Complete Stock Idjit

Momma, I don't want to play Stock Market No More..

Rating: 1.85 not yet rated(20 votes)    Vote:

You are logged in as | Logout

I think the nemesis of investors is volatility, it's akin to "flock shooting" for a duck hunter, you leap out of the duck blind expecting to see a bird or two, and fifty are within range. Instead of picking a target and killing it, you blast away at the group assuming you will get a couple with enough lead in the air...

...and you wind up missing all of them.

As a beginner, this first up, now down, part of the market puts me on foreign and dangerous ground. Trending up or trending down is somewhat easier, as you can pick an offensive or defensive stance, and hope the tide raises or lowers your boat with all the others.

But the daily wild gyrations of the market makes me want to chase things, something bound to lead me into trouble. Like everyone else, I have a "real" job and with this tumultuous market you go to lunch a rich man, and return broke. Lacking understanding of much of what I'm witnessing is a distinct liability. That coupled with the Devil whispering in your ear, "...the market's down, sell ...the market's up, buy" makes me thankful I don't have to do this as my day job.

My goal is survival. I was shaken to find myself in the top 25, all it does is add another Devil on your shoulder, this one insists, "...you're pretty good at this, you may even be psychic." I know better, I got lucky - and somehow stayed lucky.

In attempting to plot a strategy from here, I was doing a mental inventory of what facts I know hoping something magical would result, some brief moment of clarity that would give me a solid course to plot:

1) Election Year - the current administration will want to keep the economy intact until the next regime takes the reins. Market Influence: Positive

2) The contest duration is 3 months or less, there will be no additional earnings reports from companies after this round. Market Influence: Negative (no buying in anticipation of earnings)

3) Much bad news reported by non financial companies, much of it was overshadowed by other earnings reports from "hot" companies like AAPL and VMWare. Market Influence: Negative

4) Financial institutions reported more losses than first mentioned. Market Influence: Negative

5) Report of Merrill Lynch attempting to fob additional bad paper onto other institutions so their books would smell sweeter. Market Influence: Negative (likely others are attempting to hide losses that will eventually daylight)

6) A number of industry experts claim the market has more outstanding shorts than any market in recent memory. Market Influence: Positive and Negative. Negative implies sentiment is that the market will go down, Positive implication is if it doesn't the act of covering the shorts will force funds and investment houses to buy stock to cover losses.

7) The dollar appears likely to decline further. Market Influence: Both?

8) Oil is at $95 a barrel, at some point that enormous increase has to trickle down to the consumer. Gasoline certainly, but increased transportation costs, airline tickets (with two major holidays coming up), and a million other forms. Market Influence: Negative (Less disposable income, less holiday purchasing, less investment dollars)

This simplistic listing of facts suggests I should remain cautious, as there are more negatives than positives. It also makes me leery, as some may cause the "up" portion to go up steeply, and the "down" portion to fall just as sharply.

I guess this is the classic "Maalox Moment." There is no clear path, just a hint of an implication.

...and I'm thinking that herein lies the last critical test of any investor, whether he is following a schema, is a market mechanic, or just a casual rube like me; can he maintain the resolve not to chase the volatility in both directions, despite the allure or horror of a steeply moving graph?

Moving forward, I think the volatility will be part and parcel of what we'll be enduring for the last two months of the contest. My goal will be to study the basket of 15 stocks that I have already invested in and attempt to maintain a steady course. At this late stage they're known commodities and as such behave somewhat predictably in a market that is unpredictable.

I'm not a duck hunter, I'm a fisherman. That means I lack the good sense to come in out of the rain, and am patient as hell. I'm thinking my patience will be sorely tested in the coming weeks.

Comments: 0

Part of a small fearful minority, that's my fate

Rating: 1.27 not yet rated(22 votes)    Vote:

You are logged in as | Logout

I'm officially scared now.

I participated in the Tech Bubble of 1998-2000 and gleefully celebrated how smart I was - as everything I invested in went up. When it burst and everything headed south, I gleefully assumed, "this was a hell of a buying opportunity."

...the result was painful, as it kept going down, further down, impossibly down, and ...

