ocurred to me what you must think dollar cost averaging is. You must think it means that I have some money to invest, but rather than putting it all in at once that I should put it in in equal amounts over time. Obviously that would be nonsense but that's not what it is.
Dollar cost averaging means that as I earn money each month that I can afford to invest, that I invest that amount without regard to what the market is doing or what it might do, and I leave it there. I don't try to outguess the market by putting some in in when I think it's going up and taking it out when I think it's going down.
"rather than putting it all in at once that I should put it in in equal amounts over time"
Unfortunately that is what is means.
And it doesn't mean leaving it in either, which may also be good strategty. For example Bob Brinker on national radio often suggests market timing and DGA.
Of course steady saving is a good thing as you mention.
D.
DCA is when you have some lump of new money or from the liquidation of a previous investment to reinvest. It means:
"rather than putting it all in at once that I should put it in in equal amounts over time"
The concept should be separated from any regular savings aspect that might occur.
The usual pseudo-math argument for it is that you end up buying more SHARES over time because you buy more shares at a lower price as you always use the same amount of money at each interval. Half the time the share price will be lower then average and you get more shares, and you will get less shares at the higher the average prices. Net is cheaper share price then average.
D.
With your definition I agree it is nonsense, but that is not the way I have always understood the term.
AS I have understood it, if you can afford to invest $12K/year, it should be invested immediately as you earn it. So investing $1K/month will outperform saving up several thousand and trying to buy on the dips. This simply reflects being fully invested, which will on average outperform having any percentage of cash lying around.
Jaeger
Well your way is uninteresting and unlikley the source of much argument.
Radio shows like Bob Brinker definetly use my def, they will tell a caller with some lump sum payment to DCA it into some investment.
D.
Then the advisors you listen to have misunderstood dollar cost averaging. The only reason to put money in over time is because you haven't earned it yet, not because there is some magic in holding back some of a lump sum. And if they are pulling money out and playing dips then they are doing something other than or in addition to dollar cost averaging.
It is not my advisors, it is the general definition in just about any popular investing book.
D.
Hmmmmm. Did some surfing and found that indeed there is discussion about DCA applied to a lump sum as well as to money as you earn it, and this was from the Vanguard financial group. You might want to check out the following website for articles that compare the performance of DCA vs. investing the lump sum in the DOW over the past 10 years:
isir.com/finance/weekly.html
Basically it shows a lower total return for DCA.
It is stated that there is less risk in case the market drops right after you invest the lump sum, but I think this is just because you're staying out of the market and is at the expense of lower return (if you assume the market will most likely go up at any given time). In any case, any reduction in risk would only apply until you became fully invested of course.
Then I found a site where the guy you mention, Bob Brinker, shows how DCA would have worked over just 1 year, so of course it just depends on the market. Then it says that guy doesn't have a college education so things he says should be analyzed carefully :)
webmag.com/StockSurf/DollarCost.htm
I'm still not sure this is what the original inventors of DCA (whoever they are) had in mind.
Dollar cost averaging is a good idea because it helps lessen the risks involved with volatile markets. If you put money in continuously, you will sometimes buy at peaks and sometimes at valleys. You will not be as susceptible to a crash as you will have money to buy at the lower prices. If the market goes up after your first purchase, you have made some money, good. If it goes down, you have lost but will have lost less. Either way, you buy more at the next time interval. In EV it is not as good as investing all right away. The key is to stick to a pre-arranged buying time and not try to time the market. Then DCA will significantly lower your risk but at the expense of a lower expected return. In general, it is worth it as it prevents you from having terrible timing. Of course, the crash could occur AFTER all your money is in, but this is a lower probability than if you invest all right away.
PS: Excuse some of the blather as it is kind of late but I think I got the gist of the argument correct.
The dollar cost averaging approach works because the market traditionally has gone up and up, over the years and decades. It inevitably leads to a large position in the market where over a long period of time most of your holdings have increased on a compounded basis. This may sound too slow and boring for aggressive or greedy investors, but the fact is, many aggressive greedy investors lose their ass when they try to speculate or play the market by outguessing it.
I like to gamble and speculate so dollar cost averaging isn't for me. But I would recommend it for a young couple or any others who do not understand the market or otherwise have no stomach for speculation.
There are a lot of older folks who have poked along patiently for years in the market, keeping their holdings and amassing huge sums. Compare them to the hot-shot who runs up a big account very fast and then one morning finds he is $100,000 poorer.
With a steady rising market DCA, will be guaranteed to underperform a fully invested strategy.
Also you can buy and hold without DCAing so speculation is not the issue.
D.
It is nonsense based on the incorrect intuition about mean-reversion in prices. The idea is you can buy more shares at a lower price when they are cheap, and less shares when they are expensive. But this doesn't work if prices follow a random walk or have momentum.
It is a wrong policy even if you earn disposable income over time. For example, suppose you have a secure job and save $1,000 per month. Then you can simply borrow and invest today using margin loans. Liquidity is different than risk, and it is irrational to wait until your paycheck clears.
Respected University of Chicago professor George Constantinides published a paper "On the Suboptimality of Dollar Cost Averaging" long ago in the Journal of Financial and Quantitative Analysis. But the idea is so obviously flawed and baseless it hasn't attracted much serious attention since.
well..it's worked relatively risk free to produce nice retirements for my parents. They will never have to work again, nor worry about money. I know of several professional brokers that have made and lost millions that are struggling now on Social Security. Investing is based on gaols and fundamental risk reward ratios at getting there. Most folks do best not gambling in the market. that's what dca is designed for.
No, No No If you have far better income/earning etc than you can spend, buying 10 shares of QQQ or SPY depending on your mood every month/week is smart. It has no cost and far better bang for the buck than Mutual Funds you can do it via Brown and just cost you $5 per trade. The key is only buy little compared to your worth. It will add up and soon. ACTUALLY you should buy 10 shares worth all the time. This number will change depending on your pocketbook and saving power or good sense.
A clerk at the office of the Columbia Mutual Funds office told me something very telling. She said that she observes many cases where married couples hold dual accounts of the same fund at their office. It is very often the case that the wife's account outperforms the husbands.
This is because the wife sits still with her position, while the hubby keeps trying to outguess the market by getting out at highs and re-entering at lows.
This clerk is obviously a woman's lib supporter who happens to have a strong bias towards the long term buy and hold approach.
it may be more due to the men buying popular name stocks that are slightly overpriced due to name recognition. long term the earnings of a compnay plus to a lesser extent its hard assets determine its value thats it. those that believe that this time the market is different will get the same old spanking.
There has actually been a study about this. Women in general beat Men in the market.
If it is given that any investor has no advantage over an other investor and both with make the same return no matter what stocks they choose. The one that creates the most friction will make less money.
I would guess that Men on the average have a higher account turnover than Women, creating more friction to their accounts. More of their profits get rubbed out by Taxes, and Brokerage Fees.
There have been other studies along these lines that the easier it is for a person to trade (ie. On-line accounts) the more they trade and end up doing worse due to the extra fees they pile up. Not to mention the Tax accounting headache at the end of the year.
CV
I recently acquired and read Ed Thorp's 'Beat the market'. The book was written about 25 years ago, so the strategies he outlined are outdated.
I hope to get an interesting thread going about Thorp. Does anybody have any thougts about that book, the strategies he employs or what he's been up to the last 20 or so years.
I have seen some of his posts on bjmath, but that was a while ago. It seems that he's faded back into obscurity.
Acer
"..faded back into obscurity"? According to Financial World, Thorp averaged an annual income of 8 million throughout the 1990's. Nothing obscure about that.Thorp's style is options arbitrage. Kind of like Blair Hull and Jeff Yass.
Jeff Yass has required all of his employees to read Getting The Best Of It for many years. He now has at least a hundred million dollars.
"Beat the Market", was written by Thorp with a former student of his, Sheen T Kassouf in 1967, or 33 years ago. For the most part, the strategies he outlined were obsolete even then, otherwise its unlikely he would have published them.
The book is nonetheless very insightful. I still recommend reading it if you can get a copy(I'm not loaning mine out).
We'll be moving the forums to a new server shortly. Just before that happens, I'll disable posting on the forums. You'll still be able to read them, but not to post replies or new messages. Once the transfer is complete, I'll re-enable posting.
Sorry, in advance, for any inconvenience that this may cause.
Chuck
I haven't checked out this forum in awhile now. I came back here on a whim and was shocked to find no one else had posted anything in awhile either!
The last message was from Chuck about a forum outage. Kinda makes me think about this huge comet that comes down and kills off all the posters on this forum.
If there are any half-human mutants still lurking about, drop by and say hello.
Dan
Yes, I have seen Night of the Comet!
Pretty stupid movie, Year of the Comet was much better.
Since this is a stock forum I'd like to point out that the NASDAQ made a new low today, after testing that low yesterday. I am not a big chartist, but I think we could be in for some rocky times ahead.
Danny
I think the nasdaq is heading back to 2500 range, I don't know (or care) by what day or months, I just gazed at the chart. Since I live in Northern Cal this does not promise me much in terms of my region's prosperity. Well the worst case I learn to speak English again and move ;-)
This is an appropriate subject since the nasdaq is in the dumps and there must be some cheap stocks out there and you must think "it's time to bottom fish". Be very carefull and try to pick some stocks that have some future. (no I don't mean MSFT) So after you pick 'em - what's the guarantee that it will stay there and don't move down more. Well if you want 'guarantees' I have one word for you, FDIC. If you like to make some money - write some options on the stock you just bought. In order to find good covered call ideas visit - www.3mtrading.com There are others but I have no intimate knowledge of them. It's very important to pick expensive options to write (this way you will have some downside protection and if it goes down a little and bouces you can collect the premium after a while for free. Rules - ideally you must write option with a 45-90 days expiration. If you think the stock will be cheaper (and can maybe buy more later) write the option at the money.
As a general principle if you would not buy the stock by itself, as well as sell the option by itself, the combined play is wrong. There are exceptions related to your bankroll or possibly taxes, but most who write covered calls are costing themselves EV for no good reason.
I don't know David....
Here is a real life scenario CLPA@ 22.1 - Jun00 20Call is 4.5 your cost basis is 22.1 - 4.5 = 17.6
One scenario is your play gets assigned you get 20 for the stock and keep the premium you just made (20-17.6 minus commission cost)
The other scenario Your stock is goes down a bit (very likely in this crazy market and you keep the premium and hope that the stock stays above 17.6 (now 22.1) very good chance.
The only worry is that your stock will fall off the earth (very very unlikely) if you have some selection criteria. Getting ~10% a month doing this is very attainable. The key is the options price is based on volatiliy and if the stock is volatile like most nasdaq you are always better to be 'premium seller'. This is by no means negative EV especially since most of these stocks are highly speculative and beaten down already. You can't just close your eyes and buy them. That would be gambling ;-)
It should be clear that if you pay a fair price for the stock and sell the call at a fair price you EV is 0.
Huh ?? What is *fair price* ? I gave you some real life prices and it is clear (to me at least) that you have a very fat premium and it's intentionally so The floor guys (CBOE and others) love to jack up the premium prices cause they are short mostly. This statement (about 'fair price') sounds like some academic mumbo-jumbo and like my grandfathers used to say "opinions are like assholes - everyone has one". Why should you be different ???
It sounds like your interest is in sucking up option premium. Write 'em naked. When you do as you describe you increase commissions and alter the risk profile of the play by trading unlimited risk for a goodly chunk of the premium and limited but still significant risk.
Write them just out of the money and stay in touch. If you wish to play with both balls write a put and a call just out of the money and never leave your screen unattended.
-Fred-
There is no doubt in my mind that Mr. Sklansky is correct. Others have pointed out that shorting puts is an "equivalent" strategy that ties up less capital and has less in commisions. I know that in retirement accounts this is not possible (does anybody let you do this in an IRA for instance ?). If you were neutral to slightly bullish on a stock and you perceived that price volatility would decrease and you held the stock in a retirement account I suppose that it could be ok.
You can do CC in IRA, but nothing more !!!!!
I recently became interested in options trading and thought doing it inside a retirement account would be a great way to save on cap gains tax.
Then I found out all you can do is covered call.
Anyone know why this is?!
--j
i think the rules were layed out by the govt. when iras were created. i guess that they didnt want the fools to trade away all their retirement money.
I guess it's OK to buy CMGI for $165 a piece in ones IRA but doing a bit of options is gambling. Go figure, the government is protecting my future !! It's like the Maffia offering to insure my kneecaps.
It isn't true. This is a limitation of your particular broker. Some allow only covered calls. Others allow long puts and calls, and some allow other trades. See http://www.stockoptions.com/ira-new.htm for example (not an endorsement; I have no idea if they are any good).
Should MSFT be broken up and if so will it hurt the stock holders? I have some very strong opinions on this but I would like to read some others.
Long before the DOJ woke up, indeed before even Netscape woke up, I believed that Microsoft should be broken up for the sake of competition and the consumer.
Monopolizing operating system market is the equivalent of someone owning all the casinos. Now the owner of all these casinos can dictate not only WHO puts slot machines (or poker rooms) in their casino, but to some extent, how those slot machines are made, how they appear, and where they will go. Further, if they break down or fail to make money because of their poor location or poor visibility, well, it's not the casino's fault, right?
But hey, since your machines don't work all so well in our building, wouldn't it be great if the casino would then build its own slot machines, tailored to the design of their buildings, and maximized to provide the most profit? This is the eqiuvalent of Microsoft leveraging their business (and other) applications onto their operating system platform.
Dare I mention what kind of rake we are talking about? Bill Gates didn't get rich because he was necessarily that brilliant, he got rich because he owns a monopoly.
The breakup is a win-win situation: I think that MSFT shareholders will benefit in the long run, as will the consumers.
Here's a big option trade -
6000 Jan 2002 80/90 put spreads just traded @ 8 1/2. That means someone put up $900K to secure the position and took in $5.1M in premium. If they only earn 4.5% on the cash, they'll receive about $350K in interest between now and Jan 2002. So their total risk is $550K for a possible profit of $5.5M (a nice round 10:1 reward to risk ratio).
Someone must be betting heavily on MSFT begin at least 90 by Jan 2002
I think it's a lot harder to argue that Microsoft can use its size to maintain a monopolistic advantage in an industry like computer software than could a company like Standard Oil in the resource market.
Microsoft has engaged in some borderline unfair trade practices, but that's not why the company is so dominant. Microsoft is dominant because it is an extremely well run company that produces great products. If a company gains a massive market share simply because it does things better than anyone else it may have a 'monopoly', but this is not necessarily a bad thing. After all, the whole premise of the market is that capital flows to those who are best able to utilize it.
Anyway, just because Microsoft has a near-monopoly today doesn't mean they'll still have one tomorrow. They almost blew it with the internet, but the company was smart enough to take agressive action and Gates basically bet the entire company on the internet when it was still not clear just how important it would become. Gates also gambled on Windows NT, and won. But one day Microsoft will miss a market shift and lose significant market share.
IBM is a good case study in what can happen to a 'monopoly' in a dynamic market. IBM made a few small strategic errors in the 1960's, and found itself playing catch-up to a few small startups like DEC. It wound up missing the boat on the minicomputer and lost a huge chunk of market. In the 1980's IBM screwed up again in the microcomputer market. After having a near-monopoly in PC's, IBM missed several deadlines on producing a 386 machine, allowing Compaq to scoop all the headlines in delivering the first one. Compaq took away a big chunk of market share almost overnight. IBM then blew it on the MicroChannel architecture and lost a whole bunch more market share.
The bottom line is that maintaining a monopoly is extremely difficult, and Microsoft will only manage to continue doing it as long as they produce great products at good prices. If you want to punish them for unfair trade practices, fine them an amount that makes it counter-productive for them to engage in those practices in the future. But I think breaking up a company that has proven itself to be capable of providing a lot of people with great products is a bad idea.
Most programmers would disagree that Microsoft has provided an operating system that is a "great" product. Bill Gates use of the term "mature operating system" reminds me of a line from Alan Dershowitz's book, "man thinks, God laughs."
That's because most programmers define 'great' operating systems differently than the market does. (I'm a programmer, BTW). The average consumer would consider an operating system to be great if it comes pre-installed on the computer or is otherwise easy to install, is easy to use, has lots and lots of software available for it, looks good, and doesn't add a lot to the cost of the computer.
There are plenty of operating systems kicking around, many of which have technical advantages over Windows. But in one way or another, the tradeoffs in every other product have kept it from being widely accepted. UNIX suffered from a geek-ware user interface with lots of cryptic command line commends, a plethora of incompatible versions (SCO vs Berkely vs AT&T, etc), and a high price. OS/2 simply sucked. The Mac OS was proprietary.
The disadvantages of Windows (slow, bloated, somewhat unstable) have been rendered almost meaningless with advances in technology. Who cares whether your OS takes up 50 megs vs 200 megs, when a $200 hard drive can hold 50 times that much data? Who cares if the OS is 10% slower than the alternative when computers are increasing in speed 200% per year? As for instability, Microsoft has improved the OS to the point where it's a non-issue for the average user.
What makes an operating system successful is a hard-to-quantify combination of features. When Microsoft released windows 2.0, it died without a whimper. But when Windows 3.0 came out, it was on the cover of every computer magazine, and within a year it was a market leader. And this was back when Microsoft was just a small shadow of the powerhouse it is today. It would be very hard to argue that the success of the operating system was due to some improper influence that Microsoft had. The fact is that the marketplace accepted it. The technoids didn't like that, but then they don't make up a very big percentage of the market.
Actually 'bloatware' is an issue and I think this is one of the reasons why Windows 2000 has not been as widely adopted as MSFT had hoped. The consumer in general has lower expectations about computer software because they don't know any better. Software developers do. Believe me there are lots of frustrated Windows users in this world. When corporations have to make significant upgrades to their existing desktop systems to accomodate it they pass when they see little incremental value in doing so. I think MSFT could trim that 60 million lines of source code in Windows 2000 a lot.
