Browsing articles from "February, 2014"

Friday Morning Links – Another Very Bad Day For Bitcoin

Feb 28, 2014   //   by Profitly   //   Market, News  //  Comments Off on Friday Morning Links – Another Very Bad Day For Bitcoin

mt-gox-chart

Mt. Gox is broke (WSJ)

Icahn turns his focus to eBay (NYPost)

More chargers in Libor manipulation (Bloomberg)

The Facebook ads your kids weren’t supposed to see (WSJ)

Hedge funds did horribly last year, but that doesn’t mean their managers took home smaller paychecks (NYPost)

Flight get canceled this year? You’re not alone (CNN)

Insurers are trying their best to size up their newest members (WSJ)

Guru Report Card – A Must Read

Feb 26, 2014   //   by Profitly   //   Profitly  //  Comments Off on Guru Report Card – A Must Read

A lot of people forget to look at the track records of many of the trading “gurus” on the internet. This is a huge mistake, and it’s one of the reasons people should use sites like Profit.ly more often.

As you can see on their Profit.ly pages listing all of their trades, Tim, Nathan (InvestorsLive), and Paul (super_trades) all have success rates FAR above the average and above any of the individuals that CXO Advisory Group tracked.

Tim has a success rate of 73% (http://profit.ly/user/timothysykes/chart)

Nathan has a success rate of 75% (http://profit.ly/user/InvestorsLive/chart)

Paul has a success rate of 75% (http://profit.ly/user/super_trades/chart)

Rickferri.com and cxoadvisory.com published a post just last month that gave several gurus and market analysts a disturbingly low success rate of just 47%!

“The results are in and they are bad. After tracking 68 experts and 6,582 market forecasts, CXO Advisory Group has concluded that the average market prediction offered by experts has been below 50% accuracy. Flip a coin and your odds for predicting the market are better.”

guru first

Via rickferri.com.

This took place from 2005 through 2012, where CXO collected 6,582 forecasts for the U.S. stock market offered publicly by 68 experts. There were both bulls and bears employing technical, fundamental and sentiment indicators. It also has some forecasts included those in CXO’s archives, with the oldest coming from the end of 1998.

 

The following chart tracks the growing number of gurus tracked over time based on initial forecast dates. The number of gurus actively issuing forecasts is usually less than the cumulative total tracked due to some of the gurus ending their forecasts or media pulling the plug on them.

guru cumul

Via cxoadvisory.com

Here is how they graded the gurus:

The vital grading methodology was to compare forecasts for the U.S. stock market to the S&P 500 index returns over the future interval most relevant to the forecast horizon. In general, the people that conducted the survey said they:

  • Exclude forecasts that are too vague to grade and forecasts that include conditions requiring consideration of data other than stock market returns.
  • Match the frequency of a guru’s commentaries (such as weekly or monthly) to the forecast horizon, unless the forecast specifies some other timing.
  • Detrend forecasts by considering the long-run empirical behavior of the S&P 500 Index, which indicates that future returns over the next week, month, three months, six months and year are “normally” about 0.1%, 0.6%, 2%, 4% and 8%, respectively. For example, if a guru says investors should be bullish on U.S. stocks over the next six months, and the S&P 500 Index is up by only 1% over that interval, we would judge the call incorrect.
  • Grade complex forecasts with elements proving both correct and incorrect as both right and wrong (not half right and half wrong).

Weaknesses in the methodology include:

  • Some forecasts may be more important than others, but all are comparably weighted. In other words, measuring forecast accuracy is unlike measuring portfolio returns.
  • Consecutive forecasts by a given guru often are not independent, in that the forecast publishing interval is shorter than the forecast horizon (suggesting that the guru repetitively uses similar information to generate forecasts). This serial correlation of forecasts effectively reduces sample size.
  • In a few cases, for gurus with small samples, we include forecasts not explicitly tied to future stock market returns. There are not enough of these exceptions to affect aggregate findings.
  • Grading vague forecasts requires judgment. Random judgment errors tend to cancel over time, but judgment biases could affect findings. Detailed grades are available via links below to individual guru records. Within those records are further links to source commentaries and articles (some links are defunct). Readers can therefore inspect forecast grades and (in many cases) forecast selection/context.
  • S&P 500 Index return measurements for grading commence at the close on forecast publication dates, resulting in some looseness in grading because forecast publication may be before the open or after the close. Very few forecast grades are sensitive to a one-day return, and we try to take looseness into account in grading any forecasts that focus on the very short term.