Being a canny fellow I mentally noted, "so THAT's what they meant by 'bubble' - the stuff wasn't worth what we thought it was and eventually we all realize it about the same time." That was a very painful lesson, something I never wanted to repeat.

We had plenty of folks warning us, some were notable, some irrational, but we shrugged their opinion off like an old coat, picking one "rocket ship" after another, admiring ourselves in the mirror, giggling at how smart we were.

We weren't even half smart, and we're about to repeat the same silly mistake.

We've had dozens of companies and learned folks caution us in the last couple of weeks, and the market has shrugged them off as so much useless baggage. Today alone, both Greenspan and IndyMac have released sobering news/opinion, and the market is up another 100 points in spite of it.

"Conditions in mortgage markets are deteriorating so rapidly that management guidance often becomes obsolete nearly as soon as they publish or report it," wrote Lehman Brothers Inc. analyst Bruce Harting."

I think the stage is now set for a repeat of the 2000 plummet, and I'm digging a foxhole.

This is a contest, surely - and the money is not real, it's virtual. My desire to take part was to learn how to invest - wisely and responsibly, not just throw money at stuff and "may the best man win."

What I learned from the 2000 bubble was that I didn't know when to sell. I kept hearing about "keeping money on the sidelines to take advantage of buying opportunities" - but always wondered how that was done, I was always fully invested. With all your money in play you're a genius as long as the market goes up, and you're impotent when she starts to fall.

The rules hamper me here - I have to keep certain percentages invested or risk forfeiture. So I can't yank it all and stuff it into a mattress. I will pull money out of the market and keep some in cash and some in SDS, this will minimize both profit and losses (the classic hedge), but may allow me some protection when this beast starts to unravel.

...and it will, I think soon - real soon.

Sorry to be one of the irrational scaredy-cats, just how many times do you touch flame before you're satisfied it's hot?

As always, the best of luck to thee - remember that I got your back (from the safety of my foxhole).

Comments: 0

This "leading with your chin" stuff can be overly painful

Rating: 0.40 not yet rated(17 votes)    Vote:

You are logged in as | Logout

The "air" started to drain from the bubble this week, and while I knew what I wanted to do, the execution proved difficult.

My last post proved "scary psychic" as the following morning, Elvis left the building...

An utter novice at this shorting game, I had to guess what would be an appropriate strategy for exiting the frothy speculative positions, and hedging the remainder with SDS purchases to maintain some form of balance. The rules prevent us from fleeing in panic, and the volatility of the up and down swings suggests a slow exit for fear of some massive swing in the opposite direction.

The "frothy" portion of the portfolio was the tech stocks. I unloaded all of the VMWare and 1/3 of the EMC stock Wednesday morning before the contagion spread to the Nasdaq. Following the sale I added a position in ADM (great earnings report) and bought 1500 SDS (S&P 500 short).

With the Nasdaq starting to deflate on Thursday, I sold another 1/3 of EMC and added 2000 more SDS. The lesson learned was that not all shorts are equal, and discovered that I could get short positions on additional indices. "JAudio's" post on shorting the market showed me some of the others available. I dipped my toe in the water with a QID purchase, nothing excessive - just enough to learn how it behaved.

Additional small trims were necessary to keep the overall fund within the SLO rule set. I made small sales of POT and MOS to accomodate all the SDS purchases. By Friday's close I had purchased 4500 SDS and 500 QID, and sold all but 1000 shares of EMC.

The result was close to what I was looking for - by the end of the week the combined portfolio was down $10,000. I had hoped for "break-even" and this was close enough.

My thanks to Jonathan Coyle (Jaudio) for helping me learn some new tools available.

This week I learned I had the discipline to leave cash on the sidelines, and learned some additional options available when markets go south with a vengeance. I avoided the mistakes I endured in the last tech bubble, being emotionally tied to a stock and holding it far longer than I should. Babies are always thrown out with the bathwater, great companies and great earnings are ignored when the crowd stampedes for the exits.

That's what they mean by a "great buying opportunity" - if you rode all your stocks down and lack cash on the sidelines, it's an opportunity to "sell something you lost money on - to buy something you may lose more money on" - that's why I didn't recognize it the last time.