When I posed my question I was assuming that the findings of Judge Jackson were assumed to be more or less correct. I don't think there is much question that Microsoft violated anti-trust laws to the detriment of the consumer. We've had a trial that has lasted two years where both sides have been given ample opportunity to present their cases so I don't think that Judge Jackson's findings should be dismissed lightly. I don't want to rehash the case but MSFT has not come out looking good with regards to their conduct. Yes I know the appellate process is still to come and a Republican administration might not be inclined to pursue the case vigorously (I wouldn't bet the ranch on the latter). Actually I think MSFT has made a huge, huge error in prolonging this case. I basically agree with Earl's viewpoint regarding MSFT. I don't think there is much doubt that Windows has some major shortcomings and a lot of MSFT's efforts go into maintaining their illegal monopoly rather than in developing quality products. Check out MSFT on the server side and tell me why it is not the system of choice for mission critical applications. There isn't an ISP in their right mind that would use Windows Server software (except for MSN and I would say that they are less than a smashing success). Check out the upgrade prices of MSFT products sometime and check out what they do. I think that breaking up the company may actually be a blessing in disguise for MSFT shareholders. I disagree with Dan about MSFT and the Internet. I think MSFT has done a very poor job in adapting. I certainly don't see where the consumer would be harmed by a break up and I believe that it may focus the attention of the individual companies on developing high quality products. Certainly if Office was available for Linux there would be a lot less incentive to buy Windows. Certainly if Windows (in its many forms 3.11, 95, 98, NT 3.5, NT 4.0, 2000, CE, ME, and the newer embedded flavors) was not bundled with Office and actually had to stand on it's own would see a lot of improvement in reliability and ease of use.
I guess we'll have to disagree. There are a lot of ISP's running NT servers, and my company (General Electric Industrial Systems) runs an almost all-Microsoft shop (NT Server for networks, NT IIS for web servers and Intranet, MS Exchange for E-mail, collaboration and Groupware, MS Office for office apps, MS Project for Project Management, MS SourceSafe for source code control, the list goes on). GE is not known for making foolish decisions, and I guarantee you these choices were made after evaluating all the alternatives.
In my experience, NT has evolved into a very robust operating system. I do almost all my development in C++ and VB, writing for NT servers and MS SQL Server. We have almost zero downtime, and I can't remember the last time we had a server crash.
There are many other reasons to go with Microsoft products. A big one for me is the availability of people who can use the stuff, due in part to the smaller learning curve of NT vs Unix variants, and also due in part to the agressive marketing Microsoft has done for their training products, and the big breaks they give colleges and technical schools, which encourages them to use Microsoft products in the classroom. Around here, if you need a network analyst, you'll pay a lot more for a UNIX guru than you will for someone with an MCSE. In the web design world, it's much, much more expensive to hire people who understand UNIX, Java, Enterprise Java Beans, and other non-MS technologies than it is to hire someone who can write in ASP and VB on Microsoft servers.
I agree with you that Microsoft has engaged in some anti-competitive actions that have hurt consumers. But the questions you have to ask are:
I believe that Microsoft on the whole has been a huge boon to the computing public. I do not believe for a second that their anti-competitive practices have resulted in the gain of more than a few points of market share. The rest of it is simply due to the excellence of their products. That does not necessarily mean technical excellence, but an overall combination of features that supply what the market needs.
It is known that to run a reliable ISP, or any network server that connects to the internet you a) run Apache on Linux
b) connect to a large UNIX DB separate from the
webserver box
c) avoid any crappy MSFT software (ASP, MSIS) Now, I don't care if some chose to do it otherwise. Smart shops use UNIX for their mission critical stuff. Emphasis on 'Mission critical'..... Lot's of websites run on NT's an no-one cares if there is a significant down-time. NT's freeze up on a regular basis. You have to have some guy on call for 7/24 just to reboot... However we digressed - MSFT's success has nothing to do with quality but marketing and muscle. As I said erlier MSFT is a great value broken up or otherwise, NO-ONE gives a rats ass if the DOJ prevails or not. MSFT Is very oversold and cheap NOW !!!!! It will be in the $90 range soon when people are paying attention to what's important from all the fluff.
I've been running several web servers on NT using ASP mainly for database connections to SQL 7.0.
In the last six months, I have had absolutely zero unscheduled downtime on any of the servers.
Microsoft runs their own sites on NT/IIS/ASP, and microsoft.com is not only one of the busiest domains on the net, it's also one of the most reliable sites and has a lot of active content.
I just attended an IBM seminar on web application servers (in this case, they were pushing their 3090 product), and they showed lots of charts and graphs showing projected availability for various web server environments. NT/IIS was pretty much exactly the same as the UNIX/Apache stuff.
Anyway, if your web site is even moderately large, you're probably running a web farm with independant servers, and if one fails it doesn't affect your availability at all, and merely reduces your throughput until you get the machine back online. But like I said, in six months I have not had this happen.
Personally, I think NT/IIS is a FINE environment for a web server. Our company has over a dozen web sites and intranet sites running off NT, and I've never noticed a problem.
The big bull market has spawned a lot of day trading wizards. Clearly if you give enough monkeys typewriters eventually you get some Shakespeare and if you field a room full of day traders you'll get some spectacular successes. I'm wondering if their trading decisions actually matter? Do they bring some insight to the game similar to my poker skill that one might point to and say "that's how you beat the game"?
My gut feeling is no, they are running good trading long and getting the tide that lifts all boats. Possibly they are just the lucky few. I've looked at charts and they are fractal, they present the same landscape on most every scale and it's mostly random.
Finally, if someone really had it notched, just racked it up with some method it could not last in todays wired market. A thousand others are hot on the trail and any pattern that may exist will be quickly detected and exploited.
Obviously if you can trade where you suck up the spread, such as a market maker, and trade commission-free beating the markets by day trading would be nearly a sure thing.
-Fred-
In all the books I have read on the subject, anybody who thinks they can trade by following a "trend" or pattern are bound to lose in the long run. They may make money but it will be less than what a Buy and Hold investor will make. Its the same mentality as the players who think they can beat the Crap table by knowing when the dice are hot and cold.
CV
I will add Andy Beyer's racetrack advice, just as applicable here: "Once a piece of information becomes common knowledge, it becomes worthless." So, too, the common systems, even if they work.
Yeah, that seems to be what makes the market so random. Many people trying to out think one an other. A lot of the effecentcy in the market is suposed to be caused by players Arbatraging assets to get a risk free return that is better than government secutrities.
The point I'm trying to clear up is that Stocks aren't random like Dice are, because if investors lost interest they could become ineffecient. I believe this happened around the great depression. Ben Graham was buying stock in companies that were worth more liquidated than they were as a going concern.
CV
A recent study by the North American Securities Administrators Association found that 77% of day traders lose money.
It's funny that if you read some of the current literature on day trading, you see a lot of the same gambler's fallacies you'll find in a casino, only wrapped in enough technical jargon to make it sound plausible. Locking in winnings, identifying streaks, setting stop losses, the list goes on.
Dan wrote : So if 23% of daytraders make money, it seems a better proposition than poker.
No, it sounds about what you'd expect when someone bets money on a random event with the house taking a rake on every bet. The 77% losers may simply represent the average number of bets in a month, multiplied by the rake. Perhaps after 10 years 95% of them will be losers.
I suspect the average day trader makes a relatively small number of plays in a month. Given that, the 77% figure is quite high unless the statistic represented results tracked over more than a year.
Cards are dealt randomly, yet there are poker players who consistently do better than others. Could it just be that there are traders who do better than others in this random game?
Scenario 1: Friday June 2, 2000, 8:30am(ET). Mirage $40-$80. You're on the button and look down to see pocket aces.
Scenario 2: Friday June 2, 2000, 8:30am(ET). Anywhere. The employment figures have just been announced on CNBC - the S&P 500 and Nasdaq 100 futures are sharply up indicating a strong opening and continuing rally.
I maintain that both scenarios are high +EV for the professional.
Oh, I am sure that there are day traders who are playing a +EV game. The vast majority are probably not.
"Scenario 2: Friday June 2, 2000, 8:30am(ET). Anywhere. The employment figures have just been announced on CNBC - the S&P 500 and Nasdaq 100 futures are sharply up indicating a strong opening and continuing rally.
I maintain that both scenarios are high +EV for the professional."
Are you sure? The futures (s&p) were up about 35.00 shortly after the 'number' was out. During the day they traded between +25 and 35, and IIRC they closed closer to the lower end of that range.
2 stocks out of 3 that I trade were comfortably up at 930, and in one case lost 90% of the gain and in the other case lost the gain and then some, finishing down more than it was up on the opening.
Before one gets the idea that I trade dog stocks I will tell you the names: Dell, Pfizer and Compaq.
For those who bought those stocks friday morning, "looking at pocket aces", your aces just got cracked by T7 offsuit.
Danny
I would guess that a lot of day traders faded the opening last Friday. The NASDAQ was up over 200 in a very short time and I would guess that a lot of these folks sold into it. In fact if I had a short term, one day outlook I would have been tempted to sell into it. The market has an upward bias so I would guess that there are some people doing ok at it. The main thing is lowering transaction costs and being able to execute reliably. I think day trading is probably an activity that has been over hyped by the media as well.
Real daytraders, by real I mean traders that have direct access to the market (i.e. they can Bid the bid or Offer the offer, they can send their orders to the market proper or they can send their order to a specific trading desk of one of a hundred market makers, they can uptick or down tick the market by coming in an eighth or a quarter above or below the current best bid/offer), make money by getting in and out quicker than others.
It might mean buying a stock ahead of a very large institutional order and then selling out of your position when you see that the institutional order has taken the price up to a point where that order will be filled. Or it could mean buying on the bid and selling on the offer to take advantage of a stock with a half or 3/4 point spread (of course, that kind of trade needs a parlay to be profitable - a "choppy" or sideways market with enough volume to be tradeable but not enough volume in the particular stock to narrow the spread).
The daytraders that trade with Ameritrade on their morning break and during lunch will have a hell of a time making money. Real daytrader's must have direct, lightening fast market access. After that, you can only do what everyone else fails to do, namely, stay unopinionated and take advantage of the only thing you can - your size. The big boys trade big, it takes time and price movement to get in and out of their positions. You basically must get in ahead of time and, since your trade size is so small (anything less than 2 or 3 thousand shares) you can cover your position even in a frothy illiquid market. Nowadays, you can make decent money trading in 200 or 300 share blocks.
The biggest obstacle to making money daytrading is human nature (buying during the frenzy, refusing to cover small losses and having the small loss turn big, etc. etc.) The second biggest obstacle is operating costs i.e. commissions.
chris
Anybody keeping track?
I bearly have time to check on my own stocks.
CV
David, You should put your money in them and then you will know. It's one thing to have an opinion and other is to back it with conviction i.e. money. I would never buy a stock based on the opinion of others, and I work for an institutional broker that provides me with information what the hedge funds are doing. If I don't follow the Soros Fund when they short or buy stocks why should I follow anyone else ?
Not too bad it seems.
Off the top of my head:
SHFL is up about 40%
Mattel up 15-20%
CGNX maybe flat or down depending on when acted on, I didn't go for that one.
When you consider the slaughter that happened to a lot of other stocks it is good, if statitically insignifigant, performance.
I still have no idea what your reasoning is on the picks.
D.
You are in denial David, I am pretty sure I picked cognex when it was 47 (58 now). Optika is still down a little though. And I do own those stocks Andras. Just trying to be cute.
Ok Dave, I have been tracking these
Here is what I have as of 6/7
I started tracking around 4/1
CGNX 48 58
SHFL 10 14 5/8
(only kicking myself a bit on not buying SHFL this one @ 8)
Good work !!
MJ
You forgot MAT at about 10.5 now 14.5
Dave, after you posted your Shufflemaster pick, a stock i had been thinking of buying, i plunged in and leveraged a small investment by buying May call options. This was like playing my favorite trash hand, 6/9 from early position, calling the inevitable raise, flopping bottom pair and catching a 9 on the river for an undeserved pot.
I don't like to have a "loose" recommendation affect my investments and i don't like short term options but i decided that if this failed i would blame Dave and never buy another 2+2 book, Wow, was i on investment tilt.
In a few months i made nearly 100% on my gamble and now i'm buying more 2+2 poker propaganda for myself and friends. I can also afford to play a few more 6/9's.
Dave, I don't want to press my luck but if i follow another tip and lose can i return the books? I guess not: I'll just play it safer and invest for the long term.
Thanks for the tip and for helping to build my courage in poker and investments.
Chris
I have recently read a couple of Ganns books.
One of his common themes is the idea of markets breaking old highs and lows. His theory goes that when a market breaks through an old top or bottom it has a better than ever chance of continuing in that direction. I know that this idea is also popular with alot of chartists. I'm guessing somebody must have done some statistical work on this concept. At first glance (if you flip through a heap of charts) there does seem to be a greater than even change of markets that break old highs and lows to keep going.
This of course would suggest that the market is not totally random. And if it were that easy everybody would be doing it ... etc .
Does anybody have any reliable information about this concept ??
Whoever said the market was totally random?
If a stock breaks an old high it is often off to the races. There is no overhead resistence and the sky is the limit.
Bruce
A free book to the best response showing why the above statement by bruce would have to be fallacious unless almost no one knew it.
I would like to give this some thought even though I know little about the stock market. However, I am not sure I understand the question. "...unless almost no one knew it" What exactly does "it" refer to here? The fact that a new high was made, or the principle Bruce stated, or both?
The Principle.
Buying new highs and selling new lows could still be right even if many new the principle.
Knowing and doing are often different.
If the strategy worked 5% of the time, and the other 95% of the time you were spinning your wheels, not many would like or do it.
Compare to your example of betting T9, when first, into five callers with a Flop of A67
If this were true then whenever the price broke a new high it would be pushed up further by demand from successful rich adherents to this system. Then the stock would keep going up forever, because it would always be at breaking a new high.
Unless David is looking for something different than KL's response, I hope he retracts or revises his offer.
KL's argument isn't wrong, but because it ignores risk, it is overly simplistic, whence inapplicable to real financial markets.
The fact is, many recent academic studies report a significant momentum effect in the stock market. (Indeed, I heard this directly from KL; perhaps KL is just trying to post what David is looking for in order to get the book? :-)
Erin provides a valid explanation of why Bruce's statement need not be fallacious: even if everyone knows that when a stock breaks an old high or low the arithmetic expectation is that the stock will continue in that direction, for many market participants, the arithmetic expectation may not be sufficiently attractive in comparison to the risk.
Explicit Ponzi schemes, and perhaps even more so, implicit Ponzi schemes (such as those embedded in financial market dynamics) show clearly how reward and risk are coupled in a manner that reconciles the fact that momentum trading can be profitable despite being well known.
Though this is outside my field of expertise, it seems to me that there are enough players with huge enough bankrolls to ignore risk when making these kinds of plays that knowledge of Bruce's principle (or anyone elses) would squeeze out virtually all of the profit.
David's conjecture -- that huge asset players with this knowledge would eliminate the profitability of momentum trading -- is quite reasonable, even for someone familiar with research in this field. And in fact, this process does take place. For example, many trend-following commodities traders have been very successful until their trades became a significant portion of the market for that commodity.
But even though successful exploitation of momentum tends to reduce the profitability of momentum trading, it doesn't completely eliminate the profits, for a number of somewhat related reasons:
1. The profits from momentum trading and other methods never completely vanish. Instead, profitability falls to a level at which the profit rate matches the demand by speculators for arbitrage profitability. In particular, see Sanford Grossman's 1980 paper "On the impossibility of informationally efficient markets".
2. As I indicated earlier, risks do amplify as a trend persists. The more risky the trade, the smaller the appropriate position size as a percentage of your assets. So, for example, if you happen to be holding a sensible amount of stock when it breaks an old high, it may actually be wise for you to sell some of it, even though its expected profit rate is higher.
3. The financial markets aren't completely closed. For example, technological innovation is constantly supplying new wealth that needs to be priced and rebalanced across the population of investors. This promotes trending, and momentum trading profitability.
4. The financial markets aren't frictionless. Trading bigger hurts your round trip rate of return. Big traders actually generate some of the momentum we observe, but, with a few exceptions (most notably some of George Soros's most famous trades), they don't benefit from it because they have to pay more as they accumulate the security, and they are paid less as they unload it.
Thus, all in all, it only takes a minor revision of the standard version of market efficiency to posit that efficient portfolios should contain a certain weighting of momentum-motivated holdings.
So go out there and do your share of momentum trading! Just don't expect to get inordinately wealthy doing it.
bruce wrote in part:
>>If a stock breaks an old high it is often off to the races. There is no overhead resistence and the sky is the limit.<<
Here’s my $0.02. David is probably looking for a simple, clear and logical answer so this probably isn’t what he was looking for. I assume that “off to the races” means will go up a certain, probably, substantial percentage. Addressing Paul’s comment, even though this wouldn’t cover the risk totally, one could put in a stop loss order just below the previous high. Since the price of a stock is based on future earnings expectations obviously there has to be some limit on the amount of earnings that a company will make and thus a limit on the price of the stock. Therefore one would always have to sell when the “off to the races” percentage was reached. Therefore one could simply put in a buy stop order just above the previous high, a sell stop order just below the previous high, and a sell stop at the “off to the races” percentage above the previous high. They could do this for any and all stocks they wanted and they would never have to spend any time analyzing a company’s business prospects. All they would have to do is know the high and the “off to the races” percentage. Soon everyone would be doing this and people would start selling a little lower than the "off to the races percentage." And on it would go until the “system” was no longer effective.
I'd offer it for the best explanation of why stop loss orders don't accomplish what Tom claims.