Neither CXO Advisory Group LLC, nor any of its members personally, received any payments from the gurus graded.

The following chart tracks the inception-to-date accuracy of all 6,582 graded forecasts in the sample.

guru accur

Via cxoadvisory.com

The next chart shows the distribution of the individual gurus accuracies for the entire sample.

guru histo

 

Via cxoadvisory.com

The table below is a list of the gurus graded, along with associated number of forecasts graded and accuracy. Their names link to individual guru descriptions and forecast records. It appears that a forecasting accuracy as high as 70% is a rarity.

Guru Forecasts Accuracy
David Nassar 44 68.20%
Ken Fisher 120 66.40%
Jack Schannep 63 65.60%
David Dreman 45 64.40%
James Oberweis 35 62.90%
Steve Sjuggerud 54 62.10%
Cabot Market Letter 50 60.40%
Louis Navellier 152 60.00%
Jason Kelly 126 59.70%
Dan Sullivan 115 59.10%
John Buckingham 17 58.80%
Richard Moroney 56 57.10%
Aden Sisters 40 55.80%
Jon Markman 36 55.30%
Carl Swenlin 128 54.90%
Bob Doll 161 54.70%
Paul Tracy 52 53.80%
Bob Brinker 44 53.30%
Mark Arbeter 230 53.20%
Gary Kaltbaum 144 53.10%
Robert Drach 19 52.60%
Don Luskin 201 52.00%
Laszlo Birinyi 27 51.90%
Tobin Smith 281 50.20%
James Dines 39 50.00%
Ben Zacks 32 50.00%
Doug Kass 186 49.20%
Richard Rhodes 42 48.80%
Bernie Schaeffer 81 48.80%
Clif Droke 100 48.60%
Stephen Leeb 27 48.30%
S&P Outlook 145 48.30%
Carl Futia 98 48.20%
Charles Biderman 48 47.90%
Trading Wire 69 47.80%
Don Hays 85 47.10%
James Stewart 115 47.00%
Richard Band 31 46.90%
Jim Cramer 62 46.80%
Gary D. Halbert 93 46.40%
Dennis Slothower 145 45.60%
Bill Cara 208 45.60%
Gary Savage 134 45.00%
Marc Faber 164 44.60%
Jeremy Grantham 40 44.20%
Tim Wood 182 43.80%
Jim Jubak 144 43.40%
Martin Goldberg 109 43.10%
Price Headley 352 42.00%
Linda Schurman 57 41.40%
Donald Rowe 69 40.60%
Igor Greenwald 37 40.50%
Nadeem Walayat 67 40.50%
Bob Hoye 57 40.00%
John Mauldin 211 39.90%
Jim Puplava 43 39.50%
Comstock Partners 224 37.90%
Bill Fleckenstein 148 37.30%
Gary Shilling 41 36.60%
Richard Russell 168 36.50%
Mike Paulenoff 12 35.70%
Abby Joseph Cohen 56 35.10%
Peter Eliades 29 34.50%
Steven Jon Kaplan 104 32.10%
Curt Hesler 97 32.10%
Robert McHugh 132 28.60%
Steve Saville 35 23.70%
Robert Prechter 24 20.80%

 

Via cxoadvisory.com

Monday Morning News

Feb 24, 2014   //   by Profitly   //   Market, News, Profitly  //  Comments Off on Monday Morning News

a-well-tailored-suit

Behind the closed doors of the Fed in the darkest days of the financial crisis (NYTimes)

The saga between Men’s WearHouse and Jos. A Bank isn’t over (WSJ)

Frank Underwood approves of this message: Streaming House of Cards may have just gotten a boost.(WSJ)

Prices continue to fall in the Eurozone, this time at a record pace (MarketWatch)

The government is cashing in on marijuana (CNN)

Piers Morgan gets the axe (CNBC)

The Scary Chart Being Shown Around the Internet

Feb 20, 2014   //   by Profitly   //   News, Profitly, Risks  //  Comments Off on The Scary Chart Being Shown Around the Internet

The pesky chart that is blowing up the internet…

Sell all of your stocks….now! We’re about to see a crash! That’s what many people are thinking when they first take a look at the chart below, but investment advisors are begging you to do your research before you act irrationally.

