Trading Stocks

Trader, Not Traitor
I remember one analyst on BNN in particular as he looked down his nose at the commentator and said, "I am not a trader (emphasis on the NOT), I invest for the long term!"  In other words, he was better than any trader.  Trading, to him, was for the amateurs.  At the risk of repeating myself, surely you and I are playing a different game than any fund manager, let alone the talking heads that appear on television.  The major difference being, what they make from their stocks is mostly a side-show for them.  Most of them are compensated six ways to Sunday and get paid regardless of how well their stock picks are performing.  I have also seen analysts on TV who don't even have any of their own money in stocks!   (Conflict of interest LOL!)

Do No Harm
This blog is about my sharing what I have learned over many years of playing the markets.  I decided at the beginning of the year to publish my trades as teaching moments.  I hesitated to do so for a couple of reasons.  One, was because one trading style does not suit all.  Another was because my time horizon has become increasingly shorter.  I trade during the day.  I don't want to put people behind the curve, trying to imitate me while they can't get in and out as easily as I can.  I cut any losses extremely quickly in the current environment.

Bad To Worse
At that rate, I don't see the benefit of me sharing my trades with the average person trying to buy low and sell high as a means of making a reasonable return in these markets.  The regulators forgot the meaning of their role a long time ago.  High frequency traders manipulate prices in the name of so-called market liquidity.  Highly leveraged Exchange Traded Funds (ETF's) change how markets function.  Dark pools exist for the wealthy fund managers to hide transactions from the average investor.  Derivatives cause nuclear level shock-waves in the markets.  The rules put in place after the Great Depression to prevent it from ever happening again have either been revoked, or totally ignored.

Looking Ahead
Does that mean I think the personal investor should just give up, take what's left of their money and go home?  Not at all.  It just means keeping an eye on what's going on.  With the rate of change in technology and in society, obsolescence is guaranteed.  Buy and Hold has as much chance succeeding these days as the horse and buggy did outlasting the automobile at the turn of the last century.  Nortel, and Research In Motion are recent infamous Canadian illustrations of what has become the half-life of modern day success.

The Goldilocks Solution
If Buy and Hold can't work, and day trading is overkill, then what is today's personal investor to do?  In looking for an answer, I thought about the investing club I started.  If anything, it perfectly illustrates the need for a Goldilocks solution - neither too hot, nor too cold.  Investing clubs do not lend themselves to day-trading, and most fail to make money or serve to educate if the time horizon is too long.  My solution there is the same as here - use technical analysis to decipher medium-term trends and trade (yes, trade!) accordingly.  As a result, the trades I share on this blog are the trades we are making in my investing club.

Next Time
I want to remind people that I am not a professional, and as such cannot advise others what to buy or sell.  However, I have no difficulty sharing with others what I am doing, in the hope of serving as an example.  Next time, we will take a closer look at how we trade in my investing club.

What is your strategy in this changing and evolving environment?

Freakonomics and the Stock Market

To Pay or Not To Pay
Paying for bagels (or not) can help us understand the extent of white collar crime.  That is what Steven Levitt tells us in his book Freakonomics.  I'll let you read the book for the details, but I will say he arrives at this conclusion from an honour-pay bagel business which has existed in the U.S. over a number of years.  Personally, I find the idea intriguing, but also encouraging.

Same Old Same Old
Despite the ever-accelerating pace of change in modern society, changes in how people tend to behave come very slowly - like, barely, if at all.  Maslow's hierarchy of needs is as valid now as it was when he published it, and has applied throughout history.  There have been, and always will be those who cheat other people - within certain historical norms.  We just keep inventing new ways of doing it.

By The Numbers
That said, let's talk about Levitt's analysis.  On the basis of the bagel business he wrote about, we can put some numbers to the way in which people are inclined to behave.  First, the data suggests that smaller businesses are more trustworthy than larger ones.  The reason given is because people are better known in smaller groups - it's harder to cheat because it is harder to cover one's tracks - there are only so many people to blame.  Second, the experience of the business owner (Paul Feldman) was that executives, as a whole, were less honest than other groups.  In Paul's opinion, the executives felt more of a sense of entitlement, and therefore less need to pay for their bagels.  Who knew?!?

Well Meaning, and Meaning Well
The biggest take-away, in my opinion is that, overall, the payment rate of Feldman's thousands of customers was between 80 and 90 percent.  The reason I find this encouraging is what it should tell us about the stock market, and particularly about stock market advisors.  We have all heard about Bernie Madoff, and illicit bank behaviour and questionable lending schemes, but this data would suggest most people can be trusted to do the right thing.  Still, we need to be aware of the fact that one or two people out of every ten we give our money to might be cheating us.  That is the reason we need to keep informed and monitor those acting on our behalf.  The good news is 80 to 90 percent of people saying they want to help, actually mean it, and will try to (not to be confused with those who have, or don't have the ability to).

Decent Is As Decent Does
True, the perpetrators of the recent financial fiasco have not properly been held to account.  True, thanks to the overwhelming and unregulated power of derivatives in the financial system, we are all a whole bunch poorer.  True, it will take years to adjust to the current reality.  Still, in our society, today, the intent of the vast majority of regular folks, is to do right by others and to lead a decent and honest life.  Knowing this certainly influences my outlook on our ability, working together, to transcend the current uncertainties.

What do you think?  Are most people honest?  Do you trust them (with your money)?