First of all I agree that without discussing risk, a strategy for buying and selling stocks doesn’t make much sense. So I tried to describe a way that one could address the issue of risk and it seems to be a fairly common way to do so (which probably means it doesn’t do what it is intended to). Second of all I do not subscribe at all to the system I presented. I believe that the "system" I presented is one that bruce is implying however. I could be wrong though. In order to employ such a "system" I would think one would have to define points at which they buy and points at which they sell. If the "system" is a loser stop loss orders won't do a thing to stop you from losing all of your money. Also when some piece of bad news comes out (check out MSTR) you’ll be stopped out at a much lower price than you want to be. Of course you can get “whip sawed” a lot using stop loss orders as well. I only presented it as a way to define the system for buying and selling, which of course I do not endorse.
According to one of those studied in "Market Wizards" (I forget who it was, but you should read the book anyway) the above statement is generally true because of market forces. The rising price cleans out the short sellers and so there is no downward force to impede the rise except for general market conditions which may or may not affect the stock in question. Thus the price will usually continue upward.
I don't want to answer with a riddle (well it's tempting) but any trend following system is based on a trend being what it is (having on a trendline) which by default assumes higher highs on an uptrend and lower lows on a down trend. It is given that we have trends (long term, intermediate term and noise (err short term trend) any nice long term trend would underline marks question/assertion that it is very profitable if caught early and used with judicious stop loss. P.S. never forget there is a downtrend that should not be ignored - it's like a jealous woman can be nice if paid attention and kill you if you miss noticing it.
Bruce's original assertion that "If a stock breaks an old high it is often off to the races. There is no overhead resistance and the sky is the limit." ignores the fact that the universe of investors know what the previous high was. This certainly provides for a great deal of overhead resistance. As the price goes above the previous high there will be increasing pressure for profit taking.
Look at Rambus (rmbs). It has broken old highs and everyday it seems like it goes up another $10-15. Obviously it won't go up for ever but it looks like it has a lot of pop left. The volume is strong and the NASDQ hasn't even really began to move yet.
Bruce
I bought NSOL at around a split adjusted price of $60 about 1 1/2 years ago. It immediately headed south to $21. To make a long story short VRSN bought NSOL in a stock swap deal this year. NSOL hit an all time high of $250 this year. During the meltdown in March it went down to $125, maybe lower. Yesterday VRSN completed the merger with a price of NSOL at about $205. I have held it for the entire time period since I bought it. Watched all of the ups and downs (there have been a lot). I guess stop loss orders wouldn't have helped me much with this one. And this isn't the only stock I own that behaves like this. Just feel that the business prospects are excellent for some of these over the long run. Why didn't I buy at $21 and sell at $250? I don't have a crystal ball and yes I am the proud owner of VRSN now.
I am glad things worked out for you. I am uncertain what is the point of the post...don't try to time the market, don't watch the downside of a position ? What ? I like to hear of the good stories but what about the bad ones? Do you think those who bought CMGI at $165 will ever see that price or somehow that stock is also a candidate for a buy-out ??? I make 10-15% on my money per month and I am very risk averse. I use options and I use stocks. I admire you intestinal fortitude but not all stories come out like that. Now that we have the nasdaq tanked I have see nothing but horrendous charts and a lot of money at best is 'tied up' for a long bloody time. What about the 10 percent a months one can make with that ?????
gee Andras 10 or 15% a month on your money?? either you get very little in action and make that or you are the best in history. no one ever can make that over a period of time. if you can and document it i can surely get you on the payroll starting at 5 million a year but id never get the chance as others would outbid me for your services. but seriously why dont you post some simple ideas some of us may be able to use with options and stocks.
Well sometimes it's %8 but that's pretty good annualized rate, enough for me. If you can do it by using stocks and oprions, IMHO you should NEVER just buy a stock. Expect my book on this coming out later if you are curious for details. Will you guys publish me ??????
8% a month. ill only give you 3 million a year to work for me. ill also buy the rights to the book for ten million so it can never hit the streets. id still like your basic thoughts on how you could do it so it can be kicked around.
Ray, I posted about CC (Covered Calls) before here.... The issue is as always stock selection but todays market is more sold off in some areas to warrant CC strategies. In the past bull market many people could attain CC yield 10-15% a month cause everything was going up. Now is a bit more difficult but still can be done. Whe you are talking about going big etc, the amount of money invested under one management has to be kept small (under 5 mill for sure, so 3 mill sounds fine to me... ;-) The stock selection and watching volatility at all times is as important as ever.
There are two factors to consider with CCs - premium as a % of close (i.e., your downside protection should the stock head south on you) and the % yield at expiration.
For instance, if you want a 1 1/2 year LEAP - the CMRC Jan2002 40 call @ 21 5/8 gives you 51.5% downside protection and if called at expiration a 96% return. So that's about 4% per month compound yield BUT also with a 50%+ protection on a drop in the stock.
A shorter LEAP might be AMES Jan2001 7 1/2 calls @ 3 1/4 - it's 40% downside protection and 54% return on a six month position (about 7 1/2% per month compound yield).
If you want more protection and a deeper strike price (to make more sure that you will get your intended return) in exchange for less yield, you can look at selling ITM/DITM calls, like GENE Jan2001 20 calls (stock closed at 30.4) @ 15 1/4 - it's a 50% downside protection and a 32% return if called (but the stock can fall 33% and you still will get your full 32% profit).
The biggest problem with short term CCs is that a downturn in the market (or just your stock) can eat up all your expected profits. The mistake a lot of CC writers make is assuming that the stock price won't go down sharply. They get greedy trying to count all those expected monthly profits and forget about what might happen if something adverse occurs.
The higher premium and greater downside protection of the LEAPs is even more important if you're doing the CCs on margin.
Ultimately, it gets down to personal choice. Personally I prefer to use the LEAPs (or at least longer term options) on the CCs I do in my IRA. The returns, the capital preservation and risk reduction, and the greatly reduced management and number of trades suits my profile for that account.
So your grand strategy is selling puts?
Buying calls and selling stock is the equivalent of selling puts, for the option uneducated.
Sure, you may get 4% monthly on you money for a while, but eventually you will lose a bunch at once.
Danny
Oops.
I wrote that backwards.
Buying stock and selling calls is the equivalent to selling puts.
Danny
I have already said stock selection is very important Stocks (if picked well are assets well worth owning) selling expensive calls is prudent cause they are priced expensive !!!!!! You are in a very safe area here and I doubt that you can come up with a better risk/reward situation. Hey I can be wrong why not tell me a better deal ????????? But wait, I know people and mayself included in the past 3 years to fetch 60+ % a year !!!!!! I don't need your approval !!!!! You are ignoring the LEAPS protectivce power I mentioned !!! Have you read what I posted or just having a 'knee jerk' reaction ?????
I have indeed read your post and my reaction was not knee jerk.
I do agree if one is to do a buy=write, using leaps provide much more protection.
I know you don't need my approval.
What I was trying to point out is that eventually one of your picks could take a huge nose dive(remember you are using volatile stocks) and wipe out much if not all of your profits.
Good Luck.
Danny
Andras,
i like selling calls that seem expensive as well. you do need to pick your stocks as you say. anytime a strategy that requires good picking is used, a long term result can only be achieved if the picks of the pickers work out long term. maybe you can do it but probably cant teach anyone else how to. i used leaps when they first came out years ago and couldnt find a way to make any money with them. the upside seems good but nowadays the premium for leaps is out of the question for many of the ones offered. nothing imho beats learning lots about a company and waiting for a change to happen and then buy or sell the company on what the change should bring. this way you can gets lots of money in action and have time on your side with no real decay.
All critics are right !!!! Nothing is failsafe !!!! I however wonder what the hell is wrong with 50% downside protection and possibly very good return on the upside, rightly so if the position moves drastically against you, YOU GET OUT, DUHHH !!! Isn't it what all sane traders/investors are supposed to do ???? I however agree that like every endeveor where you earn more than the 1% Wells Fargo offeres involves some kind of a risk !!!! Have a good one !!!!
There is nothing wrong with what you state. If the options prices are out of wack then it certainly presents an opportunity.
32% annualized is a far cry fro 10-15% per month. Further, in this market, if you are that good at picking stocks, it might rise to 90 and you get $5 of that $60.
Any new ideas for stock picks?
I recently bought SNDK San Disk. It has moved up quite a bit already since.
My reasoning on this is pretty simple. Digital Cameras and MP3 players are going to be big sellers over the next years and SNDK supplies the storage.
D.
TWIMC,
Something to watch so I was told.
http://www.zycos.com/index.html
paul
Andras gave some very interesting options prices on CMRC. CMRC has been a very volatile stock so thus the huge premiums. My understanding is that if the premiums are too high you should sell them. If the premiums are too low you buy them. If the premiums are right you leave them alone. How often are they right or very close to it? Opinions welcome. My feeling is that often the call premiums are too low and the put premiums are too high. Of course there is a lot of money spent and a lot of effort at making option premiums right. So even though I might feel that premiums may be wrong I bow to the power of the market and all of the effort behind setting fair options prices. Thus I assume that the options prices are for the most part correct and my simple feelings don't provide me with an edge. Perhaps if someone had a better pricing model this would provide an edge.
I might add that I would anticipate that Ray would tell me that the big boys don’t get involved in all of the options and some that there may be some inefficiencies in some options that are somewhat illiquid.
With the exception of hard to borrow stocks, the disparity between put and call values is something that can't be exploited, except by floor traders, and even then only for a small advantage.
I am assuming in the above that we are talking about options with the same strike price and expiration.
If you are using different strike prices within the same month, that is another story altogether. Often the out of the money puts will trade at a significant premium to the out of the money calls. This is a trade that is not without significant risks, but can be done for a theoretical edge.
Danny
The big boys do get involved. The most successful options trading company, Susquehanna Securities in Philadelphia, reqires every employee to read my book Getting The Best of It in spite of its only indirect relationship to what they do. Nuf said.
"The big boys do get involved. The most successful options trading company, Susquehanna Securities in Philadelphia, reqires every employee to read my book Getting The Best of It in spite of its only indirect relationship to what they do. Nuf said. "
I have been a floor trader in Philly for 13 years, I know all about Susquehanna.
I wasn't suggesting that the big boys don't get involved in disparities in the put call relationship. Of course they do. That is why the average public trader can't take advantage of the relatively small inequities in the put-call relationship. On the other hand there are times when the relationship is 'out of line' for differing strike prices. Pricing these 'spreads' is an integral part of trading.
Danny
P.S. I too have read getting the best of it. You also probably know that part of SIG's training program is an intense course in 7 stud.
If the put and call options have identical expirations and strike prices and there is no early exercise then put plus stock equals call plus present value of strike price. This arbitrage relationship keeps put and call prices in line.
The complexity of options markets can fool you into thinking you have an edge. But there is no reason they should be less efficient than stock or bond markets. For example, the discussion below about covered calls resembles progression arguments that try to combine negative expectation bets to get positive expectation.
Well the options by default will be priced a bit over whatever formula you will use. I remember when I dabbled into options on futures on the CBOT - we had figured a 20% fudge figure for ITM or ATM options. Out of the money is a different issue. I mean look at what I have done today sold 6 months LEAPS at 7 1/4 for Jan 30 NITE calls, NITE traded today around 30 where I went long. Why is the premium over just buy the damn stock ???? Its because some prefer the LEAPS less money to tie up, but rather spend it on the premium ??? The traders are more often than NOT short premium hence they will fudge the price PLUS they earn the bid/ask spread.
Andras,
The CBOE website gives a May 30-day historical NITE volatility of 94%. For an at-the-money-forward option, the Black-Scholes price is approximately equal to .4 times the stock price times the volatility times the square-root of maturity (half a year). So the options should be worth around .4*30*.94*Sqrt(.5) = $7.98. In other words your selling price of 7 1/4 seems cheap. Also, the delta is only around .5, so you are poorly hedged. If the stock falls then you lose. If it moves a lot then you take all the downside risk with limited upside gain.
If you don't understand put-call parity, Black-Scholes, and deltas then stop trading options and put a smiley after your signature.
Kim, Your numbers don't impress me too much, as the worst case is the stock (NITE) will fall off the earth. You (if you ever traded options) should understand that the price you get may not be what the numbers dictate. If the stock goes up and I am called I collect the premium and deliver the stock pretty much at cost minus commission. You very seldom can trade by the numbers, because then you would never get filled. I am getting a pretty safe 46% for the six months. I did a small 5k amount and will do more if the price will get up there. Your tone is a bit insulting but I am used to this by now on the net, we have lots of smart ass people. You get your calcaltor out and do your math again. As for the smiley I am smiling all the way to the bank.
Please realize that I am not advocating any trading strategy. I am simply trying to learn and I am just postulating some ideas for the sake of discussion. I got this out of the Yahoo profile for NITE:
Knight Trading Group Inc. is one of the leading market maker in Nasdaq securities and in the Third Market, which is the over-the-counter market in exchange-listed equity securities, primarily those listed on the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX).
NITE is supposedly the number 1 market maker in “Internet” securities and the stock price has more or less gone in line with the “Internet” stocks. Although it should be pointed out that NITE has some seemingly reasonable valuation metrics like PE and price-to-sales ratios. The 52-week high for NITE is around 65 and the 52-week low is around 22. So it has come down quite a bit and it seems to me that the upside potential is quite a bit more than it’s upside potential. It also seems to me that the stock would be more volatile in the middle and upper portions of the 52-week trading range. Therefore it seems to me that an options pricing model should take these facts into account when pricing the option. I also believe that the options pricing models have become a lot more complex and the Black-Scholes model isn’t used that much. Some more knowledgeable folks than myself on this site about a year ago pointed this out to me.
I meant to say that NITE's upside potential seems to be quite a bit better than it's downside potential.
It seems that some of us have a very math oriented mind but could find their way out of a brown bad as to make money. Strategies I described provide a downside protection with a possibility to be assigned (BIG DEAL) so I will make money unless the stock tanks (< 23). What most fail to understand I DON'T mind owning NITE for the long haul but I do mind taking a risk of drifing lower, but why should I when some will give me their money in premiums ??? I f I get assigned I just look elsewhere or buy it right back at the right time.
Previously you wrote about a 46% annualized return. In reality this is your max return I think. Your min annualized return is about –160%. My point in part was that since NITE is near the bottom of the 52 week trading range and possibly since valuation metrics are reasonable it seems reasonable to assume that your min return is something much, much better than –160% maybe even 0%. I realize that you are not expecting some bad news to kill the stock where you can’t get out without sustaining a huge loss. What I don’t see is how your strategy has an advantage over shorting the puts unless you are restricted from shorting puts.
No - shorting puts is ok, but if you are in the market like I am you, stick your neck out a bit - mine is a hedged position. Shorting puts (or calls) is fine but you have a bigger risk, the underlying goes crazy. Brokers only let you naked short with about 100k. Again there is nothing wrong with that but ask yourself why is margin so high on naked shorting vesus spreads shorting ??? Because it's insanely risky. Now again I would like to sometimes do it (and in the future perhaps I will). Yes I know that NITE can go down but like I said it's very controlled risk - when you short premium the volatility or the underlying can kill you.
I agree with David. I'm sure these issues are well known. I'm just trying to learn. I do take issue with the following statement:
>>Shorting puts (or calls) is fine but you have a bigger risk, the underlying goes crazy.<<
The risk is much higher in shorting calls. Take NITE at $30. If you short the put the risk is limited to $3000 - time_premium for each option. Basically the risk is the same as owning 100 shares of the stock. When shorting the call the risk is much greater than $3000 and if the underlying goes crazy on the upside you can get into big trouble which is what you said. I'm just pointing out that shorting puts is much different than shorting calls from a risk-reward perspective.
Well it's true with NITE @30 but what about some $200 stock. Just because I am in a NITE position we can't just use it for any example. However you are correct shorting puts is a finite risk (depending on the price) and shorting calls is infinite (that's why I am hedging) - now keep in mind that as I am not at the level of a 100K acount I can't write puts naked.. So I do what I can within mi range. Also, since you are learning I have an other angle for you. Short (creedit spread) of puts - similar to CC except less risk and limited gain, like short MSFT 60 puts and buy MSFT 70 puts ($10 possible risk) and the gain is the credit for the spread. You being mildly bullish.
Naked puts don't seem to present any more risk than owning a stock outright. Your upside is limited. If your right about the direction of a stock that you will make more money in options but I guess taxes could be a consideration.
You guys are arguing over questions that, unlike poker, the answer is already known. Jeff and Eric know them. However it might be hard to get them to tell you for less than ten million or so.
Perhaps if someone had a better pricing model this would provide an edge.
Don Schlesinger doesn't talk much about his days at Morgan Stanley, but I believe this was exactly what was behind much of his trading. They modeled the volatility and calculated an expected price for the options. When the prices differed significantly from the model you have a theoretical edge, assuming you have deep enough pockets to withstand the considerable risk in these trades.
Jaeger
David Sklansky mentioned acquiring stock options in compensation for consulting (this is public knowledge). Without delving into his specific situation, let's explore an issue he must have considered. Should one hedge a stock option grant? For example, one might sell options in the market. But then there might be a maturity mismatch or employer prohibition. Alternatively one might sell options on competitors in the industry. Sometimes firms will even prohibit this, which doesn't seem sensible.
This begs the question of why firms will grant options and expose workers to unnecessary risk (or hedging) instead of just paying cash. For example, I doubt Mr. Sklansky was an investor in the company prior to consulting. When he won extra money at poker he didn't choose to invest in the company. So when they grant options they are forcing him to become an investor when he prefers the cash.
Once I became a consultant I WOULD have invested in the company if they paid me cash.
"...question of why firms will grant options and expose workers to unnecessary risk (or hedging) instead of just paying cash"
I suggest you ask the many thousands of millionaires in sillicon valley who endured this great risk!