Chart 1929

There is much, much more to the story that what the uneducated person would think. This chart is a superimposition of the recent market performance and the crash of 1929. Mark Hulbert of MarketWatch defends the chart, saying that the market will face “a particularly rough period later this month and in early March.” One of the main objections to this chart is that there are different scales on the left and the right axes. “The scale on the right, corresponding to the Dow’s DJIA +0.79%   movement in 1928 and 1929, extends from below 200 to more than 400—an increase of more than 100%. The left axis, in contrast, represents a percentage increase of less than 50%,” Hulbert says. But he goes on to say that this doesn’t discredit the chart. “You can still have a high correlation coefficient between two data series even when their gyrations are of different magnitudes.”

Hulbert wasn’t the only one defending the chart. Hedge-fund manager Doug Kass wrote about the parallels with 1928-29, saying, “While investment history doesn’t necessarily repeat itself, it does rhyme.” Kass believes that “the correction might have just started.”

Josh Brown of The Reformed Broker was far more skeptical in his post titled “The Chart That Wouldn’t Die.” (Link)

He goes straight into it saying that the chart has been debunked numerous times yet keeps showing up at any hint of correlation.  Just like on TV, people like drama and emotion, and this chart enforces both of those.

“The studies all confirm that the human animal is, at the end of the day, more risk averse than it is ambitious. This is why content that frightens us can continue to get the traction it does, time after time,” Brown says.

Brown actually seems relatively pissed off at some points. “This frightens investors into making poor decisions – big decisions that will have a major impact on their mental health and financial condition well into the future,” he says. He also points out that the more charts like this are spread around and people fall for them, the more potential they have of becoming a “self-fulfilling prophecy.”

Now the Wall Street Journal has even stepped in (link). Steven Russolillo writes that we should all put an end to this drama. He interviewed several investment professionals and here are some of their responses:

“I have been in this business for over 43 years, yet I do not ever recall getting as slammed with the same email as many times as I have about the attendant 1929 comparison chart,” says Jeffrey Saut, chief investment strategist at Raymond James. “You can ‘scale’ any chart to do just about anything you want it to imply! In this case, the scale makes the comparison to 1929 with the present stock market chart pattern appear eerie. However, if you index that same chart so that you are comparing apples to apples, the correlation to 1929 disappears. Moreover, I have been around long enough to have seen this “act” before. The time period was the 1980s – 1990s when ‘they’ were trying to scale Japan’s Nikkei Index to that of the Dow Jones Industrial Average. All these kinds of chart shenanigans prove is that, ‘Where you stand is a function of where you sit, or that you can make numbers do anything!’”

Daniel Wiener, chief executive at Adviser Investments in Newton, Mass. told his clients in a note that he blamed the Internet for the ruckus this chart has caused. “Before the Internet these charts would never have seen the light of day, or if so they’d have been seen, and dismissed quickly,” Mr. Wiener said. “Not so today’s ‘eyeball seeking’ web sites that work hard to capture your attention whether they are selling snake oil or…snake oil.”

Despite this chart and a few bad days in 2014, the major indices aren’t doing so bad. They were nearing and sometimes entering pullback territory at points, but now they are close to turning positive for the year. It’s interesting to look at all perspectives, but make sure you are educated enough to separate the more accurate from the “far fetched ideas.”

Washington’s Birthday Reading – Who Remembered the Card?

Feb 17, 2014   //   by Profitly   //   Profitly  //  Comments Off on Washington’s Birthday Reading – Who Remembered the Card?

House_of_Cards

This is what we like to call a “slow news day” given the holiday and markets being closed. But that doesn’t mean I don’t have a few things that I’m reading this morning! After that, you should take the time to analyze your trades on Profitly and see whats been working best this year.