Pain makes the lesson permanent, and I am slowly (painfully) learning what not to do.

Comments: 3

The Term I'm looking for is "humble"

Rating: 0.24 not yet rated(25 votes)    Vote:

You are logged in as | Logout

If I take the "talking heads" at their word, the reason for today's spankage was a small upturn in the dollar, coupled with low volume. "Low" is a bit subjective, the Bond Market was closed, and most of the reports I heard suggested the volume was "light" or "lower".

I even had the day off to watch my empire crumble; the barbarians entered the castle, made off with the wimmenfolk and my treasury - while I mowed lawn, and did laundry..

It illustrates how little I know, and how much there is to learn about investing. Specifically, it shows me the weakness of my "style" - commonsense investing.

Perhaps there are multiple commandments that dictate my behavior, these are the ones I can articulate:

1) Only invest in what you know, don't leap into something just because everyone else is doing it.
2) Attempt diversity, if you don't know enough things to be diversified, learn more.
3) Do not chase things, they always seem to run faster than you can.
4) Don't ride stocks to their grave, set a number and sell ruthlessly.
5) Short where appropriate, using the proper vehicle.

I learned #4 and #5 while participating in this contest. Like all other rules these take practice.

None of my rules helped me today, and therein lies the weakness of this strategy. All I could do was dump stocks and bank the cash, leaving the shorts in place hoping the tide would swing in their favor. While they did in the end, it was not enough.

I had a bad feeling about all of this early - right after I discovered every stock I owned in the red, and in a big way. FCX, POT, MOS, all were headed through the floor, and they weren't even stopping to wave..

I exited FCX, EMC, BHP, CNQ completely. It seemed all of my stocks were the frothy speculative kind, and even the shorts were losing money. Safe haven time, as I pulled nearly 400K onto the sidelines, and added to the NASDAQ short QID.

Chores were undone and watching the stock screen was understandibly depressing, so I checked out. I returned just before the closing bell to survey the carnage with awe. I saw devastation and damage, and assumed (contrarian?) that some may actually be bargains - so I bought 500 FCX and 500 POT, both were "double digit" down, and I assume will pop briefly on speculation tommorrow.

The lessons learned today are valuble to me alone; shorts cannot make up everything, and yanking the money is the only tool left in my arsenal. Rule 2 applies here, as there are likely other things I could do, possibly even other investments I could own, that could hide money from the worst volatility. Rule 1 requires me to know about them before I can invest, so this is a long way of saying I have homework, lots of it.

In the meantime, I'll just lay here in the fetal position, learning humility.

Comments: 4

Double? Ultra? That means the brick wall is twice as hard

Rating: 0.21 not yet rated(8 votes)    Vote:

You are logged in as | Logout

Education week is what I called it.

I started off researching short funds to see what additional tools were available, the market assisted me with an environment that seemed to trend downward most days.

Part of the research was simply to witness the behavior of short and "ultra" short securities to see what kind of protection they offered, the balance was to learn what kind of vehicles were available. The Market is just like Las Vegas, as they make "book" on anything - digging out those esoteric funds was the first step.

That turned out to be the easiest part of the exercise as the ProShares website offered enough of them for me to be studying for many months.

I saw a couple of desirable outcomes:

a) Playing Defense: If I am long financials, and financials start to plummet, can a hedge protect me from any loss - and if it can, how much would I have to purchase to cover the long position?

b) Playing Offense: In a period of mixed market activity, wherein I think the long term trend is down, is it possible to treat shorts as a profit tool?

I knew I wouldn't be able to get a definitive answer to either question in a week's worth of transactions, but I did hope to gain insight into their behavior to begin my education.
Education is always painful, it's not often I put my nose in a collision course with a brick wall, but after the wound is bandaged, I usually have learned something valuable.

I started with the Big Stuff, shorting the major indices. SDS (S&P), QID (Nasdaq), and DXD (Dow30), and the results were poor. "Big Stuff" never behaves like an individual stock, no "rocketship" upward, nor calamitous downward spiral. If I guessed correctly (on the Index I shorted) a 1000 share purchase yielded around $1000, sometimes more, oftentimes much less.