The options give the employees an interest in the company and tie them to the performance. Cash is just taken out and spent in general.
As to the hedging, generally it is not allowed directly as you mention. Firms do this because they don't want their employees to elliminate their interest in the company, after all the options are usually a free roll given on top of a competitive salary.
D.
Kim,
Most times you are not allowed to do this, either with options or with stock owned in a startup. I know this from personal experience. For instance, you own 100,000 shares in an Internut startup (maybe as a business partner or employee or consultant). It maybe opens and goes from 20 to 150....yowza. Let's hedge or box or whatever to lock it in. Fugetaboutit: Not allowed! NO Investment Bank will let any early shareholders --- NONE -- get out in any way for the 6 month lockup period. Furthermore, no employee is allowed to vest in these things for a while, and they are never allowed to lock it in either via hedge. Also, David Steele says it right: Even with the Internut ups and downs, who would want to.
Mark
When you work for a startup you can take a lot of options in lieu of high salary but you have to watch 1) the principals and their business model (mostly the 1st and 2nd officers in the company WILL make money even if it bellies up or sell and they lay off the whole foolish crew. 2) insiders coming and going (if a second tier) officer leaves more often than not you are screwed (just don't know it yet) 3) Possible buyout and the term (if the business model) most common is that a) start a comopany b) irritate and harrass a major competitior to the point of a buyout you also lose !!! likely the buyout will make the 1) scenario work. The 'fire sale' of a company to raise money is often also a bad deal for the averga IT *director* or schmoe beacuse he will be left out in the cold.
I believe that in the not too distant future we will all be routinely accessing the internet via some sort of hand-held wireless portable device. This market is in its infancy and the growth potential is enormous. What are some of the companies involved in this market. I am somewhat familiar with Phone.com (PHCM), Research in Motion (RIMM), and Go America (GOAM), and of course the wireless telecom companies - Vodafone(VOD), Sprint PCS (PCS).
I'm certainly a believer in "internet everywhere", but you should definitely avoid ANY company whose wireless enterprise strategy depends heavily on WAP(Wireless Application Protocol). WAP is a giant sinkhole. Guaranteed.
The future is now. I rarely even take my notebook with me on road trips anymore, preferring to use my cell-phone for e-mail and some of the more generic internet services. But I do wish that the folks here at twoplustwo were one of the accessible sites.
I believe 2+2 would have to implement their pages using WAP as well as HTML.
Buy 200 COMS @ 73.625 Buy 2 COMS Aug 70 puts @ 5.625 Buy 3 PALM Aug 45 puts @ 7.125 Receive approx. 300 PALM in stock dividend July 28.
On August 18, you're holding 200 COMS and 300 PALM, at a cost of $17,275, but it's guaranteed to be worth at least $27,500.
I think. I have to think I've made a mistake somewhere, and would appreciate it if someone pointed it out to me.
Am I missing something or is this free money?
After the distribution of the divident the COMS shares will immediately reflect it i.e. will go way down.... this type of play would have been better done what I have suggested way earlier and what pro ARBS do buy 3com and short PALM. This was however impossible to do since PALM was not borrowable hence shortable. Even the palm puts were way overpriced back then. your mistake is "but it's guaranteed to be worth at least $27,500." Why ??? Like I said the COMS shares will go down right away after July 28.
In addition and to clarify my post - the 70 COMS puts will have to be adjusted to the divident hence you won't make the required money to offset holding the stock (COMS). This is just MHO. see the www.cboe.com for divident adjustments and policies.
I'm getting some 401K money again from a couple of previous employers. It's not a lot of money but enough to establish 2 or 3 positions in stocks. I hate to have the money sitting around for to long so I did a stock screen using the Hoover's Stock Screening tool. I did a screen looking for high growth at a good price. I don't know if I'll use any of these. I think it is an interesting list and since I compiled it for my self I thought I would post it. I may come back in 6 months and see how these did against the averages if I remember to. I know 6 months isn't a very long period of time. Interesting that CGNX one of David's picks is on this list. Personally from what I can I'm surprised CGNX hasn't done a lot better. This list contains a lot of semiconductor companies which many investors view more as cyclical companies than growth companies. If we are seeing sustained and ongoing demand for their products because the economy is less volatile then perhaps these perceptions will change. Also there are several companies like Flextronics in this list. Other companies use Flextronics to outsource the building of their systems and system's components. Company Name Symbol P/E 1 Yr Revenue Growth % 1 Yr Earnings Growth % PEG Price at start of 7/18/00 ACT Manufacturing ACTM 59.3 126.3 174.4 0.34 47 3/4 Analog Devices, Inc ADI 93.9 55.8 257.9 0.36 88 5/16 ATMI, Inc ATMI 65.4 154.3 478.9 0.14 49 1/2 Burlington Resources BR 93.4 52.4 214.3 0.44 37 1/16 C-COR.net Corp CCBL 62.5 62.8 56.2 1.11 33 Carrier Access Corp CACS 61.1 101.3 137.3 0.45 61 1/2 CDW Computer Centers CDWC 52.2 52.8 60.8 0.86 61 3/16 Cognex Corporation CGNX 53.3 64.0 233.6 0.23 53 7/16 Entercom Communications ETM 74.9 85.3 117.0 0.64 46 15/16 Flextronics FLEX 80.5 217.5 252.2 0.32 84 9/16 Gaiam, Inc. GAIA 91.6 59.0 111.1 0.82 18 Hall, Kinion, & Assoc HAKI 51.9 55.0 91.5 0.57 41 1/4 Immunex IMNX 394.2 107.6 633.7 0.62 57 7/8 Inet Technologies INTI 82.9 54.8 99.4 0.83 64 1/8 Infosys Technologies INFY 283.3 101.7 329.9 0.86 162 3/4 Jabil Circuit JBL 81.5 70.1 90.0 0.91 58 27/32 LHS Group, Inc LHSG 51.4 52.3 96.6 0.53 37 Nanometrics NANO 88.2 60.2 292.3 0.30 46 13/16 NetCreations NTCR 90.1 882 933 0.10 46 7/8 Novellus Systems NVLS 64.3 59.7 202.2 0.32 68 7/16 Optio Software OPTO 74.8 60.8 260 0.29 6 PLX Technology PLXT 95.2 76.0 239.3 0.40 46 1/8 Priority Healthcare Corp PHCC 60.8 60.1 103.4 0.59 67 1/8 Qlogic QLGC 135.9 73.3 110.1 1.23 94 Radio One, Inc. ROIA 200.0 74.6 675.0 0.30 23 15/16 RadiSys Corporation RSYS 52.6 142.4 310.3 0.17 49 1/2 RF Micro Devices RFMD 152.7 89.0 155.6 0.98 93 11/16 RMH Teleservices RMHT 71.0 76.0 144.4 0.49 18 1/8 Sanmina Corporation SANM 83.6 79.4 119.9 0.70 97 Sapient Corporation SAPE 203.3 70.3 175.4 1.16 117 9/16 Semtech Corporation SMTC 77.3 68.1 180.2 0.43 94 1/8 SERENA Software SRNA 71.8 70.8 135.6 0.53 29 Star Gas Partners LP SGU 109.2 469.4 588.5 0.19 16 9/16 Taiwan Semiconductor TSM 75.5 93.4 146.6 0.52 36 1/2 TenFold Corporation TENF 58.2 168.9 352.9 0.16 12 5/16 Time Warner TWX 72.0 68.8 369.0 0.20 89 3/16 Tollgrade Communications TLGD 99.4 87.2 180.9 0.55 149 1/2 TranSwitch Corp TXCC 135.9 66.9 235.3 0.58 96 15/16 Trend Micro TMIC 390.6 55.8 569.4 0.69 15 1/2 TriQuint Semiconductor TQNT 74.2 55.7 183.5 0.40 58 TTI Team Telecom TTIL 61.0 59.1 63.2 0.97 38 5/8 WebTrends Corporation WEBT 276.8 188.3 900 0.31 42 1/2 Westwood One, Inc. WON 92.8 59.5 131.7 0.70 30 5/8 Xilnx, Inc XLNX 50.2 54.2 405.0 0.12 96 5/8
My PEG screens have always been relatively unsuccessful. This was usually due to the Growth estimates being outdated. I would find what looked to be a great little company but would find out that its low PE was due to a problem that the analysts handn't adjusted for yet. This may be a reason to use Relative Strenght with a PEG formula so that you can screen out all the companies that have turned south.
I still believe low PE high growth is the the way to riches though a company's PE needs to be adjusted a lot especially if its a High Tech company because of the "Pooling of Interests" and other accounting tricks that distort the true earnings.
Later, CV
P.S. The only Stock I have kept is PSTA. It just keeps chugging along and its easy to understand.
Oh yes I agree. I'm not sure we will see sustained growth in stuff like the semicondutor stocks. A low PEG might also mean that the market doesn't feel that the growth exhibited can be sustained for a long period of time and/or the risk is high. Check out TENF. Go to their web site and read about how they have found the holy grail of software development. After reading what the company is about I know they are going to have problems managing growth. I looked at their chart and found out that they had an earnings warning recently and the price per share was decimated. Point being that when you buy stocks that have a high PE, high growth, are fairly new and small the issue of how they handle the growth of their business is an important factor to evaluate. At least IMO it is.
I don't know if there has been any studies done on PEG and using it to select stocks to invest in but I would imagine that there have been.
As you know I hold on through thick and thin but overall my results have been good. Picked up some of the previously popular stocks like CMRC and AKAM when they got really beat up. They still get beat up but are having some good days as well.
Thick and Thin
Of course.
Don’t forget we’ve been in an 18 year Bull market.
Probably the strongest market that’s ever existed in anything
since the first caveman picked up a brightly colored seashell
and shouted the equivalent of “at a sixteenth”.
It depends on what your definition of a bull market is. I believe that around 60% of the stocks priced greater than $5 a share declined on the NYSE in 1999 and in 1998 over 50% declined. On the NASDAQ last year over 50% of stocks priced greater than $5 declined in 1999. Of course one only has to go back to March and April of this year to see a 40% drop in the NASDAQ 100 and the NASDAQ composite. In the summer of 1998 there were major declines in all of the major indices. I believe the S&P fell about 20%. So we don’t have to go back too far to see that a lot of stocks have been hammered. By the way I don’t subscribe to the notion of a 20% decline constituting a bear market. One might argue that since all of these declines were relatively short in duration that they constituted corrections not bear markets.
I myself would argue that we have been in a bull market since at least 1926. If you look at the returns on bonds during this time period it isn’t even close as to what asset class has performed the best. During this relatively short period of 70+ years there hasn’t been one 20 year period where bonds outperformed stocks and I believe there is only one ten year period where bonds did better than stocks. I’m not sure about the 10-year periods as I’ll have to check on that but I know it is very, very few. I’ll discuss more on this in this phenomenon in another post and why it may indicate that stocks might not do that well say in the next 10 or 20 years.
In 1974 a medallion to drive a cab in New York City cost more than a seat on the New York Stock Exchange.
A few weeks ago a cab driver gave me a stock tip he overheard from a previous passenger whose brother-in-law heard from, etc...
As soon as he dropped me off, he was going to buy it.
Cabbies know where it’s at.
A few weeks ago a cab driver gave me a stock tip he overheard from a previous passenger whose brother-in-law heard from, etc...
Stories like these are usually the sign of the last legs of a bull market. People jumping in on a tip with little concept of the risks tend to hold up the last stage of a bull market. Then the garbage stocks tank while the money gets moved to large cap, well-known companies. These companies enjoy a temporary boost, sometimes known as a sucker rally, and then even the large caps return to valuations closer to historical averages. Of course this pattern has usually followed the business cycle, which seems to have been suspended for a record number of years.
Jaeger
I have a very difficult time quantifying anecdotal evidence such as tips from cab drivers and such. The interpretation is so,so subjective. My standard question is, "Have there been any studies that have shown that future stock prices can be predicted from the frequency of cab driver recommendations?" This sounds like a silly question doesn't it? But if one were going to use anecdotal evidence like cab driver recommendations as a basis for investment decisions I believe it becomes a relevant question. I have heard the story about Joseph Kennedy Sr. pulling out of the stock market before the crash of 1929 when he got a stock tip from his shoe shine boy.
Since we are on the subject. Take a walk through Borders sometime and look at the books on investing in the stock market. Here is what I see:
1) Books on Technical Analysis - there isn't any evidence that technical analysis works. I realize that technical analysis is more than looking at charts BTW. Looking at charts is another highly subjective endeavor that as far as I know has not proven to be reliable in predicting the future of stock prices. Indicators and such have not fared well in predicting prices for any great length of time.
2) Books providing anecdotal recommendations on how to trade. There are a lot of recommendations and advice in these books with little proof that any of these will provide superior returns. I believe that most money managers trade pretty actively. I remember reading something recently where the average holding period of a stock by money managers is 11 months. Yet a precious few beat the averages on a consistent basis and many money managers uderperform by a significant amount.
3) Books predicting the future. These can be very interesting and fun to read. However, I am fond of saying that there are a lot of cracked crystal balls out there. Still these books could conceivably have some value.
4) Books on the basics. These books do have value IMO.
5) Books on fundamental analysis but not very many. Again there is no proof that one can rigorous formulas and rules to analyzing balance sheets and income statements to select companies that will provide superior returns. Perhaps it is sheer folly on my part but I believe that some very good qualitative judgements can be made by doing this.
6) Books about famous investors and traders. These provide some interesting reading but I don't think they help much in making investment decisions.
7) Books about options. These books aren't usually very deep and I believe that this is a complex subject. I think that for the most part these books are useful. You won't make a fortune by reading them but they could give you some good ideas for such things as managing risk.
8) Historical account of the markets. I find these books to be interesting but I don't think that they will make me a lot of money.
Finally the books that I feel are the most valuable are the ones I rarely see on the shelf. I consider the books detailing the work from academia to be the most valuable to today's investor. Books on valuation models, portfolio theory, risk premiums and such I believe provide the investor with the best information and tools to invest well. If I would have started off by reading these books instead of books about trading I would be a millionare today.
have a very difficult time quantifying anecdotal evidence such as tips from cab drivers and such.
Certainly the behaviour patterns are very subjective, but the trend shifts from investing to speculating near the top. And no one can predict a short term movement in the market, but near the top of a speculative frenzy there are consistent patterns. In real estate you get people buying houses and condos, not because they want a house, but just to flip it to someone else a few weeks later. We've seen it in gold, real estate, junior oil stockss and others in the last twenty years. People start dismissing any discussion of just how much value they are getting for their investment, and start counting on a quick profit.
Books on valuation models, portfolio theory, risk premiums and such I believe provide the investor with the best information and tools to invest well.
Certainly someone who focuses on value and risk is better prepared than those who ignore both. Of course some will take risks they were totally unaware of, and get lucky.
Jaeger
I still believe low PE high growth is the the way to riches though a company's PE needs to be adjusted a lot
Yes, I agree completely. I like the screen Tom posted to generate a list of candidates, but due diligence still needs to be done. You have to investigate enough to believe the company has a sustainable competitive advantage, and that the growth rate is sustainable. So many high tech companies are priced as if they will sustain the recent growth rate for a decade, when there is very little reason to believe either the growth or their competitive advantage will last that long.
NVDA is a fine example of that, a company in a fairly cyclical graphics semiconductor market. They have a fairly successful chip now, but it's a boom and bust sector. They are priced as if they'll just boom and boom for a decade.
Jaeger
P.S. The only Stock I have kept is PSTA. It just keeps chugging along and its easy to understand.
I took a look, and I think I'll add it to my list. Definitely my kind of company, with high margins, premium brand name recognition, low R&D costs and repeat customer purchases. The main problem with it are half its sales come from one distributor - Costco. Ya gotta hope they don't get dropped. But they really should be able to find alternative distribution channels, adding both growth and diversification. Definitely on my list.
Jaeger
I believe that the situation with PSTA and COSTCO definitely puts a damper on the price of PSTA. The question is should it? I think it would be fair to say that as the PSTA products become a more significant portion of COSTCO's revenue, the chances of COSTCO dropping PSTA would be lessened. Investors often believe and rightfully so that there is more risk in a situation where a company derives a huge portion of it's revenue from one customer. But situations can develop where the customer needs the supplier badly as well. Just something to think about.
But the problem with deriving half the revenue from one buyer isn't just the risk of being dropped. The buyer has a tremendous amount of leverage on pricing, and everyone knows it. Right now PSTA is making incredible margins, and they may not be sustainable.
While there may be a small number of really loyal PSTA customers that would shop elsewhere just to get the product, that is probably a minority. But I expect this situation to be temporary. There should be no reason PSTA can't sign up other distributors soon.
Jaeger
I think it would be fair to say that as the PSTA products become a more significant portion of COSTCO's revenue
Have you ever been to a COSTCO? It is obvious that PSTA will never be even the slightest bit significant to COSTCO's revenue.
BTW, COSTCO gets about half of its profits from membership fees. Their margins on products are so low that it really doesn't matter whether people buy them or not! The only time COSTCO really cares about having any individual product in their mix (except maybe a very few big ticket items) is if the product is so important that dropping it would cause a significant portion of COSTCO's members to drop their membership. Items such as cigarettes might fall into this category, but not too many others.
I don't think that I stated that PSTA products would be a significant portion of COSTCO's revenue did I? What I meant was that as the revenue increases for PSTA products COSTCO has less incentive to drop them for the exact reason you stated. The more popular a product becomes at COSTCO the less desirable it is to remove it because IMO it would have more of a chance of annoying members which in turn increases the chances of these member canceling. COSTCO has a business model based partly on repeat membership. If the customers are happy with the product mix why take chances in removing products they like? An increase in PSTA revenues at COSTCO means the customers like the product. BTW low margins in the food business are the norm.