House of Cards Season 2 has a stellar weekend (CNBC) Even the President got in on this (Twitter)

Last week was the best of the year for stocks (WSJ)

One bank wants to make it easier for you to get a mortgage (WSJ) I can already smell the subprime cooking.

Yes, banks can do business with pot sellers (WSJ)

UAW loses in close vote (Yahoo) GOP rallying around this one.

Forget inflation, the G20 is worried about deflation (Bloomberg

Is the bear market in Gold over? (Bloomberg)

One big investors just doubled down on his bet that the markets are headed for a fall (MarketWatch)

Were warning signals going off at Target before the data breech? (WSJ)

 

Friday News – Valentine’s Day Edition

Feb 14, 2014   //   by Profitly   //   Profitly  //  Comments Off on Friday News – Valentine’s Day Edition

chocolate

Stock up on that Valentines Day chocolate. It could cost you a lot more next year. (WSJ)

The best and worst cities to find love (WSJ)

Banks in London devise a way for you to spend more money on your Valentine (Dealbook)

Starbucks wants you to be able to take you Valentine out for a latte without breaking the bank (Bloomberg)

Bill Ackman definitely isn’t buying his Valentine a Herbalife shake (CNBC)

This house may be able to help you cook a romantic Valentines Day dinner (WSJ)

God forbid the SEC doesn’t get flowers for Valentines Day (Bloomberg 

Basic Terminology

Feb 12, 2014   //   by Profitly   //   Profitly  //  Comments Off on Basic Terminology

If you want to learn to trade, you have to know some basic terms. Education and practicing are the keys to getting better at anything; trading is no different. So, if you want to learn to trade professionally and learn to trade penny stocks in particular, then you need to read this post and follow the best stock traders like Tim, Superman and the other gurus.

Here are some terms that you should know before moving on to more in depth topics. Knowing the little things will help you better understand other stock trading tips and tricks.

Averaging Down: when an investor buys more of a stock as the price goes down, therefore lowering your average cost per share.

Bear Market: This is trading talk for the stock market being in a down trend, or a period of falling stock prices. This is the opposite of a bull market. I keep the two separate by remembering “bear down.”

Beta: this is a way to measure the relationship between the price of a stock and the movement of the whole market. For example: if stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points and vice versa.

Blue Chip Stocks: think BIG! These are the large, industry leading companies. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.

Broker: this is a person who buys or sells an investment for you in exchange for a fee, also called a commission.

Day Trading: this is buying and selling within the same trading day. Tim typically does this, but other gurus like Superman hold onto their picks for a longer period of time.

Dividend: this is a portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock. Only some companies do this.

Execution: this is when your order to buy or sell is officially completed. If you put in an order to sell 100 shares, this means that all 100 shares have been sold.

Index: this is a benchmark that is used as a reference marker for traders and portfolio managers. A 10% return may sound good, but if that would have been last year when the S&P was up 30%, then that is actually a horrible return.

Initial Public Offering (IPO): the first sale or offering of a stock by a company to the public, rather than just being owned by private or inside investors. Twitter is an example of a company that had an IPO recently.

Margin: a margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan, and the price of the securities, is called the margin.

Moving Average: this is a stock’s average price-per-share during a certain period of time. Some time frames are 50 and 200 day moving averages.

Portfolio: a collection of investments owned by an investor. You can have as little as one stock in a portfolio to an infinite amount of stocks. The more stocks you have in your portfolio, the more diversified you are.

Quote: this is a stock’s latest trading price. If you are using the internet to get a quote, be careful, as it may be delayed. To ensure you are getting the most recent number, you’ll want to be logged into a trading platform.

Sector: a group of stocks that are in the same business. An example would be the “Technology” sector which would include companies like Apple and Microsoft.

Spread: each stock has a bid and an ask; the spread is the difference between these numbers. The bid is how much someone is willing to pay for the stock and the ask is how much someone is willing to sell the stock for. Lower volume stocks will have a wider spread.

Stock Symbol: this is an alphabetic root symbol, which represents a publicly traded company on a stock exchange. Apple’s stock symbol is AAPL, Twitter is TWTR, Sprint is S, and Google is GOOG.