Lesson Learned: Shorting the "Big Stuff" will not be an adequate hedge against your long position, it may lessen the impact of the bullet, but a fast paced downward move will still remove your spleen.

Lessening the damage is OK, as it's part of the known Market game, you cannot be right all of the time, so "not being hurt as bad" is still a form of moral victory. You just can't afford to pay for the kid's orthodonture and college, at some point he'll have to get a job...

A couple of days opened poorly and went further south, with a position of 2000 shares each of QID, SDS, and DXD, all I salvaged was $5000. These were not "dramatic" down days, perhaps the Market was down about 100 points. Factoring in the costs of the securities, ~$300,000, it's a rather poor rate of return.

With a long position of $1,000,000 the loss was $27,000, the shorts made that $21,000. From this single day, I would have needed $1.50 short for every $1.00 long to cover the portfolio completely.

By Friday I was ready to short the "Smaller Stuff" - individual industries. I assumed they'd behave more like a stock than the large indices, but still not have radical movement like an individual company. It's still all guesswork, meaning there's nothing inherently easier in picking an industry versus a stock, many web sites (like Google Finance) show the behavior of the industries, but you still have to guess whether it will continue in one direction or another.

I didn't have an opportunity to test the smaller indices with the same vigor as earlier in the week. I ran out of trading days was largely the issue - so I'll continue the "brick wall nose flatten" educational process next week. A word of warning is also in order; as these smaller short funds trade much smaller volume than other stocks. The Marketocracy simulation only uses a portion of the market in its trading, it takes forever to accumulate a normal position in the esoteric shorts.

I tested a hedge of my "Basic Materials and Ag" SLO fund with the SMN (Basic Materials Ultra) Short, and it took 25 minutes to fill an order of 1000 shares. In the market we're currently in - 25 minutes is a lifetime, as it can spiral either direction 100 points or more.

I have to guess, but a smaller order should be filled quicker, so you may want to buy these 100 shares at a time. I will have the same trouble selling this beast, so a word of caution for those that may attempt something similar.

Extend that word of caution to any of my advice actually, never invest based on the opinion of a guy rubbing his nose...

Comments: 2

If I short Santa am I a Godless Heathen?

Rating: 0.16 not yet rated(11 votes)    Vote:

You are logged in as | Logout

Dear Santa,

The cologne was appreciated last year, a piquant scent reminding me of a cross between a Chevron station bathroom and a lit cigarette.

I got a problem this year, Nick... times is a bit rough, what with the increase in gasoline costs, my mortgage ratcheting up a couple of points, and the decline in the US dollar, I'm liable to be hard pressed to take part in the traditional yuletide spending orgy.

No sir, this is no reflection on you, but a lot of folks are in a financial pickle that may require us to tighten our belts considerable. All the high end consumer electronics are made offshore, and the increase in their price will downsize my gift giving somewhat.

I was concerned due to the quasi-religious nature of the holiday, that the Big Guy might see me in a dim light and was hoping you might ease him down a bit. I'm more of a Bob Cratchet than an Ebenezer Scrooge, so if he would lay off the Ghosts of Spending Past - I'd appreciate it.

Mr. Kringle, I'm going to short Christmas this year. I wanted you to hear it from me, rather than word of mouth. I'm neither a communist nor a godless heathen, I'm attempting to be an unbridled Capitalist, which may be worse.

We've had a good run in the past, and I still have those plastic army men you left under the tree when I was six, and I assume that Redhead I met on Xmas Eve a couple of years ago was your idea too, all were greatly appreciated. Let me weather the next 18 months in this new role, then I promise to be back in my usual form.

As a side note, your cardiologist suggested that I not leave the milk and cake next to the chimney this year, instead it'll be Tofu and Bran flakes - my apologies, but we've all got to learn to live with our excesses.

Your Pal,
Kbarton10

Comments: 2

"Paris Hilton" investing - how underwear is overrated

Rating: 0.40 not yet rated(5 votes)    Vote:

You are logged in as | Logout

Toss "buy and hold," market mechanics, and all the conventional investment strategies, it's much more fun to use "Paris Hilton" tactics ... it's expensive, you have to like lapdogs, and underwear is optional...