I don't think that I stated that PSTA products would be a significant portion of COSTCO's revenue did I?
You said they would become a "more significant portion of COSTCO's revenue." As is obvious to anyone familiar with the scope of COSTCO's product line, that will never happen, except in the theoretical sense that a miniscule significance is more significant than no significance at all.
IMO it would have more of a chance of annoying members which in turn increases the chances of these member canceling.
We will just have to agree to disagree about whether or not COSTCO's (hyopthetically) dropping PSTA products, most likely replacing them with similar (perhaps Kirkland brand) products would actually annoy any meaningful number of customers sufficient so they would cancel their membership.
BTW low margins in the food business are the norm.
COSTCO's margins on most items are even lower.
Currently the gaming analysts are baffled about the persistently low win rate at the Rio table games and how this has dragged down earnings for Harrahs (parent company of the Rio). Some believe that "something is rotten" (even if they don't know exactly what), and urge investors to stay away, while others say that the Rio has just had a run of bad luck, making the stock a good buy.
As gambling experts, we should be able to figure this out. Is the Rio getting unlucky, or is money walking away somehow?
Some believe that "something is rotten" (even if they don't know exactly what),
I kind of wondered about that, too. While it is certainly possible for some very high rollers to get lucky and dent the hold for a quarter, it may be a sign that they have a leak. Perhaps we will eventually read about how the MIT team was exploiting a weakness in one of their games with some new and exotic technique. If that's the case, we certainly won't hear about it until after it's been fixed. But I suspect it's more likely that fortune has been smiling on some high rolling Asians.
Jaeger
While it is certainly possible for some very high rollers to get lucky and dent the hold for a quarter
In fact it has been going on for more than two quarters. Their press release says:
My reading of this suggests that the hold has been abnormally low for each of those seven months, which seems more like it may be more significant than one or even two quarters of lucky high rollers (but maybe not).
Casinos do not compare table win to money bet, but rather to money dropped. That means that their lessor hold percentage could be related to players leaving more quickly, rather than any decrease in percentage edge.
Good point. Why would players be leaving more quickly?
Of course, if this is really the explanation, then the observed poor earnings would be due to something other than bad luck at the tables.
Awhile back, at another web site, it was suggested by a certain "gifted player" that in order to combat continuious shuffle machines that all players buy in for large amounts of money, place one bet, cash out and walk out. Just a thought.
BTW
I'm Baacckk!!!
betelgeusebetelgeusebetelgeuse
I just stumbled onto this site yesterday and I must say I'm impressed. I've got many books by Sklansky and Malmuth and use them not only in poker which I make a large portion of my income from but also in trading the futures and futures options markets. The markets are just a bigger game with almost unlimited limits. Poker has allowed me to let my trading bankroll compound and grow while not having to pull money out for income.
I'm currently working on a short option model that involves selling options in the futures markets. What I'm looking for is software or a programmer that would like to be paid to write a program that will allow me to plug in my win rate say for example 70%. I then could plug in my average win/loss statistics. The program would then be able to run a test of say 1,000,000 iterations (trades) so that I can get a really good idea of my possible drawdowns and true edge.
Similar things are done with Poker and Blackjack software that run simulations of sometimes up to millions of hands to generate stats. I’m sure these could be "tweaked" by a programmer to fit my needs. I just haven’t been able to find a programmer.
If anyone has any suggestions I'd be happy to hear. Also anyone out there that has any programming skill that would be interested in some sidework contact me at:
Tewahl@yahoo.com
Best,
Tim
Would you like some nice color pie charts as well?
Beware. Be careful.
Requests like this will usually precede a significant downturn in your trading results.
What are you talking about?
Tim
One month ago Andras "The Options Maven" wrote he was getting a "pretty safe" 46% return in six months by selling covered calls on NITE. His "pretty safe" 46% return requires maximum leverage - borrowing 100% of his investment capital. The position has since lost money (NITE has underperformed the indices), and has the potential to lose much more. He has a weird concept of safety and return!
Well - this is a tough market to play. Normally this strategy is pretty safe and can fetch better than average return. The key is stock picking !! NITE is a pretty damn good company and the earnings were good. However everybody hates nasdaq now and we moved down from 4000 -> 3600. How how are you doing with you stock options and other "investments"? I hope your company is still in business because if nadsaq goes the way I see it - you better start contracting soon.
It looks like NITE call premiums have held well for you. You sold the Jan 01 30 calls at 7 ¼ right? Buy the Jan 01 25 puts at 3 1/8. If NITE ends at 22 you lose a $1 plus transaction costs. If NITE holds here you break even. If NITE gets back to 30 you make $4+ and if NITE really tanks you lose $2 max. If NITE really tanks bad right now maybe you can buy the calls back at a real cheap price and hope for a big comeback in the stock. You could afford to do this since your down side is limited when you buy the puts.
Tom. The flaw in CC is the delta of the options hardy offsets each point of losses if the underlying. If the delta is .50 then for each point the stock goes down the option loses 50c. However it's good for long term players anyway. The option you sold is mostly yours but they do mark to market the prices. You get the full price in terms of breaks in your margin reqs. Those who don't appreciate the CC are mostly those who think they can outsmart the market by timing. There are very few of those who can do it consistently. I am however sure Kim here is an exception.
NITE closed above 30 today.
Thanks Tom for noticing it ;-)
For all of you would-be stock guru's, ameritrade is hosting an interesting stock-pickers contest. You get 50k in play money to make dummy investments (pardon the pun). The player with the most $ at the end wins a trip somewhere, and the overall winner of the two contests wins $1 Million. Check it out at the link below. I think it would be fun if several of the regualars on here participated, especially DS.
Too cool Maven. I signed up, it looks like a lot of fun as the first contest begins Aug 7. Thanks for the info. This should be interesting.
I can't believe that they call it the "Investor's Cup". I'd call it, "The Specultion Tournament of Closet Gamblers" ;^)
How long does it last? If we are talking just Months then it should be just whoever has the most Volatility and Luck in their choices. Kinda reminds me of Casino Promotion Tournaments. I haven't looked at the rules, but I hope there is a lot of dead money in the Pot. It must be a free Tournament.
Did I ever tell you guys about an aquantence of mine who's wife wouldn't let him play .25/.50 Poker, but playing the Options Market with their life savings was quite alright. Silly Silly Silly. :)
CV
I agree that it's a crap shoot but I think it will be fun and interesting.
I entered but really don't have time to follow things full time like a lot of the day traders do. They have over 25,500 entries for the August portion of the tournament. I was surprised to find myself in 37th place after 1 week with $63,000 ($50,000 starting stake) and ranked #1 of about 110 from Nevada. The leader has about $95,000, and it drops off rapidly from there. The only way I see to win this is by playing options, either long or short. You are limited to only $10,000 buy or sell of options on one stock, and $20,000 buy or sell long or short stock. I made my wins by selling short DELL 40 strike call options for 2.75 prior to earnings as I felt they would be seen as negative. DELL went from 42 to 38. I aslo sold puts on NVLS (Novellus) when it was 43 for 2.75 hoping it would rebound. It did by going up 7 points the next day. I made a note to short HD 55 call options before earnings, but was away from things and was unable to make the trade monday and earnings came out before the open Tue, and it was too late as stock fell 4 to 55. I would have picked up about 10k more if I had the time to monitor the situation. Since options expire this friday, there should be a lot of big scores by players between now and then. I expect to steadily fall in the rankings from this point on. But for about 5 minutes I had delusions of granduer of winning $1 million (paid in full up front!) Oh well, looks like I will just have to go back to the $10-20 holdem grind. TomSki
I started out by selling options. I was limited in how much I could trade. I have only made 4 round trip trades and am up some but I haven't had time to do very much with it.
You sound to me like a very foolish young man that is wasting all of his time chasing silly dreams. My advice to you is to work hard, get married and raise a family of little Ski's to maintain your inspiring legacy. Of course the most important way to insure your steady progress for the next eight years is to vote for me in the upcoming election. I promise to eliminate the capital gains tax for working Americans. I will make all stock trades $2. Finally, I will grant tax-exempt status to all short, skinny, geeky, pip-squeaky guys that spend all of their time surfing on the internet (which I invented). Don't forget to vote December fourth.
I have read about the guy who invented these trading challenges and it's interesting stuff. I know that they use entrants as 'marketing pidgeons' by selling the names etc, Some of the winners become hot traders 'till they blow out with someone's real money. It's mixed stuff. I have no time to enter since I have a life, real money and a business. Al Gore will lose I hope cause the market is OK yet. If he shows any signs of winning SELL and SELL more. If Clinton could not fuck up the economy - no matter how hard he and his stupid liberal wife tried, it's a sheer miracle. I think we would be pushing our luck to give the presidency to this 'tree hugger', stiff bozo. If Gore shows any signs of lead I will short Health care and Drug stocks and even timber. (work out your own list, it can be quite long.) I already started investing in European ADR's as I think that's the next ten years of growth. (NOK is just an example)
Down 20% in a few hours. Is it now cheap, or is there something I should know?
Don't know.
It is bouncing back some this morning.
D.
Checked around about news. Couldn't find any. Supposedly investor relations had no news pending or no explanation other than market movement. A lot of mid cap companies have been getting hammered badly in the last two weeks for no apparent reason other than possiblly valuation adjustments.
http://www.blowthedotoutyourass.com/
you can still short them fuckers on any rally you have
This is the premise if you risk x - your profit should be 3x or 4x depending the feel you have of the certain event, movement etc of the markets. There are at times a stock option will trade a 10 spread (in strike price) i.e. PCS Jan 55/45 put is at 3.5 meaning the 55 options trade at 5.5 and the 45's are at 2.5. You most can make on this is 10 bucks and risk around 3.5 or less you are ok. PCS could tank and you make some money. Alternatively you can pay more for the spread say 5 and go for the 15 strike differential, hence 15 profit. This can be played at the OEX best and of course with commodity options. The idea is that if you have a general idea of the move but not being a professional trader glued to the screen all day, you can still quantify and manage your risk. (and profit)
If I understand you correctly you're talking about doing an options spread of some sort (I forget the names). The idea is that your downside risk is limited and given the other intangibles that you mention e.g. the feel you have for an event it seems to have possibilities. Actually I use Scottrade and I talked to them about doing spreads on options and they wanted no part of it. Since I don't do options hardly ever Scottrade hasn't hampered me any (probably saved me money actually). I believe there is a spread order type as well so you can lock in the spread value. BTW Scottrade has NO commision on after hours trading in stocks.
What do you think of pre-market and after hours trading? Seems like there are definitely opportunities there. It does seem like the MM's fade the opening on the NASDAQ a lot and after hours present's some good trading opportunities. I don't have access to pre-market but I do dabble in after hours trading a little.
For whatever my opinion is worth I think premiums are kind of low right now on a lot of highly volatile NASDAQ options. For that contest I'm pretty sure I will be doing a few "Texas Spreads" (I think they are called straddles) by buying calls and puts at the same strike price on some highly volatile stocks.
A Texas spread is when you Buy the Stock , Buy the Calls, and Short the Puts. [ or its inverse ]
This is best combined with an Airplane trade.
This is when a market maker ,about to go tapped, makes a big Texas spread , takes a cab to the airport and flies to some tropical spot and sees what happens to his trade as his clearing member wastes the next day or two trying to find him.
No, No, No, NO !!! What I was saying is this - you are bearish on XYZ dot com crapper that currently trades 45 dollars. The options trade Jan 01 50 puts @ 9.5 and the Jan 01 35 puts are 6, So you buy the spread for 3.5 debit and you can potnetially make the spread as max profit which is 15 dollars. (mind you these numbers I picked out of my nose so take them as just examples ) You risk only 3.5 to make 15 if all goes well and the dot com goes to dot.com heaven as so many have already done so. This is far better than short the stock and some idiot dot com magnat decieds to but this ever losing, money pit company where by you would lose your arse. Mind you you can do the same if you are bullish and dedide to buy some great company buy the spread and make the most of it. No sweat, no worries, sleep at night. I don't daytrade and don't care about the early morning and afternoon trades as I consult to IT and make about 14k a month - but I have no time to hawk over my bets day in day out,hence I use options
Enough about me touting options to you guys - options need mathematical mind, quick thinking and long term strategic views. Poker players may appreciate (David is an exception) this site. http://www.foliofn.com if you are remotely intrigued read this weeks Barrons
Just out of curiosity I was wondering if anyone had an opinion on the highest market cap a company could have today or maybe in the next 3 years. I believe that GE has the highest market cap at $528 billion which is about 4 times revenue.
GE is currently at a market cap of $564 million (as of the close on 8/10). If I had to bet, I'd say that Cisco will be the first $1 trillion market cap company, and I think it'll happen within the next 3-5 years.
one man's opinion. . .
If I remember right you are long CSCO as am I. Take what I say with a grain of salt in light of my past comments on MO at 20. It's hard for me to believe that CSCO could justify a much higher valuation than what it currently is in the next 5 years.
Yeah Tom, I'm kicking myself over my decision not to buy MO at 20 (actually 19 and change). I still think i made the right decision, in light of the fact that they're a bunch of bottom feeding scumsuckers. I want to wretch every time I see those TV ads where MO tells the country how much they care, where they list things like not using cartoon characters in their commercials and no sponsorship of pro sports. What they fail to mention is that they're only taking these actions because the US government is FORCING them to!!
Still. . .34 a share. . .why couldn't they be in the vitamin business or something??
damn. . .
Just like MO is FORCING all of those smokers to smoke, despite the well-known health risks, right Shooter.
Maybe you should repost this is on reactionary leftist, big-brother please protect me from myself and the forces of evil forum.
It's fuzzy thinking like this that got the Diamond Club closed.
I'll try and put some perspective on this. Besides the price apprection the dividend is pretty sweet for this stock as well as you pointed out previously. My feeling at the time and basically still is that MO has a lot of risk involved due to the litigation of the many lawsuits against the firm. I'm not sure how many analysts came out defending the company recently but I remember that at least one of them stated that the recent Florida decision would not be upheld and the judgement received by the plaintiffs would be considerably reduced. I vaguely remember similar quotes from other analysts for some time now but apparently the timing was right and people have started to believe that the risk in holding MO has been reduced. I believe that most investors would place a much higher value on MO if the threat of litigation and government intervention were not there. Also tobacco isn't the only product that MO has.
I detest tobacco products. I've seen many lives destroyed by the habitual use of tobacco products. If MO has indeed paid the penalty for the unethical practices that it has used in the past (this is another issue but I believe the juries have decided that MO has acted at least unethically), then the investment decision is still difficult. I have to admit that Michael7 has a valid point. If I was at a point where the income from dividends would help supply me retirment income, MO would be a very interesting investment idea.
I'd like to get my hands on a highly-recommended book which goes about explaining the dynamics, theory and strategy surrounding the stock market. Not like a _Theory of Poker_ or even an _HPFAP_ but more of a Lee Jones _WLLH_ or Lou Krieger _Hold'em Excellence_, for people who aren't total idiots but are more or less starting out. Thanks.
Trader Vic - Methods of a Wall Street Master "Vic Sperandeo" with T Sullivan Brown. (he also has a second issue) worth every word in it. "Priciples of Professional Speculation" Both are from Wiley Publishing.
This guy put himself thru school playing Poker and he was good too. He quit and focused his energies in a more productive way - that's is why his books are a must for anyone who wants to think like a pro in the markets.
check out "you have more than you think", "the motley fool investment guide", and "rule breakers, rule makers" by david & tom gardner from fool.com -- their site is also a must-read, with excellent digest-format mailing lists you can subscribe to as well.
Get William O'Neil's books. How to make money in stocks and 24 essential lessons for investment success. Then start reading his newspaper.
Burton Malkiel's _A Random Walk Down Wall Street_. Malkiel was Dean of the Yale School of Management and is a chaired economics professor at Princeton. He is not merely some "smart" guy who claims to have made a lot of money. And as a professor he is skilled at communicating his knowledge. Unfortunately you may get recommendations from people who have not taken investments courses. They will be unfamiliar with Malkiel's classic book.
Also, realize most people on this board (including Lee Jones and Lou Krieger) make more in their real jobs than they do at poker. For them the most profitable poker advice is "Don't play". But it doesn't sell many books! You will find Malkiel's sound investment advice to be equally boring and effective. Bad investment advice is a lot more exciting and sells a lot more advice.
What about Andrew Lo's "Non-random walk down wall street"? I'm interested in what you guys would reccommend to an intermediate trader. What's your favourite futures and options book and why? Thanks in advance.
If you have read Malkiel's book I'm restating something you already know so apologies beforehand if you have. In his book Malkiel states that there is evidence that certain traders have trading systems that beat the averages in the long run. However, would anyone give such a system away by publishing a book for a mere pittance? There is a book written by Bradford Cornell (who is I believe a Professor of Finance at UCLA) called "The Equity Risk Premium: The Long-Run Future of the Stock Market." In the introduction of this book Cornell states that he knows of no way to beat the averages in the long run and if he did he wouldn't be divulging it to anyone else.
Malkiel is a great book, especially for guys with limited experience in investing and trading. He gives many examples of technical and fundamental analysis arguments. Even mentions blackjack in page 162. For trading I like "Mcmillan on options" and "Options as a strategic investment". The latter consist of the theory behind options pricing, very mathematical book may not be good for guys who dislike reading over 1000pages of formulas. I also recommend "the futures game", it contains everything you need to know about the commodity markets. Knowledge does not make a complete trader, read "market wizards" for the psychological advice given by top traders ( I doubt many of there systems though). Also "Reminiscences of a stock operator", what a biography of a traders life and experience in the markets. Books by Peter Lynch, Ben Graham, etc gives ideas about security analysis. Also "thinking strategically" which introduces decision theory.
If you go long or short two Soybean contracts you’ll learn a lot more than reading all five editions of this teacher.