Volatility: this refers to the price movements of a stock or the stock market as a whole. Stocks that are highly volatile have extreme daily up and down movements and wide intraday trading ranges.

Volume: the number of shares of stock traded during a particular time period, normally measured in average daily trading volume. This varies widely between companies.

Monday Morning Links – Another win for Icahn? $AAPL

Feb 10, 2014   //   by Profitly   //   Profitly  //  Comments Off on Monday Morning Links – Another win for Icahn? $AAPL

icahn apple

Carl Icahn backs off of buyback plan (WSJ)

Martoma could go to jail for a very, very long time (Bloomberg)

Hedge funds take oposing views on Argentina debt (WSJ)

Mark Zuckerberg tops list of most generous people (CNN)

Slowing growth the biggest concern for Twitter shareholders, and the CEO says he fix that (The Columbian)

Last year was a pretty good year if you were Larry Fink (NYP)

Friday Hot Links for Sochi Winter Olympics Opening Day

Feb 7, 2014   //   by Profitly   //   Profitly  //  Comments Off on Friday Hot Links for Sochi Winter Olympics Opening Day

2014_Winter_Olympics_logo.svg

Government holds on to perfect record prosecuting insider trading (WSJ)

Private Equity finds another way to bring in cash (WSJ)

Twitter fails to take flight after their first earnings report (WSJ)

CVS thinks you should kick the smoking habit (WSJ)

Thought going to the Olympics would be fun, ha, Putin is laughing in your face. (Buzzfeed)

David Einhorn thinks you should all start drink water instead of Green Mountain Coffee (MarketWatch)

Currency Movements

Feb 5, 2014   //   by Profitly   //   Profitly  //  1 Comment

money-hand

There are so many people out there that want to learn to trade, but don’t want to take the time to do it. Learning to trade Forex is even more difficult, and the education behind it even more important. Currencies (aka Forex) typically see fast price movements, especially on days where economic data comes out such as the monthly jobs report. Here is a post first on Investopedia by Elvis Picardo about the risks of currency movements.

Devaluation and revaluation are official changes in the value of a nation’s currency in relation to other currencies. The terms are generally used to refer to officially sanctioned changes in a currency’s value under a fixed exchange rate regime. Thus, devaluation and revaluation are typically one-time events – although a series of such changes can occasionally occur – that are usually mandated by the government or central bank of a nation.

In contrast, changes in the levels of currencies that operate under a floating exchange rate system are known as currency depreciation and appreciation, and are triggered by market forces, such as the jobs report that I mentioned above. Puzzlingly, even though devaluation and revaluation are becoming less of an issue for the global economy since most major nations have adopted floating exchange rate systems, exchange rate moves continue to exert a very significant influence on the economic fortunes of most nations. Most notably, they have direct impacts on imports and exports. After reading this post, you’ll see why many argue that the head of the Federal Reserve Bank of the United States is the second most powerful person in the world, just behind the President.

This type of price movement was discussed frequently following the financial crises, as central banks around the world began programs to lower interest rates. An example of depreciation and appreciation of currencies would be the U.S. dollar going from a worth of 1.34 euros to 1.30 euros. In that case, the dollar saw depreciation while the euro saw appreciation.

But forget about deprecation and appreciation for a second, to begin understanding a fixed rate currency system, you first need to look at devaluation and revaluation. Devaluation refers to a downward adjustment in the official exchange rate of a currency, while revaluation refers to an upward adjustment in the exchange rate.

“In a fixed exchange rate system, a nation’s domestic currency is fixed to a single major currency such as the U.S. dollar or euro, or is pegged to a basket of currencies. The initial exchange rate is set at a certain level and may be allowed to fluctuate within a certain band, generally a fixed percentage either side of the base rate. The frequency of changes in the fixed exchange rate depends on the nation’s philosophy. Some nations hold the same rate for years, while others may adjust it occasionally to reflect economic fundamentals.”

If the actual exchange rate diverges significantly from the base rate and moves out of the permitted band, the central bank will interfere in order to bring it back in line with its targeted base rate.

