Month: December 2011

Would you buy, hold or sell this chart?

The similarities between mankind’s innate tendency to behave irrationally in markets and neurosis always astounds me.

Mowrer nails it here some 60+ years ago in his discussion of the neurotic paradox, 30 years before Prospect Theory was published…

Most simply formulated, it is a paradox – the paradox of behavior which is at one and the same time self-perpetuating and self-defeating! …Common sense holds   that a normal, sensible man, or even a beast to the limits of his intelligence, will  weigh and balance the consequences of his acts: if the net effect is favorable, the action producing it will be perpetuated; and if the net effect is unfavorable, the action producing it will be inhibited, abandoned.  In neurosis, however, one sees actions which have predominantly unfavorable consequences; yet they persist over a period of months, years, or a lifetime.

-O.H. Mowrer

This is a guest post by my friend Fred Viole at Ovvo Financial Systems. He’s doing important work in behavioral economics. Please take a few minutes to respnd to his survey.

Please help further research into Prospect Theory by completing this short survey.  It is 18 questions and takes no more than a few minutes to complete.  The additional qualifications and updated amounts from Kahneman and Tversky’s 1979 seminal work will help us explain the violations to expected utility theory and the individual nature of risk-aversion. Thank you for your participation.

Click Here To Begin

 

 

I still own shares of $SAM from the IPO.

It was 1995, I was in grad school and the company asked customers to send in a check for 495$ along with a proof of purchase of Samual Adams product  for a chance to own 33 shares at 15/share.

Then, those who submitted were chosen at random to get shares. I did this and got shares as did my sister Ellen.

I now have an (almost) 8 bagger over 16 years and have always maintained an affinity for the product not only because they make quality beer but because I always felt like an owner and a part of what they were doing even though it was only a very small position.

Perhaps, I should sell it here but I likely never will.

More consumer product companies should definitely do this – give their customers first crack at owning shares.

First off its fair. Second, it would probably save a ton of money in investment banking fees. Third, it would add excitement and attention to the IPO. And fourth, it fosters affinity over time as users feel like they are really a part of the company’s success.

Social media companies should definitely do it. Users would go bizonkers for ($FBOOK) and Twitter ($TWIT) shares and it would be fun to talk about on their respective sites as the date approached and afterwards.

turn it up…

Ok. So the game appears to be afoot again.

There are reports from multiple sources that the $YHOO board will meet again today to consider a deal for Asian assets.

People get excited every time as evidenced by price and volume spikes but as I have said, leaks to the media in these situations do not occur by accident. They occur because one party wants to try to influence other parties.

So gleaning information from the news articles written every time is akin to the Charlie Brown trying to kick Lucy’s football.  What a tease that Lucy…

This is why I sell covered calls (more recently on only half of my long position) when this occurs. Yesterday, someone bought JAN 17.5 calls from me for .4 on half of my position.

With the stock near 16 off the spike, that was 2.5% for an option 9.5% out of the money with 20 trading days until expiration. And so I am capped at 17.9 on half of my shares until January 21st.

Think about that for a sec and then check out the chart below and you can see the opportunity to enhance yield (or lower basis) on each rumor mill cha cha cha…

One of these go rounds there will likely be credence to reports and it may very well be Xmas 2011 (w00t!) but there is no way of knowing which time and at what price.

None.

 

 This is the second part of the Thriving in a Tough Tape series. You can find part 1 here.

…the master of Judo never relies upon his own strength. He scarecely uses his own strength in the greatest emergency. Then what does he use? Simply the strength of his antagonist. The force of the enemy is the only means by which that enemy is overcome.

– Lafcadio Hearn

Take what the market gives you.

If its up big one day like it was yesterday, you trim a long or write a near dated covered call. When the market gets crushed, that is when you do your buying and so you must have a buy list.

I view this as trading Judo where you use the weight and force of the market to your own advantage and stay prepared and even keeled.

The $SPX was up almost 3% yesterday and many were caught off balance or scrambling to get long even while we have seen a bid market turn to an offered one repeatedly since June.

It has been like this for a while with the market making seemingly lunatic moves down and then up and then down again.

Eventually, we will have a sustained trend again and you will also have opportunities to use the market’s imbalance to your advantage but it will be a very different quality of imbalance.

Many of those who are still trying to trend trade now, swing breakouts or, worse, chase are getting chopped about and at best churning their accounts.

 

What’s your favorite one stock for 2012?

Please reply in the comments section of this blog post and include a rationale.

I may pick one answer to include in the Globe and Mail Poll (or pick my own).

Update: Can be a short or long.

As cool as the pale wet leaves 
of lily-of-the-valley 
She lay beside me in the dawn. 

-Ezra Pound

Tweeting to a large audience from @StockTwits, we sometimes get strong reactions.

When posting links, our intent is to surface content that is original, valuable and thought provoking.

Our own subjective point of view is not really relevant. We will post content with which we disagree, agree or have no opinion.

We give the reader the benefit of consuming content intelligently through his or her own lens and reaching conclusions. Its never about supporting a cause.

Sometimes, there will be readers who get upset, lash out or unfollow us because of something we have retweeted. That is the price we pay for holding those who click on our links in high regard. We can deal with it and consider it a small price to pay.

Further, we view the content itself as independent of the author to a great degree. Once the work is published it stands apart from the creator of it.

Pound (quoted above), who grew increasingly unstable as he aged, supported Mussolini. He was a fascist.

Does this make the poem, by itsef, any less beautiful?

In November, the Associated Press published revised Social Media Guidelines for AP Employees. The section titled “RETWEETING” reads:

Retweets, like tweets, should not be written in a way that looks like you’re expressing a 
personal opinion on the issues of the day. A retweet with no comment of your own can easily 
be seen as a sign of approval of what you’re relaying. 

Example:
RT@jonescampaign smith’s policies would destroy our schools
RT@dailyeuropean at last, a euro plan that works bit.ly/xxxxx.

These kinds of unadorned retweets must be avoided.

Journalists must be able to grant their readers the freedom to misinterpret.

If they do not, then they will never be able to communicate up to the vast majority responsible and smart enough to get that ideas are not a reflection of the person or establishment representative who is passing them along.

It is unfortunate that a large media organization is attempting to throttle the curative voice of its journalists.

Likely, it is a result of the disruption caused by the internet and new publishing platforms which foster autonomy for content creators.

It is a part of the same controversy Bill Keller stepped into criticizing The Huffington Post and soon after stepping down.

Traditional news media is threatened by new technology and the media it supports and so instead of processing, integrating and employing, it resists, clenches and retaliates.

Such a posture will only disillusion and then alienate the most talented voices.

Quick Note:

Seems like there is a bunch of negativity on the stream and the tv this morning even as the futures appear to indicate only a modest decline at the open.

Two reasons for this.

1. Underlying the tape there continues to be an abnormally high level of chronic uncertainty and anxiety which magnifies sentiment reactivity. Everybody’s jumpy …

2. The Spooz was up ten earlier this morning and has since faded.  This one is worth noting as it exemplifies the relative nature of sentiment. If we’d been down 10 and now flat, sentiment would be more chipper.

Objectively, it matters little where we’ve just been even though we can’t resist shading spot prices with the emotional residue of the immediate past.