...and hey, go ahead and keep them coming!
The Market Wizards and The New Market Wizards, both by Jack Schwager. Reminiscences of a Stock Operator by Edwin LeFevre. Bernard Baruch's autobiography.
I had a company that I invested money in file for bankrupcy. When I look at my waterhouse account it still shows as if I have some value left (value as of last trading day officially). My question is. Do I have that money or not?
No, not unless it is actively traded, and there is a bid price today. If it is halted, you can't sell it until it becomes free to trade again (probably at a much lower price).
The lower price does not scare me anymore the stock is below 1 (chumps like me were buying it between 30 and 10).
All may not be lost. What is the stock symbol? Without knowing the specifics, it depends on how this company comes out of chapter 11 and what the claims to it's assets are etc.
Value America (VUSA)
BTW I wouldn't feel embarassed, it happens. The name symbol might be helpful.
If they have filed for bankruptcy protection, rather than merely going broke and out of business, there is likely to be a reorganization plan.
If the Company had a lot of debt, this plan will probably include a major debt-for-equit swap, or it may even liquidate assets and repay as much debt as possible. In either case, the equity (stock) is not likely to be worth much. Drill Bit City.
It may be trading on "pink sheets". Your broker should be able to find out if there is an active bid.
The stock symbols have been changed to VUSQE which went to an all time low of $0.688 on 11 Aug. Per various financial (internet) sources, the stock is not being traded and is (at least temporarily) worthless. Incidentally, the brass at the company took down over $1.6 million in salaries and perqs last year, and the CEO exercised her option for $90,000. Go figure.
I wish you the best of luck. Day trading is more fun and a lot more profitable.
RFR
Now that the stock market is revisiting previous highs, I wonder whether we are near the end of a counter-trend rally. Trading volume has been low, we are approaching a seasonally unfavorable period, and the effects of fed tightening are beginning to be felt by the economy. Seems like a good time to SELL.
Well, I have been thinking along the same line. Buy some OEX puts but beware the premiums are very high. The trick is that the worst bear market you can pick strong stocks, defensive issues, sell calls against a portfolio, buy some defensive puts against a long holding, timing the market on the short side is very very hard and even more dangerous. You are better trading the SP mini futures - it's a much better idea than play OEX market.
I am not familiar with such sophisticated techniques. I have simply sold most of my stock positions (which were mostly in tax-deferred accounts) and am now holding mostly cash and bonds.
My $0.02 worth is that the bond market is helping the stock market a lot.
The easy money is selling far out of the money options in the commodities market and letting them expire worthless. 9 out of 10 trades are winners. Find cheap cmmission for theses trades.
Coyote
Easy - until you experience a big move (I don't know if you followed the SPX in late March, but imagine facing the margin calls on a premium selling strategy during that period, esp. with a retail speculator's stake!)
True, selling some NDX puts around that time would have been a goldmine (100%+ vol versus around 40% today, I think.) But the risk is extraordinary.
Ebay is the next microsoft. Its a long hold.
I own the car. In normal ciscumstances I would not buy a company if the product not good, and I am not a satisfied customer. F however stands for F(ast) earnings (buying Volvo to Jaguar to some korean (DAEWO) carmaker I guess. This company pays about 7% divident and cost 5 times earnings (over $5 per share) In some adversity (tire problems) the stock behaved quite well. I sold some Jan options for 2.25 and my cost is even lower should it drift down. Now what would you rather own F or some drug company that may never make a dime and even it it does the politicians will expect them to give it away for free. This advice is free - if you want to buy F it's $28 plus comisson.
I told a guy about this strategy and he is considering buying quite a bit of F (for him). F is pretty close to a 5 year low and the dividend is probably secure (but I really don't know) given the soft landing scenario for the economy. I figured it at about 20% annual return for this strategy. For a retirement account this might be a good strategy and it would help if you could re-invest the dividends for long term compounded growth. Even if you were interested in generating some income this would be fine except that I wouldn't put all of my money in one stock.
Speaking of dividends what do you think about the Feds taxing dividends? Personally I feel that there is something wrong when corporate profits are taxed and dividend payouts are taxed.
I haven't been playing close attention, however it looks might Ford could be involved in the scandal of the century (recalling tires elswhere but making no mention of it in the US) so be careful.
I rolled out of Ford, but watching it to settle - this is a scandal for Firestone and even at worst Ford will survive (remeber the Pinto) All this is in the price already, I bot at 28 and sold 26 but gained at bit on the options so I am fine, I don't buy anything big at first (I had 300 shares.) I suspect the options will even get juicier as the volatility will go thru the roof. It will be a steal at 20 or so (especially if the 6 month call options will be 4-5), but who knows for sure you need to see this puppy to settle. David is (as always) right !!!!!
I noticed that F is hanging in around 25. Nice round number.
When I think a stock is a good value at say $25 a share, I put in a Good-Till-Canceled limit order at $23. If the stock goes down to $25 I can’t think of a time that I haven’t been filled at $23. Comments?
Your GTC is kept on the brokers books for 3 months, this is only good for NYSE listed stocks, nasdaq to my knowledge keeps these contingent orders day order only. If you think about it, it's reasonable as they used to do business - routing your orders to the Market Makers. This will greatly vary from broker to broker. Anyway, if the scenario you describe happens the stock could go to 20,to the even a better value. Hell I see your point it's very hard to pick the perfect time to buy and even harder to do it constantly. Put writing or CC is therefor the ideal way to buy. Sadly my broker needs a 100K for me to do put writing a synonim to CC. When you say have this $25 stocks write a put for 20 or 23 whatever you want, and either you keep the premium or you buy the stocks and keep the premium, what a country !!!!! ;-)
Of course if a stock is head way south I'll get filled easily at $23 when it's on it's way to $10. I'll give a concrete example of a fairly recent experience of mine. A couple of months ago I posted a stock screen I did for myself. I found one stock that looked appealing and it was TLGD (Tollgrade Communications). Naturally I wanted to get it for a cheaper price than the $150 a share I was looking at, at the time. I think it was about the end of July when a lot of these fast growing companies started to tank. I soon discovered that TLGD was a highly volatile stock and didn't have a huge float. To make a long story short I watched it go from $150 to $87. At $87 I was ready to buy but knew that the stock would go to $83 slightly below $85 or it could go lower but I was willing to buy it at these levels. I have observed that if the stock gets down below $82 1/2 it will almost always go through $80 and trade at least slightly below $80 in the near future. From this believe of mine I put in an order to buy at $80 because I thought it was such a good price and I felt that given the market conditions etc. there was a good chance I'd hit it. Why not $78 then? From experience I wanted to make sure I got filled thus the $80 order. Well the next day the stock stared tanking and promptly went to $78 and started to rebound and quickly got back to $84. It appeared that I didn't get filled, the folks at the brokerage office said that in fast moving markets this happens, I said baloney, and I checked my account at noon and I was filled at 79 13/16. Today TLGD closed above $130. I believe that stocks trade around round numbers that correspond to strike prices on options for the stock at $5 increments for stocks about $20 and at $2 1/2 dollar increments for stocks below $20. Can't prove it but it seems to work for me.
I've had the same experience. My small (<1000 Shares)limit orders always seem to get filled for less than Market price. I thought it was just happening by chance.
Later, CV
it cant happen with large cap stocks as no one would sell that far below the bid and ask price. with small stocks it does happen when the market makers feel the stock is going way below and they want out and there are not many buyers. so they drop into the low bids and get out of the stock. you may get what you think is a good deal but you must realize that it isnt the public thats selling you their stock at that price its the traders doing it when they see a trend of the stock tanking.
Boyz and girz don't you wish you bot some ?????
Yeah I was thinking that the new title of the post should be:
Andras is Now Making Big Money.
The August semi-finalist ended with about $235,000 starting from $50,000. In the Sept. tournament, the leader after two weeks and two days has $323,000. The one with the highest score will win $1,000,000 cash. The Sept. tournament ends Sept 29th.
Out of 42,500 entries, I am currently in 92nd place overall and in 1st place of entries from Nevada (approx. 300) with $73,452.
Like Andras, I have followed the ups and downs of NITE for quite a while now. And I almost made a bet on some NITE options when it was 30 and could have made about 50-100k when it surged to 39 last week.
The easy money to be made is over now with the passing of the Sept options expiration. I expect the leader will pretty much just stop trading until someone catches him. TomSki
TomSki
Sounds like its becoming time to make some risky trades. I'd start getting ideas out of Stanford Wong's Tournament Strategies.
CV
Tomski, with your video poker sophistication you should realize this requires tournament strategy. I'm surprised they even allow options. These tournaments are won by people who intentionally or unintentionally use good tournament strategy.
I ended up 72nd out of 43,000+ with 75,900. (#1 in Nevada out of about 300). I did not have time to really play it. The winner came from behind on the last day to end up with 328,000. 2nd was about 312,000. I think the guy who got 2nd had over 332,000 after he had a big day 10 days ago. If he would have quit trading he would have won $1,000,000 and a trip for 2 to tokyo. Instead he got absolutely nothing as 2nd place paid zero. TomSki
Hey shouldn't you have $0 if you didn't come close to winning? I mean shouldn't you have tried to blow it all for the slight chance of winning 1Mil?
CV
I have been away from Two Plus Two for awhile and am at a loss.Just what is the Investor's Cup?
cv
SHFL 19.75 + 9.75
CGNX 35.75 - 13
OPTK 8 - 4
MAT 11 + 1
Percentages mean more.
Up approximately 100%
Down approximately -27%
Down approximate -33%
Up 10%
So an equal amount invested in each has him up 50%.
One "saint", a couple of "sinners", and "a good practitionar" amount to a huge annualized gain. Pretty much tells the story about investing successfully in stocks.
( 50% * 2 ) /4 = 25% annualized gain. Still beating the markets handily.
I don't see how the 6 month return beating the market is relevant. Actually, whatever his results might be they are irrelevant because the time period is too short. That's one of the things I hate about investing. You can't tell if you're doing a good job or not.
Robin you are correct.
Upon further review of your post:
>>I don't see how the 6 month return beating the market is relevant.<<
I agree that it isn't that relevant.
>>Actually, whatever his results might be they are irrelevant because the time period is too short.<<
If the time period is too short your results are irrelevant. It depends on what your investment goals are for one thing. I certainly would think that if you had a stock portfolio that went up 5% over a three year period and the S&P went up 45% in that same time period you have a pretty good idea as to how you have done.
>> That's one of the things I hate about investing. You can't tell if you're doing a good job or not. <<
Actually I think experience is helpful because you get a better sense of what good value is the more you buy and sell.
Seems to me he's up 12.5%, which is still excellent.
$100 investment in each--400 total.
1) +100%=> +100 2) - 27%=> -27 3) -33% => -33 4) +10 => +10 ----------------
+50.
50/400 = 1/8 = 12.5%
12.5% For 6 months 25% annualized gain.
Approximately.
Here a a couple of different systems/stratagies which I have read about.
I'd be interested to hear some different opinions on them.
The first involves buying and holding a basket of small cap stocks that pay huge dividends 15-20% pa and then reinvesting the dividends. Obviously these companies would all have high amounts of risk attached to them but holding a basket of them is meant to greatly reduce this risk. 20% pa compound profit adds up to a lot over time. The compounding effects means that the longer things go on the more you are beating somebody who is just getting mostly growth out of thier portfolio rather than yeild.
The second stratedgy involves futures options. You look for a liquid market where you can sell a call and a put which are very far out of the money. Say crude oil was at $35 you might sell a $40 call and a $30 put. You make a small amount of money and bear unlimited risk. You are betting that the market remains in this range for the life of the option (probably less than 45 days). You can often close you position and win quicker that this if the market stays still and volitility goes down. They idea is that most of the time you win and make a small amout of money. Eventually you will be wrong and then you close out and lose back a portion of your bank roll. The amount you lose though is much less that all of your little victories over time. In other words your expectation is positive. For this to be true however you have to target options which are overvallued and have high volitility ratings.
Comments ?
While this approach seems fool proof, there ther are two glitches. First, the general principle is similar to the classic Martingale system used in blackjack, where a player continues to double his/her bet after each consecutive loss until there is a win. Given a large enough bankroll and betting limit, this almost guarantees a win with the ever so occasional loss of the enitre bankroll. In this options trading scheme, you may find a stock that almost guarantees no movement, but the payoff will be proportional to the level of volatility, and the occasional failure to stay within the target range will cost more than the accumulated gains. The key in the success of such a system is to find a stock whose options prices do not reflect the underlying volatility properly, and there are thousands of people out there in trading rooms trying to find those opportunities every day. How do you propose finding these arbitrage opportunities and compensating for the transaction costs involved?
I agree the approach recommended is similar in my mind to saying that I'll sell call options naked because 90% of them expire worthless.
I've always wondered why that lodgic doesn't work. Why can't somebody with a big bank roll just randomly sell call options and end up in front.? In theory you would win 9 bets and every one you lost So your loss would have to be very large.
Supposing trader1 randomly purchased call options and trader2 randomly sold them who would win out in the long run ?. The books lead you to believe that its the option seller.
Is it expectation for both traders to break even and be defeated by brokerage ?
In theory the options should be fairly priced so that in the long run the buyer and the seller come out with only the loss of commissions.
Upon further review your idea of selling the options I believe has some merit. As Ray Zee often points out, there are many stocks that where the big money doesn't get involved. I know I have traded stock options where ten contracts was a big lot. So I would guess that there are ineffeciencies that exist in options. I know that the after hours trading market for stocks is ineffecient so there are opportunities there too.
I find this interesting. Since the black-scholes model price option premiums as a factor of volatility, time, interest, intrinsic, I think as volatility increase time value should increase exponentially as the likelihood of the option being exercise will increase exponentially as volatility. Thus there may be arbitrage opportunites existing in looking for the different expiration in options with the varying volatility. Maybe arbitrage opportunities exist for volatility as well. In a study in 1960 Mandelson realised that the majority of option price fluctuations did not fit the bell shape variance curve when he was investigating chaos theory.
I don't sell stock short very often but when I have I have almost always made money but covered too quickly because it makes me nervous as hell because of the risk involved. I've decided that I'll just have to buy puts from now on. BTW this post is an indicator that the market will rally soon since I'm talking about stocks going down.
Anyone out there researched the Credit Spreads, Bull Put Spread, Bear Call Spread?
What method of calculating the probablity that the underlying price won't cross the required value to start losing money?
Since the risk amount is known, and the payoff is known, a worst case EV should be calculatable if such a probability could be arrived at.
That's the key assessing the probability. Any ideas?
You have to have some understanding of the theoretical pricing models and the "Greeks." The most commonly use are: Delta, Gamma, Vega and Theta. I'm not going to go into all of them, but I will mention Delta since it's what you're looking for. The quick and dirty answer is that delta ( and this isn't what is normally used for ) can tell you the probability of the underlying stock reaching the strike price by expiration. So, if you have an option with a delta of say .50..... yep, you guessed it, that stock, given its volatility and time to expiration has about a 50/50 shot of reaching ( but not exceeding ) the strike price.
I Spoke to Ira S Cant remember his last name, he sometimes plays the holdem tournaments on friday. At the Tropicana at A.C. He Told Me Last Month That The Tech Stocks Were Going to get hit, especially Apple computer. And he hit the nail on the head. I've Known him for years and I know he is very sucessful in the game. And he parlayed the stock earnings / scores he made in the far past and bought standardbred / harness horses. and wound up with a million dollar earning horse- jet laag. what a parley. when i se him again i will try to find out what stocks he might like and i'll post it on the board next time.
the sleeper-viperone
If anyone is interested, these are three stocks I would highly recommend purchasing now. The recent market downswing has made them even more of a bargain. AKLM MAIL JUNO
D
The market is going to be a bloodbath today. Investors almost seem to be looking for excuses to panic.
-355 AT 12:47 Chicago time
My heart tells me the Yankees but my head tells me the Mets.
I guess investors are worried about the following:
1) Economic Slowdown
2) Price of Oil
3) Presidential Election
4) Valuations of many high tech companies.
5) Fed policy in the wake of rising oil prices and a slowing economy and tight labor markets.
6) Weakening foreign economies.
7) Extremely strong dollar
8) Tensions in the Middle East.
9) Shortage of capacity to accomodate the increased demand for electricity.
And there you have the proverbial "Wall of Worry." I probably missed a couple too.
Some thoughts of mine.
- The economy is a lot stronger than most people think.
- In my mind there doesn't seem to be much talk about having to cut back on oil and energy consumption, only discussions of higher prices.
- Personally I'm not inspired by either of the major party candidates and I suspect many others aren't as well. I don't see a lot of leadership potential with these candidates.
- Hey I own a lot of high tech stocks but let's face it valuations were and to some extent still are very lofty. I submit that the prices of high growth companies in emerging industries will fluctuate a great deal, more than most people think they should.
- The Fed came out with a statement last week to the effect that they feel that rising oil prices represent a significant inflation threat. Perhaps they do but the message that the market received (correctly) I believe was that the Fed prefers a recession to any more increases in inflation. Therefore the risk of an economic downturn is subservient to the risk of inflation.
- At a time when the employment situation is very good the Fed would like to see more people out of work and on the public gravy train.
- With foreign currencies weakening against the dollar foreign central banks will have to raise their interest rates to stabilize their currencies, thus precipitating slower growth.
- The tensions in the Middle East threaten to put further upward pressure on oil prices exacerbating the situation with high oil prices.
- A couple of months ago I felt good about a lot of things going on with the economy (actually I still do).
It all boils down to the fact that the risk to continued growth in corporate earnings has increased. When the risk increases prices have to come down. I used to either pooh-pooh the risk or embrace the reasons that supported the more risky hypothesis. I was wrong to do this because it doesn't matter whether the reasons are valid or not. All that matters is that the risk has gone up and investors are demanding a higher risk premium (lower prices) to assume the risk of owning stocks.