“For example, assume a hypothetical currency called the Pseudo-dollar (PSD) is fixed to the U.S. dollar at a rate of 5 PSD per USD, with a permitted band of 2% on either side of the base rate, or 4.90 to 5.10. If the PSD appreciates (i.e. it trades below the bottom level of the permitted band) to say 4.88, the central bank will sell the domestic currency (PSD) and buy the foreign currency (USD) to which the domestic currency is fixed. Conversely, if the PSD depreciates and trades close to or above the 5.10 upper end of the permitted band, the central bank will buy the domestic currency (PSD) and sell the foreign currency (USD).”

So what are the causes of devaluation and revaluation? First, know that it is far more common to see a devaluation than a revaluation, but both occur because the exchange rate has been fixed at an artificially low or high level. This makes it increasingly difficult for the central bank to defend the fixed rate. A central bank must have sufficient foreign exchange reserves to be willing to buy all the offered amounts of its currency at the fixed exchange rate. If these Forex reserves are insufficient, the bank may have no option but to devalue the currency.

Examples are always helpful to me when trying to understand something, so take a look back at one of the most notable examples of currency devaluation: the British pound’s exit from the Exchange Rate Mechanism (ERM) in September 1992. The ERM was a predecessor to the creation of the euro, and was a system for tying the value of the pound and other currencies to that of the Deutsche mark, in order to get economic stability and low inflation. On September 16, 1992 – a day that was later dubbed “Black Wednesday” in the British press – the pound came under massive speculative attack as currency speculators deemed that the currency was trading at an artificially high level. In a bid to curb the speculative frenzy, the Bank of England took emergency measures such as authorizing the use of billions of pounds to defend the currency and raising interest rates from 10% to 12% to 15% during the day. These measures were to no avail, as the pound was forced out of the ERM, netting legendary hedge fund manager George Soros a $1-billion profit on his short pound position.

How does this impact the economy? Well, devaluation will often have an adverse effect on the economy initially, but it eventually should result in a substantial increase in exports and a associated shrinkage in the current account deficit. In the initial period after a devaluation, imports become much more expensive while exports stay stagnant, leading to a larger current account deficit.

In a number of cases, devaluation has also been accompanied by massive capital flight, as foreign investors pull their capital out of the country. This further exacerbates the economic impact of devaluation, as the closure of industries that were reliant on foreign capital increases unemployment and lowers economic growth, triggering a recession. The effects of the recession may be amplified by higher interest rates that were introduced to defend the domestic currency.

Revaluation does not have the same far-reaching effects as devaluation, since revaluation is generally precipitated by a rapid improvement – rather than deterioration – in economic fundamentals. Over time, a revaluation is likely to result in a nation’s current account surplus shrinking to some extent.

The potential portfolio impact: since currency devaluation is by far the more likely event, investors should be aware of the risks posed by devaluation.

Example: assume that you have 10% of your portfolio in bonds denominated in the Pseudo-dollars described earlier, with a current yield of 5%. Now if Pseudo-dollars undergo 20% devaluation, your net return from these bonds would be -15%, rather than +5%. As a result, the overall return on your portfolio would decrease by 1.5% (i.e. 10% portfolio weight X -15%).

But, let’s say that you have a total 40% of your portfolio in emerging market assets and these are afflicted by the contagion effect of the Pseudo-dollar devaluation. If these emerging market assets also decline 20%, your overall portfolio return would be down by a very substantial 8%. See how things can add up if you’re not paying attention to how you have your portfolio allocated?

So what should you watch for?

Make sure you stay informed about currency capers – one of the biggest currency issues confronting the global economy in recent years has been the artificial suppression of the Chinese yuan, which has helped China gain massive market share in global exports.

Limit your exposure to emerging markets that have deteriorating fundamentals – currency contagion is a real threat to your portfolio, so limit your exposure to emerging markets whose economic fundamentals are deteriorating. In particular, look out for nations with burgeoning current account deficits and high rates of inflation.

Consider the impact of currency moves on your overall portfolio returns – holding assets in a currency that is appreciating can boost your portfolio returns

Now you should understand more about the risks of currency devaluation, as it can be a hidden source of portfolio risk, especially if it results in a contagion effect.

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