The last ten days had me polishing my education on shorts; the week before last was shorting the Big Stuff, the last two weeks I've been observing how the industry shorts behave. All quality education is expensive, and learning how these act (and react) was no different.

Disclaimer: I violated all the rules outlined in my previous post intentionally. Investing in shorts that I didn't know intimately, chasing market ups and downs, and ignoring diversity, all sins committed in the name of Science, perhaps one day I'll be forgiven.

The ProShares website offers these ultra-short industry options, and with the market up 300 one day and down 300 the next, there was ample opportunity to try some of the below, and lose a hell of a lot of money quickly.

As a fisherman, you have to wade aggressively even in unfamiliar water, so I tossed my rulebook and adopted the "Paris Hilton Investment Model." It's a simple strategy really, you discard your underwear, carry a small dog, point at different stocks, and say "that's Hot."

After the contest I'll make millions promoting the strategy..so what's a little loss now?

Yes, I lost money, but the education was priceless. Industry ultra-shorts behave like single stocks, their swing in price can be sudden and violent. I was expecting a slower "Index fund" behavior, and I was often very wrong. It's not uncommon to have a ProShare Ultrashort swing $5 - $10 multiple times in a day, so if you fiddle with these make sure you're prepared for a wild ride.

If you keep an eye on JAudio's portfolio, you can see how wild. A 200-300 point move in the market upward and he's down 70-100K, a similar move on the downside, and he's suddenly in first place...

The "Implements of Mass Capital Destruction" are listed below, along with their ticker symbols.

UltraShort Basic Materials SMN
UltraShort Consumer Goods SZK
UltraShort Consumer Services SCC
UltraShort Financials SKF
UltraShort Health Care RXD
UltraShort Industrials SIJ
UltraShort Oil & Gas DUG
UltraShort Real Estate SRS
UltraShort Semiconductors SSG
UltraShort Technology REW
UltraShort Utilities SDP

The Google Finance site has an industry indicator, it's rudimentary and is delayed 20 minutes - but it's enough of an idea for the Paris Hilton Method. I tried SRS, DUG, SKF, SMN, and the China short FXP over a 10 day period and hit paydirt one and a half times. On the Fannie and Freddie announcement I had shorted Real Estate (SRS) and Financials (SKF) and both went up nearly 11 points during the days trading. With the overall market down 230 points for the day, my portfolio was up by $22,000.

But let's not dwell on the single success story, it's more fun to share the misery...

I assumed that industry shorts would be a Roulette bet; rather than picking 16-Black (individual stock) I would bet Black (Index). On the surface it sounds much easier, perhaps in a sustained market it is, but with a market as volatile as this one - people pile into and out of industries just as fast as individual stocks.

Armed with a 20 minute delay, no underwear, and a flatulent dog - I was in a world of hurt.

Orders for these fill at different speeds; SKF and SRS were filled quickly and sold fast, SMN would take 20 minutes or more to fill an order of 1000 shares, and would take another 20 minutes to sell ... a bad choice in a fast moving market.

I found shorts strangely dilutive - as a rising tide does not lift all boats. With my newfound knowledge I could buy a stock that I thought would go up (normal style investing) or I could buy a short in an industry that wasn't following the rest of the market upward. I wrestled with this constantly during my test - as I was trying to learn shorting, and if the market went up a couple hundred points I was disappointed ... Now I know why I can't stand stockbrokers, likely they're always angry at something.

Friday I surfaced a new glitch, I purchased an UltraLong (the opposite of UltraShort) and was charged a fictitious price that was 15 points higher than the security achieved all day. Some type of Marketocracy bug, so I decided to end my education - an instant $15,000 loss had me opting for the GED rather than a diploma.

I really enjoyed myself, moreso than any other facet of the contest to date - the bitter lessons learned will likely be used many times in coming decades, and during all the "bubbles" that follow. By then Paris Hilton will be an afterthought - and I'll re-invent myself as Dr. Strangelove - the guy yelling from the Atomic Bomb as it drops..

As always, luck to you - and let's be careful out there.

Comments: 6