IMO, you may be underestimating how much the economy is being driven by the "wealth effect." People own stocks, the stock prices go up, they feel richer, they borrow money and buy goodies that are made by the companies whose stock they own, driving the earnings of those companies and causing the stock prices to go up.
You get the picture. This virtuous cycle can unravel pretty quickly, escpecially when stock valuations are already stretched. This is what happened within the dot-com community as the companies were using IPO capital to "buy" revenues from one another, which drove growth and drove valuations even higher. But once the financing "wealth" goes away, it wreaks havoc.
I predict this !!!!!!
On Saturday Morning?
Well Done!
You’re being too fussy.
There’s some traders that, if you gave them tomorrow’s newspaper today, only twice a week instead of every day, would still find a way to lose.
I posted awhile back in the middle of the tech rally about the stocks I own, how I selected them, and how I was doing. Well there have been more than one that have been decimated and I did sell a couple of them when they were well off of their highs because I perceived that the fundamentals had changed. Awhile back someone posted about buying stocks when they hit new highs and I posted something about a perceived way to control risk was to use stop loss orders. Paul Pudaite correctly pointed out that this was a fallacy and I agree with his observation. After reviewing the performance over the last two years I was wondering how I would have done with stop loss orders if I would have set them at certain points. After reviewing the performance I have done better by buying and holding. As I said I did sell some at higher prices than they are now but say I didn't sell any of them and took the biggest hit possible. And there have been some that have tanked unbelievably. Say I put in a stop loss after a stock gave back 33%. I wouldn't own anything right now and I have had one stock multiply by 27, one by 9, one by 5, 3 others by 3, and a few others by 2 in the period of about 2 years. In fact the one I bought that has multiplied by 27 gave all of a 200% gain back in 1999. So even if I would have put in a stop loss at 50% down I would be out of the best performer of the lot. Of course there are no guarentees going forward. Of course I could have sold everything that tanked at exactly the right time but I don't know how to determine this.
I sold EMBX and MU at their recent peaks. I was a bit under on EMBX, selling around $17, and I was almost exactly correct for MU, selling around $94.
If you can tell me when to buy I'll tell you when to sell. We'll be rich! ;^)
BTW. I'm still long on PSTA.
CV
I'll tell you what I'll do. If I see something interesting developing such as I did with TLGD I'll start posting about it.
Of course I could have sold everything that tanked at exactly the right time but I don't know how to determine this.
When to sell is the hardest investing decision to make, in my opinion. I can always find something interesting to buy, but deciding when to sell is very dificult. If the company's fundamentals have changed for the worse it's fairly easy, of course.
In the end, I sell if I feel the price being offered adequately compensates me for several years' growth, and I consider there to be considerable risk. I tend to think of this as a pot odds question. Rather than odds of winning, I calculate a few scenarios of where the company might be five years out, and what multiple the company might be trading at then. This requires some estimate of the potential market size and earnings potential. Against this I calculate the odds of things going wrong and the stock tanking, and how far the stock might tank in that event. This gives you a reasonable risk/reward equation, which of course is highly inexact. In the end you have to make a subjective decision if the price being offered is adequate compensation for the risk of holding on. If I had a stock that ran up 27 times and didn't yet have the cash flow to justify that valuation, I'd seriously consider selling a good portion of it and allocating it to a lower risk investment. Of course with the lower risk there is the possibility of lower returns.
Jaeger
This was an excellent post IMO. Could take the money and divide it by 27 and see how many more home runs I could hit since prices are really getting to be interesting.
Upon further review I think I'll hang on to it since it's up a lot today in the face of all the selling and now is 31 times what I paid for it.
Upon further review I think I'll hang on to it since it's up a lot today in the face of all the selling and now is 31 times what I paid for it.
I wish I had one performing like that for me these days. A couple of further thoughts on this. The original price you paid is of no relevance whatsoever to the decision to sell or not. However, if it has appreciated 3100% it is now a much larger percentage of your portfolio than when you originally bought the stock. This by itself may change the degree of risk you would be willing to accept on a single stock.
Also, the 3100% appreciation greatly changes the risk/reward equation for the stock itself. If the business has developed to justify that appreciation, then the stock may still be a solid holding. But if it has been run up in a big momentum mania, you may be exposing a much greater part of the portfolio to much more risk than you had earlier. I periodically review my portfolio to ensure I'm still comfortable with the risk/reward characteristics.
Jaeger
I agree there are a few that totally dominate my portfolio now and that does seem a little crazy. CHKP is the stock and apparently the market is pretty positive going forward on it. It's highly volatile though.
CHKP is a great company, I work with their products myself. Very solid products, well received by customers. But... $25 Billion market cap for a company with less than $500 million in annual revenues?
I certainly don't expect any bad news from CHKP any time soon, but this is exactly the type of stock that gets crushed at the first sign of slowing growth.
And, like most high tech companies these days CHKP options have been flowing like water to management and employees. With something like 20m options granted, that is about a $2.5 Billion option overhang. For some reason everyone ignores this great swindle of the decade, but if you are a shareholder, that liability is very real.
For an interesting analysis of this effect on MSFT results check here: http://boards.fool.com/Message.asp?mid=13508508&sort=postdate
Jaeger
I found CHKP by doing a stock screen a couple of years ago by doing a stock screen on profit margins, growth in revenues, and growth in earnings. At the time CHKP was selling at a ridiculous multiple like 20 or something. So there has been a great multiple expansion. One thing that attracts investors to CHKP are it's super high profit margins I believe. I sincerely appreciate the link you gave me and I will read it ASAP. BTW I have told this story many times on the forum. I bought MSFT when it went public and sold it way to early costing myself over $1 million even with the MSFT decline now. This experience has something to do with my reluctance to sell even at these lofty levels.
Congratulations on the great pick, and I'm not trying to convince you to sell by any means. I have no idea where the top will be for this stock. If I did I would have bought it long ago. I could kick myself for some of the ones I've worked with and didn't buy. VRTS, BRCD, CHKP, QLGC and ATON to name a few.
Jaeger
Actually I didn't take your posts as a recommendation to sell. You're right though a perceived change in CHKP growth or anything else for that matter and it will be annihilated. I did read the post at the URL you referred to. I didn't analyze it in detail yet but I believe I've encountered this concern before. Accounting is a wonderful "science" isn't it?
I bought MSFT when it went public and sold it way to early costing myself over $1 million even with the MSFT decline now.
I can understand how this seems like a dumb move now, but is that really the right way to look at it? If you fold a draw because you don't think the pot odds are there, there is no reason to dwell on the decision if it turns out you would have dragged the pot. You have to make the decision based on the risk/reward calculation and the information you have at the time.
I dare say it would have been difficult for even the wildest MSFT booster to have predicted the dominance of so many different software sectors. Perhaps you did sell for the wrong reasons, but just because MSFT later became a wild success does not mean the decision to sell at the time was wrong.
Jaeger
The only advise I have is the following, either you are 18 and healthy and having a prospect for life with great earnings and hence savings potential. In this case you can just buy quality stocks and keep them forever when they go down you just buy more. You will have a natural attrition of ~10% whereby best case you will be wrong and have to sell as the stock will turn shit. This is hard 'cause how do you know "quality stock" ????
The second is a more simple and easy way - don't keep anything you place bets on stocks that move up (or down) on twice (or trice) the usual volume and set your target to say 10-15 points profit. If you are wrong you sell at a loss of 2-3 points !!!! These numbers are guidelines and just keep the ratio depending on the time horizon, market conditions and your personal taste and preference.
Most people do neither !!!! Some archieved great success with the first (Buffett) but lot more are doing the later (the pros) buy and hold simply does not work the same way the Street like you to believe.
"Don't confuse brains with a bull market"
I agree with this statement and do realize the market is very fickle.
Volume is hard to analyze and I think it is helpful to know when the volume accelerated but a lot of times I have noticed huge volume on big up days has marked at least a near term top for a stock. My style right now is to buy good "value" and that doesn't mean I'll be buying some bow-wow stock with negative earnings growth that the market has beat up.
Tom, I thought this myself. Now I don't know. You can lose an awful lot by buying quality. Quality does not mean much unless others preceive it as a great buy.... Not having more time to trade (and perhaps lacking the 'neck for trading) I buy *quality* and sell options. Just recently I got hit with NOK (obviously a great stock with great story and worldwide presence) Now everybody hates it. Came down from 60 to 30... I bot at 40 and sold 6-7 dollar options on it.
I don't know how everybody else defines "bull market" but from my perspective it doesn't exist at least in the stuff I'm following. I did a stock screen yesterday and some awfully good companies with decent earnings growth are selling on the cheap IMO. But as I stated in another post the perceived risk to continued growth in corporate earnings has increased so prices come down. Anyway I'm not totally crazy and have made some money with shorts but have abandoned them too early. Next go round it's long on puts instead.
If we do hit a recession in the next 4 years that would be a perfect time to make buys.
CV
Somehow I suspect that we will hit recession and it's goig to be short and sweet. If we have either of the canditates in. If Gore wins it's clear problem for a number of sectors, and you don't want to 'bottomfish' in the sectors he screws with. (health care, drug, oil, environmentaly oriented stocks like paper etc) Bush will be lot more bullish to the markets of course.
BTW. Buffett finally did predict this would happen and that if you held on to the market from the highs of this last year you would only be making a 2% compounded interest for approximately the next 14years.
Luckily, I took all my 401K SP500 money and put it into a Money Market Fund making 4.5% a year. I did this mostly because I will probably need it for School in a couple years, but it looks like I got out at the right time.
CV
Does anyone know anything about poker in Oregon? What limits do the casinos usually have? Thanks..
- T.F.
sdfs
I highly recomend "How to make money in stocks" by William J. O'Neil.Just pick up an "Investor's Business Daily" newspaper at your local news stand and you will see an ad in his newspaper for the book.The price is 10 dollars for the book.The book is easy to read and has helped me immencely.Good luck!
what do ppl think of airline corps now, esp. in light of recent oil price stuff?
About a month ago I was worth about 65-70k and I had just sold one my stock that had done fairly well. I paid off my student loans (thank god!) and dumped about 38k in my margin account into 1k shares of Copper Mountain Networks at 45 1/4. I invested about 12k or so into CMTN at 44 in my IRA account. Frankly, at the time it looked like a good investment. There had just been an analyst upgrade to a strong buy and there were several that had price targets of 140+. Though there were worries that telecom spending was slowing down (CMTN is a provider of DSL equipment to telecoms, mainly CLEC's which are the smaller local providers) there were some articles that argues (convincingly) the other side. The P/E was around 60 but projected forward growth rate was 47%. No debt. Nice balance sheet.
Anyway, the stock went up to 50 and then one day it plunged over 10 pts to just under 40. The CEO came out and said that he was "comfortable" with earnings estimates. The stock continued to drift lower. Motley Fool did a nice interview with the CEO and everything in it looked positive. The stock hovered around 31 for a couple weeks. Then on the 17th of October after the market the company anounced earnings. It beat earnings by 1 cent but revised earnings for the 4th quarter to 2-3 cents from 27 cents. Earnings for next year would be 11 cents or so down from projections of $1.50 or so. The next day, my birthday, the stock hit 9 1/4 where I sold it. I went from 38k in my margin account to 2.5k and 12k IRA to 2.5k.
Fortunately, I have about 19k cash at the various casinos here in LA and in my bank account. Since I rely on poker for my living I pretty much shot myself in the foot on this one. I have no debt and spend around 1800 a month but now I can only play 20-40 and not 30-60 and 40-80 like I was able to do before.
I thought I'd post this not as a crappy bad beat story but because I think it's interesting that the government takes such a stand against gambling but the biggest gamble of all is the freaking stock market. I've lost more there in one month than I ever will playing poker (unless I play really high limit). I don't think the government should restrict investing but that they should legalise gambling of all sorts everwhere because the biggest crapshoot of them all is already more than legal, its endorsed!
Also, take this as a warning. If you play poker for a living, don't risk any of your roll in the market make sure that you diversify. If you've got money to burn, go ahead and take a shot like I did but otherwise don't take the risk. Before you "invest" think about what could happen in the worst case scenario.
If this is any comfort I put about 65k in the market in the summer of 1998 and saw it go down to 25k in two months. Now it's worth 300K+ so you can come back. Of course the "mistake" was betting the ranch on one stock but if it had gone up a lot you would have made a lot. Your Utility function should determine the risk level and the types of investments you make in theory.
Given your portfolio was also the general fund for you gambling b.r. (an excellent idea), I think you really blew it on understanding marginal utility considerations. Also, given your situation, I can understand the psychological satisfaction of paying off the student loans early, but it's really a bad mistake given any marginal utility considerations. What was the interest rate on the loans? Mine is less than my mortgage rate. And they'll always work with you if bad times do arise. If your strategy was to maximize return you could have at least hedged your risk by maintaining (taking out) a low risk loan thanks to s.l's and maybe buying just one other stock to diversify the portfolio (not that even two stocks is some great hedge, but you really overwent on the investing all liquid capital in one stock.)
JG (still paying sl's at $100/month...)
Paying off my student loans was mainly for psychological benefit. My thinking was that if everything went to shit and I lost all my money at least I wouldn't have any debt. When I first dropped out of college and worked a low paying job for a while, the debt was a pretty big burden and was the main reason I didn't try going to school again. The interest I was paying was around 8% on 8k and 5% on 2k.
I think that for the most part investing in 3-5 stocks would suit me well, but I had just come out of a market period where almost no stocks looked reasonably valued except the one I decided to buy. After selling that I was still in that mode, looking to buy the single best looking stock available. However, market conditions had changed and there were other stocks that I had looked at that would have been good investments as well. Oh well, live and learn.
I'd like to know a more about marginal utility, considering that both Tom and you mentioned it. Where can I learn more?
Robin,
Like any game that is beatable, be it sports, poker, blackjack, stocks or futures you must make sure that you have a positive expectation on ANY trade you make. Did you ever even give this any thought? Did you have any idea of you're risk or ruin? I'll tell you right now that it was a HUGE figure. You would have had better odds at Binions no-limit crap table. Basically, what you were doing was betting you're whole account on the Clippers playing at the Lakers. You had the worst of it, and bad.
I hate to say this but 50K in a good (proven track record with real money) long-term trend following mechanical futures or stock system would have made you more then poker ever could (in the long run). Poker is a fun game but lets face it, you STILL have to work and go through BIG swings. The markets are the ultimate beatable game.
Not many can beat it, most aren’t driving Ferraris either.
T
Of course I thought that this was a positive expectation play. I think you are confusing pos ev and standard deviation considerations. What I did was like going and playing 200-400 holdem with 50000. While I expect to have a postive expectation in the game the risk of ruin is pretty high. The reason I fell into this trap is that with stocks it is fairly rare to lose such a large percentage in so short a time, unless something freakish happens. What happened with the stock I bought came out of left field. Sure, you could argue that because the stock was drifting lower as earnings approached that there might be something amiss but I don't take price action into consideration (correctly, I think).
---"Of course I thought that this was a positive expectation play"
"Thought" being the major problem. You were gambling with the worst of it. Every time you place a trade you SHOULD know what you will make over the long run in expectation. Then of course there will be a SD of that return which over the long run will be at the mean.
The trade you made likely had a negative expectation based on the lack of any money management being used.
People who do not know what they are doing in the market have nearly NO CHANCE at surviving long term in the markets.
I find it hard to believe you play poker for a living but then go and bet you’re whole bankroll on one hand in the market.
Nothing “should” happen it the markets. The markets do whatever the hell they wish.
Best,
T
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< A recent study by the North American Securities Administrators Association found that 77% of day traders lose money. >
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Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Friday, 2 June 2000, at 8:21 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Saturday, 3 June 2000, at 9:06 a.m.
Posted by: David Steele (dsteele@best.com)
Posted on: Saturday, 3 June 2000, at 3:54 p.m.
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Sunday, 4 June 2000, at 2:20 a.m.
Posted by: MJChicago
Posted on: Wednesday, 7 June 2000, at 12:56 p.m. OPTK 8 Today 6 9/16
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Thursday, 8 June 2000, at 12:57 a.m.
Posted by: Chris Constantine (chrispoker@aol.com)
Posted on: Wednesday, 21 June 2000, at 4:07 a.m.
Posted by: mark
Posted on: Wednesday, 7 June 2000, at 2:45 a.m.
Posted by: bruce
Posted on: Thursday, 8 June 2000, at 9:29 p.m.
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Thursday, 8 June 2000, at 11:28 p.m.
Posted by: M (mmmmmm@excelonline.com)
Posted on: Friday, 9 June 2000, at 2:14 a.m.
Posted by: Erin
Posted on: Friday, 9 June 2000, at 5:39 a.m.
Posted by: Erin
Posted on: Friday, 9 June 2000, at 7:15 a.m.
Posted by: Kim Lee
Posted on: Friday, 9 June 2000, at 9:49 a.m.
Posted by: Paul R. Pudaite
Posted on: Friday, 9 June 2000, at 1:38 p.m.
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Friday, 9 June 2000, at 2:34 p.m.
Posted by: Paul R. Pudaite
Posted on: Friday, 9 June 2000, at 6:52 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 9 June 2000, at 4:22 p.m.
Posted by: Paul R. Pudaite
Posted on: Friday, 9 June 2000, at 4:41 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 9 June 2000, at 5:13 p.m.
Posted by: Strangler
Posted on: Tuesday, 18 July 2000, at 11:27 a.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Monday, 12 June 2000, at 9:59 p.m.
Posted by: One Chip Jerry (HoweJerry@aol.com)
Posted on: Wednesday, 21 June 2000, at 3:21 a.m.
