March 2005

Taking a Skeptical Look at the Market?

The Best of Breed for the Neapolitan Mastiffs, champion 'Ironstone Mafioso', waits to be called for the judging of the working group of dogs at the Westminster Kennel Club show at New York's Madison Square Garden, February 14, 2005. REUTERS/Ray Stubblebine

The Market is the Ultimate Fact for a Trader

Remember Barton Biggs, the guy who warned us away from tech back in 1999?  He missed the great run-up, but he was right eventually.  So last year he shorted oil.

Biggs said he thought the price of oil should be closer to $30 to $34 a barrel. So convinced is Biggs of his investment thesis that he increased the size of his bet in July, even as prices were rising. "When the price of an investment goes against us, unless the fundamentals have changed, our inclination is to buy more," he said in the letter.

International Herald Tribune, August 21, 2004

This is the ultimate in Value Investing because it ignores facts and bases actions on what should  happen.  I wonder if he has closed out his position yet, or if he is still short.  He may be right eventually, but he has to have taken huge losses on this position.

The market is neither right nor wrong.  It is just the ultimate fact for the trader.

February 28, 2005

Noted with great approval:

Merrill Lynch Found Guilty of Intentional Misconduct With Regard to Analysts' Stock Ratings

BOCA RATON, Fla., Feb. 28 /PRNewswire/ -- Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) has been ordered by an arbitration panel of the National Association of Securities Dealers, Inc. (NASD) to pay more than $1 million to Gary and Lisa Friedman, including punitive damages, on the Friedmans' claim that Merrill Lynch hid conflicts of interest and issued fraudulent analyst reports and ratings in order to boost the firm's investment banking revenue....

The Friedmans were represented by Boca Raton, Florida securities attorney Robert W. Pearce who argued that all of Merrill Lynch's research analysts were conflicted by the firm's flawed business model.

The Friedmans, who did not own any of the securities identified in New York Attorney General Elliott Spitzer's investigation or the global settlement reached with Wall Street firms in 2003 (see endnote for list of securities in the Friedmans' portfolio), received a seven-figure award with Mr. Pearce's assistance.

"The Merrill Lynch fraud was not limited to its Internet sector research analysts," said Pearce. "It was clear that Merrill Lynch used all of its analysts, securities reports and ratings as marketing vehicles to bolster its investment banking business."

This ruling also represents one of few cases in which punitive damages have been awarded in any analyst case and is one of the rare instances in which a $1 million+ award has been issued.

"This is the largest punitive damage award we have seen in a research analyst case and has significant findings of fact," said Rick Ryder, publisher of Securities Arbitration Commentator, Maplewood, NJ, which tracks awards in the securities industry. "This case will provide encouragement to investors who have filed similar claims to pursue them. It also creates a path for others to follow regarding how to prepare and present a compelling research analyst case."

Pearce stipulated this was a pure Merrill Lynch research analyst conflict- of-interest case and that there were no other issues involved.

"The fact that part of Merrill Lynch analysts' compensation was based upon the performance of the investment banking division is a blatant conflict of interest that was never disclosed to clients," said Pearce. "Individual investors across the country lost billions of dollars because Merrill Lynch and other firms used analysts to pad their own pockets and benefit their investment banking clients instead of their retail clients."

I hope that this is just the first of many settlements against Merrill Lynch.  Anybody who actually believed their analysts was victimized, but of course you had to be really naive to believe those guys in the first place. Merrill Lynch was part of the Enron scam also, but that should be no surprise.  Too bad that there was no jail time for the top executives.

March 3, 2005

My portfolio took a few hits because there was a lot of profit taking in the oil and oil services area.  But now it is recovering.

March 6, 2005

The Motley Idiots deleted the following post because they supposedly thought it was infringing on copyright.  Actually, I think they deleted it because it makes more sense than anything on their site.  So I will put it here, and if TimingCube wants me to take it down, they can say so themselves.  The main point, for me, is that if you have a successful method of trading, there is no reason to change your method just because you are retiring.