Posted by: bruce
Posted on: Friday, 23 June 2000, at 11:24 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 9 June 2000, at 5:25 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Thursday, 15 June 2000, at 11:31 p.m.
Posted by: Ray Zee
Posted on: Monday, 19 June 2000, at 4:09 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Sunday, 25 June 2000, at 4:57 p.m.
Posted by: Ray Zee
Posted on: Sunday, 25 June 2000, at 8:49 p.m.
Posted by: Andras "The Options Maven"
Posted on: Tuesday, 27 June 2000, at 7:08 p.m.
Posted by: Danny Sprung
Posted on: Tuesday, 27 June 2000, at 8:05 p.m.
Posted by: Danny Sprung
Posted on: Tuesday, 27 June 2000, at 8:07 p.m.
Posted by: Andras "The Options Maven"
Posted on: Tuesday, 27 June 2000, at 8:49 p.m.
Posted by: Danny Sprung
Posted on: Tuesday, 27 June 2000, at 9:16 p.m.
Posted by: Ray Zee
Posted on: Tuesday, 27 June 2000, at 9:45 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Tuesday, 27 June 2000, at 11:20 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 28 June 2000, at 1:45 p.m.
Posted by: Strangler
Posted on: Tuesday, 18 July 2000, at 11:14 a.m.
Posted by: David Steele (dsteele@best.com)
Posted on: Friday, 9 June 2000, at 7:17 p.m.
Posted by: Paul Feeney (feen9876@aol.com)
Posted on: Friday, 23 June 2000, at 1:58 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 28 June 2000, at 1:55 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 28 June 2000, at 2:09 p.m.
Posted by: Danny Sprung
Posted on: Wednesday, 28 June 2000, at 7:19 p.m.
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Thursday, 29 June 2000, at 5:58 a.m.
Posted by: Danny Sprung
Posted on: Thursday, 29 June 2000, at 10:32 a.m.
Posted by: Kim Lee
Posted on: Thursday, 29 June 2000, at 9:29 a.m.
Posted by: Andras "The Options Maven"
Posted on: Thursday, 29 June 2000, at 8:47 p.m.
Posted by: Kim Lee
Posted on: Friday, 30 June 2000, at 10:38 a.m.
Posted by: Andras "The Options Maven"
Posted on: Friday, 30 June 2000, at 11:06 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 30 June 2000, at 12:53 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 30 June 2000, at 1:00 p.m.
Posted by: Andras "The Options Maven"
Posted on: Friday, 30 June 2000, at 2:21 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 30 June 2000, at 6:20 p.m.
Posted by: Andras
Posted on: Saturday, 1 July 2000, at 12:18 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Saturday, 1 July 2000, at 8:08 p.m.
Posted by: Andras
Posted on: Tuesday, 4 July 2000, at 11:08 a.m.
Posted by: Richard Clement (StudyHardAndOften@yahoo.com)
Posted on: Friday, 30 June 2000, at 8:44 a.m.
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Saturday, 1 July 2000, at 2:51 a.m.
Posted by: Jaeger (jaeger63@mailcity.com)
Posted on: Thursday, 6 July 2000, at 8:34 p.m.
Posted by: Kim Lee
Posted on: Thursday, 29 June 2000, at 10:32 a.m.
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Thursday, 29 June 2000, at 3:14 p.m.
Posted by: David Steele (dsteele@best.com)
Posted on: Thursday, 29 June 2000, at 10:40 p.m.
Posted by: Mark the K (msk914@unipress.com)
Posted on: Friday, 30 June 2000, at 5:05 p.m.
Posted by: Andras
Posted on: Monday, 10 July 2000, at 4:07 p.m.
Posted by: Hoosierdaddy (trentaustin61@hotmail.com)
Posted on: Saturday, 15 July 2000, at 2:52 p.m.
Posted by: Editor
Posted on: Sunday, 16 July 2000, at 5:22 p.m.
Posted by: Earl (brikshoe@iquest.net)
Posted on: Sunday, 16 July 2000, at 7:00 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Monday, 17 July 2000, at 6:25 p.m.
Posted by: Harvard Chu
Posted on: Saturday, 15 July 2000, at 11:33 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Sunday, 16 July 2000, at 11:35 a.m.
Posted by: Andras
Posted on: Sunday, 16 July 2000, at 3:21 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Tuesday, 18 July 2000, at 8:22 a.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Wednesday, 19 July 2000, at 2:06 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 19 July 2000, at 2:47 p.m.
Posted by: Erin
Posted on: Wednesday, 19 July 2000, at 5:46 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 20 July 2000, at 11:30 a.m.
Posted by: Erin
Posted on: Friday, 21 July 2000, at 4:45 a.m.
Posted by: Jaeger (jaeger63@mailcity.com)
Posted on: Friday, 21 July 2000, at 9:36 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Saturday, 22 July 2000, at 10:17 a.m.
Posted by: Jaeger (jaeger63@mailcity.com)
Posted on: Saturday, 22 July 2000, at 12:21 p.m.
Posted by: Jaeger (jaeger63@mailcity.com)
Posted on: Friday, 21 July 2000, at 9:46 p.m.
Posted by: Jaeger (jaeger63@mailcity.com)
Posted on: Friday, 21 July 2000, at 10:21 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Saturday, 22 July 2000, at 10:25 a.m.
Posted by: Jaeger (jaeger63@mailcity.com)
Posted on: Saturday, 22 July 2000, at 12:07 p.m.
Posted by: Curious George
Posted on: Wednesday, 26 July 2000, at 8:39 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 26 July 2000, at 3:31 p.m.
Posted by: Curious George
Posted on: Wednesday, 26 July 2000, at 8:30 p.m.
Posted by: Curious George
Posted on: Tuesday, 25 July 2000, at 3:28 a.m.
Posted by: Jaeger (jaeger63@mailcity.com)
Posted on: Tuesday, 25 July 2000, at 8:27 a.m.
Posted by: Curious George
Posted on: Tuesday, 25 July 2000, at 5:14 p.m.``For the seventh straight month, we experienced abnormally low table-games hold percentages at the Rio,''
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Tuesday, 25 July 2000, at 11:01 p.m.
Posted by: Curious George
Posted on: Wednesday, 26 July 2000, at 8:34 a.m.
Posted by: Betelgeuse
Posted on: Saturday, 30 September 2000, at 11:32 a.m.
Posted by: Tim (tewahl@yahoo.com)
Posted on: Wednesday, 26 July 2000, at 1:16 a.m.
Posted by: Erin
Posted on: Wednesday, 26 July 2000, at 3:31 a.m.
Posted by: Tim (tewahl@yahoo.com)
Posted on: Wednesday, 26 July 2000, at 6:36 a.m.
Posted by: Kim Lee
Posted on: Monday, 31 July 2000, at 2:46 p.m.
Posted by: Andras "No longer" options maven
Posted on: Monday, 31 July 2000, at 2:54 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Monday, 31 July 2000, at 6:17 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Monday, 31 July 2000, at 7:45 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 24 August 2000, at 6:13 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Friday, 8 September 2000, at 12:52 a.m.
Posted by: Maven (neoMaven@hotmail.com)
Posted on: Tuesday, 1 August 2000, at 5:14 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 2 August 2000, at 2:15 p.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Wednesday, 2 August 2000, at 10:27 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 4 August 2000, at 11:51 p.m.
Posted by: TomSki (tomskilv@yahoo.com)
Posted on: Tuesday, 15 August 2000, at 12:25 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 17 August 2000, at 1:45 p.m.
Posted by: Al Gore (Inventor of the Internet)
Posted on: Saturday, 19 August 2000, at 10:49 a.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Sunday, 20 August 2000, at 1:34 p.m.
Posted by: Harvard Chu
Posted on: Wednesday, 2 August 2000, at 5:56 p.m.
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Wednesday, 2 August 2000, at 9:12 p.m.
Posted by: David Steele (dsteele@best.com)
Posted on: Thursday, 3 August 2000, at 12:30 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 3 August 2000, at 12:34 p.m.
Posted by: Andras "No longer" options maven
Posted on: Friday, 4 August 2000, at 3:28 p.m.
Posted by: Andras the options maven
Posted on: Friday, 4 August 2000, at 4:22 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 4 August 2000, at 11:48 p.m.
Posted by: Erin
Posted on: Saturday, 5 August 2000, at 2:29 a.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Sunday, 6 August 2000, at 2:14 p.m.
Posted by: Andras the options maven
Posted on: Monday, 7 August 2000, at 12:51 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Tuesday, 8 August 2000, at 7:40 p.m.
Posted by: Shooter
Posted on: Thursday, 10 August 2000, at 11:42 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 17 August 2000, at 5:29 p.m.
Posted by: Shooter
Posted on: Thursday, 17 August 2000, at 7:02 p.m.
Posted by: Michael 7
Posted on: Friday, 18 August 2000, at 2:16 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Saturday, 19 August 2000, at 4:27 a.m.
Posted by: Terrence Chan
Posted on: Saturday, 12 August 2000, at 2:06 a.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Saturday, 12 August 2000, at 12:55 p.m.
Posted by: Justin Honold
Posted on: Saturday, 12 August 2000, at 2:08 p.m.
Posted by: Pip
Posted on: Sunday, 13 August 2000, at 3:55 a.m.
Posted by: Kim Lee
Posted on: Monday, 14 August 2000, at 11:35 a.m.
Posted by: Traderboy
Posted on: Thursday, 14 September 2000, at 6:11 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 20 September 2000, at 1:15 p.m.
Posted by: N_A_Weelnam (N_A_Weelnam@yahoo.co.uk)
Posted on: Wednesday, 20 September 2000, at 11:10 p.m.
Posted by: Erin
Posted on: Friday, 15 September 2000, at 9:18 a.m.
Posted by: Terrence Chan
Posted on: Tuesday, 15 August 2000, at 8:36 p.m.
Posted by: Mojo Jojo
Posted on: Wednesday, 16 August 2000, at 8:18 p.m.
Posted by: berya
Posted on: Thursday, 17 August 2000, at 3:50 p.m.
Posted by: Holybull (holybull2@aol.com)
Posted on: Thursday, 17 August 2000, at 4:34 p.m.
Posted by: berya
Posted on: Thursday, 17 August 2000, at 5:04 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 17 August 2000, at 5:26 p.m.
Posted by: berya
Posted on: Sunday, 20 August 2000, at 3:18 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 17 August 2000, at 5:27 p.m.
Posted by: Michael 7
Posted on: Friday, 18 August 2000, at 2:22 p.m.
Posted by: RFR (richr@worldshare.net)
Posted on: Tuesday, 22 August 2000, at 10:57 p.m.
Posted by: Amatuer Investor
Posted on: Tuesday, 22 August 2000, at 8:40 a.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Tuesday, 22 August 2000, at 9:09 p.m.
Posted by: Amatuer Investor
Posted on: Wednesday, 23 August 2000, at 2:22 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 23 August 2000, at 11:51 a.m.
Posted by: coyote (kanscoyote@webtv.net)
Posted on: Friday, 25 August 2000, at 11:12 a.m.
Posted by: VZ
Posted on: Sunday, 10 September 2000, at 8:58 p.m.
Posted by: Investigo (josh@intellistream.com)
Posted on: Saturday, 23 September 2000, at 4:45 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Friday, 25 August 2000, at 2:54 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 30 August 2000, at 11:32 p.m.
Posted by: David Sklansky (Dsklansky@aol.com)
Posted on: Thursday, 31 August 2000, at 11:33 a.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Friday, 1 September 2000, at 12:31 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 26 October 2000, at 8:00 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Friday, 1 September 2000, at 3:37 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Saturday, 2 September 2000, at 11:30 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Monday, 25 September 2000, at 11:04 p.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Friday, 8 September 2000, at 12:27 p.m.
Posted by: Ray Zee
Posted on: Sunday, 17 September 2000, at 11:24 p.m.
Posted by: Andras the options maven
Posted on: Wednesday, 13 September 2000, at 8:35 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 14 September 2000, at 11:12 a.m.
Posted by: TomSki
Posted on: Tuesday, 19 September 2000, at 5:56 p.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Thursday, 21 September 2000, at 9:10 p.m.
Posted by: Kim Lee
Posted on: Monday, 25 September 2000, at 10:07 a.m.
Posted by: TomSki (tomskilv@yahoo.com)
Posted on: Friday, 29 September 2000, at 9:26 p.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Sunday, 1 October 2000, at 12:26 p.m.
Posted by: Richard G. Poirier (rebelrye@yahoo.com)
Posted on: Monday, 2 October 2000, at 6:46 a.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Monday, 2 October 2000, at 10:26 a.m.
Posted by: MJChicago (m7h1j5@aol.com)
Posted on: Thursday, 28 September 2000, at 12:42 p.m. Dave recommended these stocks on or about 4/1/00
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 28 September 2000, at 11:14 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 28 September 2000, at 11:29 p.m.
Posted by: Robin Phillips (shaft_247@hotmail.com)
Posted on: Saturday, 30 September 2000, at 1:57 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Monday, 2 October 2000, at 4:50 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 5 October 2000, at 12:40 a.m.
Posted by: Russ (rgarber@leland.stanford.edu)
Posted on: Tuesday, 3 October 2000, at 3:16 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Tuesday, 3 October 2000, at 10:33 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Tuesday, 3 October 2000, at 10:33 a.m.
Posted by: mark
Posted on: Monday, 2 October 2000, at 2:41 a.m.
Posted by: Ben Statz (benstatz@yahoo.com)
Posted on: Wednesday, 4 October 2000, at 2:00 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 4 October 2000, at 2:46 p.m.
Posted by: mark
Posted on: Wednesday, 4 October 2000, at 11:40 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 5 October 2000, at 12:21 a.m.
Posted by: N_A_Weelnam (N_A_Weelnam@yahoo.co.uk)
Posted on: Saturday, 7 October 2000, at 3:34 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 4 October 2000, at 2:51 p.m.
Posted by: Frank
Posted on: Sunday, 8 October 2000, at 10:14 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 11 October 2000, at 11:30 p.m.
Posted by: Derek
Posted on: Thursday, 12 October 2000, at 3:51 p.m.
Posted by: the sleeper (viperone@aol.com)
Posted on: Monday, 9 October 2000, at 1:32 a.m.
Posted by: Don Gregory (dongregory@mail.com)
Posted on: Tuesday, 10 October 2000, at 5:49 a.m.
Posted by: Michael 7
Posted on: Thursday, 12 October 2000, at 10:20 a.m.
Posted by: MJChicago (m7h1j5@aol.com)
Posted on: Thursday, 12 October 2000, at 12:50 p.m.
Posted by: Michael 7
Posted on: Thursday, 12 October 2000, at 2:14 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 12 October 2000, at 5:37 p.m.
Posted by: Michael 7
Posted on: Thursday, 12 October 2000, at 7:21 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Saturday, 14 October 2000, at 11:16 a.m.
Posted by: Danny Sprung
Posted on: Sunday, 15 October 2000, at 10:04 p.m.
Posted by: Erin
Posted on: Monday, 16 October 2000, at 9:12 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Saturday, 14 October 2000, at 10:18 p.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Sunday, 15 October 2000, at 12:59 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Monday, 16 October 2000, at 10:54 a.m.
Posted by: Jaeger
Posted on: Tuesday, 17 October 2000, at 8:31 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 18 October 2000, at 12:40 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 18 October 2000, at 10:43 a.m.
Posted by: Jaeger
Posted on: Wednesday, 18 October 2000, at 5:38 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Wednesday, 18 October 2000, at 6:32 p.m.
Posted by: Jaeger
Posted on: Thursday, 19 October 2000, at 9:59 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 19 October 2000, at 11:13 a.m.
Posted by: Jaeger
Posted on: Thursday, 19 October 2000, at 1:27 p.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Thursday, 19 October 2000, at 7:48 p.m.
Posted by: Jaeger
Posted on: Thursday, 19 October 2000, at 9:00 p.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Sunday, 15 October 2000, at 8:16 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Monday, 16 October 2000, at 10:58 a.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Tuesday, 17 October 2000, at 9:17 a.m.
Posted by: Tom Haley (CodeSavvy@aol.com)
Posted on: Tuesday, 17 October 2000, at 11:28 a.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Tuesday, 17 October 2000, at 11:36 a.m.
Posted by: Andras (andrasnm@yahoo.com)
Posted on: Saturday, 28 October 2000, at 10:19 a.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Tuesday, 17 October 2000, at 11:44 a.m.
Posted by: Turd Ferguson (cjd326@aol.com)
Posted on: Monday, 16 October 2000, at 2:00 a.m.
Posted by: Chris Villalobos (zardoz@micron.net)
Posted on: Monday, 16 October 2000, at 10:47 a.m.
Posted by: hillbilly (cmgihillbilly@yahoo.com)
Posted on: Tuesday, 17 October 2000, at 2:00 p.m.
Posted by: zack
Posted on: Tuesday, 17 October 2000, at 5:37 p.m.
Posted by: Robin Phillips (shaft_247@hotmail.com)
Posted on: Sunday, 22 October 2000, at 7:51 a.m.
Posted by: Tom Haley (CodeSavvy@mindspring.com)
Posted on: Sunday, 22 October 2000, at 3:02 p.m.
Posted by: Jim Geary (jaygee@primenet.com)
Posted on: Sunday, 22 October 2000, at 3:59 p.m.
Posted by: Robin Phillips (shaft_247@hotmail.com)
Posted on: Monday, 23 October 2000, at 9:25 a.m.
Posted by: bigslick (tewahl@yahoo.com)
Posted on: Tuesday, 31 October 2000, at 3:31 a.m.
Posted by: Robin Phillips (shaft_247@hotmail.com)
Posted on: Tuesday, 31 October 2000, at 3:04 p.m.
Posted by: bigslick (tewahl@yahoo.com)
Posted on: Wednesday, 1 November 2000, at 2:36 a.m.