From the weekly commentary at TimingCube - http://www.timingcube.com/ .  This is such excellent advice that I think it should be put forward.  This is a small part of the commentary for this week, so I think "fair use" is not violated:

Invest consistently and aggressively

Statistics such as those frequently published by Morningstar and others show that the vast majority of investors do not come close to achieving the average returns of the broad stock market. There are of course many reasons for this, but the most important ones are the level of commitment and consistency. If you have most of your assets sitting in cash or interest-bearing vehicles like bonds and treasuries, you should not be surprised that your overall yearly returns are lagging. If you have been burned by losing your hard-earned savings by holding all the way down during a bear market, you need a new tactic. If you keep chasing the hot tip, sector, or investment system, you are bound to be disappointed over and over. In order to achieve superior results you have to commit substantially all of your serious money to the stock market. To do that for the long-term, it has to be with a sustainable and manageable method that will not drive you crazy, and that will not lose half of your portfolio during every bear market. These are the motivators behind our Trend Timing approach which offers a long-term, all-weather system of investment.

Continue investing aggressively after retiring

You first have to know what you retirement age is, and most people wrongly assume it is 65. Since the Social Security Amendments signed by President Reagan in 1983, our retirement age has been rising. For persons born since 1938, the full retirement age is now closer to 66 or 67. Want to find what your full retirement age is? Click here. Most of us have been brainwashed into believing that as soon as we retire, our money needs to be yanked from the "risky" stock market and placed in "safe" interest-bearing instruments. While it is true that you will depend on withdrawals from your reserves for your living expenses after you retire, it would not be wise to switch everything to income generation. Most interest-bearing investments tend to trail inflation and cause your nest egg to shrink over time. Further, recently published figures from the National Center for Health Statistics show that life expectancy for American men has reached a new all-time high 77.6 years at birth. Over 80 if you are a woman. If you are 65 today, your life expectancy is 18.5 years, which means odds are good that you will celebrate your 83rd birthday. Remembering the compounding discussion above, it is quite compelling to want to continue receiving superior returns for such a long period. Especially if instead of suffering losses during market downturns you are able to gain from them.

Their Enviable Record:

Since 6/18/2001, when the signal first went live, going long and short as their signal says, the cumulative returns are:

Nasdaq 100:  91.48%

S&P 500:  56.52%

Russel 2000:  113.94

And this with just 2-4 timing trades per year.

March 10, 2005

There has been a collapse of the stocks where I have had the best profits, namely oil, natural resources, and, to a lesser extent, homebuilding.  I have taken what profits I have, but today is a significant loss.  This market is flat overall, and I do not see any point in taking on new positions now.  The only real question is whether or not to hedge.

March 11, 2005

Yesterday, the market was not down much, but my stocks went down a larger amount, and I got out.  Today the market tanked and many of what I sold went up.  Very hard to figure, but these systems do not correlate well to the market.  I am waiting for the charts of the systems to get better before I get in again.  This seems to be the only reliable indicator for timing these systems.

I learn something every day - I just hope I can turn this knowledge into profits.

March 19, 2005

I did the hedge thing a couple of days ago.  All the signals say to sell, but the equity curves of the systems I am trading do not look terribly bad.  We will see what happens.

March 31, 2005

Got out of the hedge with a slight profit, as the market went up nicely yesterday.  This is a dangerous market, and I am beginning to wish that I had just gone to cash. Interestingly enough, I have a timing system that says to be long, another that says to be short, and a third that says to be in cash.

April 1, 2005

Head fake in the market this morning.  Like an April Fool's joke.

This month has been fundamentally a mistake.  

 Closed Positions

Ameritrade has software that displays your closed positions.  I have put it into a spreadsheet.  This looks a bit different from what I have done in the past.  The price per share is not shown.  Anyway, this is a bunch easier.