12 November 2012

The Eight Scariest Charts For Equity Bulls : From Zero Hedge

The Eight Scariest Charts For Equity Bulls

It would appear Mark Twain's infamous quote that "history does not repeat, but it does rhyme" has never been so apt. The following eight charts suggest the rhythm is getting louder and louder. How is it possible? It's nonsense? Well at the heart of the markets, it is still us humans and our endearing greed, fear, and heuristic biases that drive the flows... trade accordingly.

The current price action in the S&P 500 is eerily similar to the movement leading up to the collapse in 1987... (via Bloomberg)

The Dow is also tracking this move almost perfectly over the last two years...(via Citi)

The next three charts are particularly concerning...
Here is the Dow leading up to the 1987 drop - showing its distance from the 55-week average and the collapse once it crossed... (via Citi)

here is an unnamed stock's price action (percentage change) over the past three years...(via Citi)

and AAPL's price appreciation from the lows in 2009 and its 55-week average...(via Bloomberg)

It's not just 1987... Here is the Dow analog again the 1977-78 period and 1905-1910 period... (via Citi)

and the Dow Transports are playing out a very similar pattern to the 1960s-70s... (via Citi)

And a Bonus Chart - for those who prefer to look at Bond Analogs... Here is the current move in 10Y US Treasury yields overlaid on 1992's movement... spooky no? and somewhat fits with a view of weakness into year-end, downgrade on debt-ceiling and collapse... (via Citi)

Machiavelli accounts for this 'repetitive' oscillation by arguing that virtù (valor and political effectiveness) produces peace, peace brings idleness (ozio), idleness disorder, and disorder rovina (ruin). In turn, from rovina springs order, from order virtù, and from this, glory and good fortune.
Machiavelli, as had the ancient Greek historian Thucydides, saw human nature as remarkably stable - steady enough for the formulation of rules of political behavior. Machiavelli wrote in his Discorsi:
Whoever considers the past and the present will readily observe that all cities and all peoples... ever have been animated by the same desires and the same passions; so that it is easy, by diligent study of the past, to foresee what is likely to happen in the future in any republic, and to apply those remedies that were used by the ancients, or not finding any that were employed by them, to devise new ones from the similarity of events.

“Everything that needs to be said has already been said. But since no one was listening, everything must be said again.” — André Gide
Charts: Citi and Bloomberg (as marked above for clarification - not all charts are sourced from Tom Fitzpatrick of Citi)

16 September 2012

Book Review : The Value Investors: Lessons from the World’s Top Fund Managers

Chan, The Value Investors

Ronald W. Chan introduces an interesting cast of characters, many of whom may not be familiar to readers. In The Value Investors: Lessons from the World’s Top Fund Managers (Wiley, 2012) we meet Walter Schloss, Irving Kahn, Thomas Kahn, William Browne, Jean-Marie Eveillard, Francisco García Paramés, Anthony Nutt, Mark Mobius, Teng Ngiek Lian, Shuhei Abe, V-Nee Yeh, and Cheah Cheng Hye.

Irving Kahn, age 106, has the distinction of being the oldest living active investment professional. Both he and Walter Schloss, who died this year at the age of 95, were students and later employees of Benjamin Graham, so they have impressive value investing pedigrees. Their first jobs were with Wall Street firms; eventually they founded their own highly successful businesses.

I mention the job history of these two men because I was struck by how relatively late in life (of course, not by Kahn standards) many of the value fund managers interviewed in this book found their true calling. Mark Mobius, for instance, of the Templeton Emerging Markets Group fame, started his career as a business consultant (to be more precise, a consulting research coordinator) in Tokyo, studying consumer behavior in the region, and later founded his own research-oriented business consulting firm. Cheah Cheng Hye, co-founder of Value Partners, the largest asset management company in Asia, worked in journalism for eighteen years before he entered the financial world as a stock analyst.

Other future value fund managers started off in finance but faced a different kind of hurdle. They were hired by firms who were devoted to growth investing. They felt uncomfortable in their jobs, though not necessarily understanding why. It took them some time to realize that they were, for whatever psychological/intellectual reasons, at heart and in mind value investors.

Value investing is in many ways an intellectual no-brainer. It’s smart bargain shopping. You buy a lot of pasta at 50% off because the supermarket messed up its inventory but avoid the strawberries that are on sale because they’re half rotten. Simple enough. On the other hand, value investing is extraordinarily difficult emotionally. You buy a stock that you think is undervalued only to see it become even more undervalued (and that’s if your analysis is correct). You may buy more if you’re self-confident, but you have no external validation. The market is telling you that you got it wrong. And, yes, the market is often right.

The value investors that Chan profiles, all of whom have handily beat their benchmarks, are not a particularly stressed lot. In fact, many of them explain what investing techniques they use (in some cases merely diversification) to be able to sleep soundly at night and avoid stress. I suspect, however, that the real explanation lies not so much in methodology as in personality. It takes a special kind of person to take the inevitable lumps (such as not participating in the dot-com boom) as well as to enjoy the long-term, often slow-grind upside of being a talented value investor.

Chan’s book is a good read. Value investors may make some new international friends. Struggling individual investors may find a style that resonates. And frustrated, antsy twenty somethings may come to realize that life doesn’t end at thirty.

11 February 2012

Nifty Breadth Update

After a long overdue bounce turning into a bull market, Nifty is showing signs of exhaustion and a potential short term reversal. Will this expected short term reversal turn into a bear market? A test of 5200 should be definitely expected in near future, below 4800 things will become dangerous.

01 January 2012

The New Year : UpsideTrader

learning The New Year
“The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.”-Winston Churchill

Amateur night is almost upon us as people form all corners of the world will try and  channel positive karma and hope for the new year. It’s just a date on the calendar, truth is we can all change ourselves for the better at any second of any minute in any hour anytime we want. We just use this date to try and memorialize it. The liquor industry loves this day as clubs, saloons and gin mills go eight deep at the bar. Teetotalers will break down their wall and do shots of tequila while wearing propeller hats. They will vomit violently at several points as their Gucci’s become ruined. They will also realize during this violent act of reverse peristalsis how little they chew their food. In some rare cases arrests and divorce filings may result. Tomorrow morning, most will wish they just stayed home and ordered Chinese food.

Many Danish leap off chairs at midnight on New Year’s, hoping to ban all bad spirits in the new year.
At midnight on New Year’s, Spaniards consume 12 grapes and try to consume all of them by the time the clock stops chiming. They will worry about solvency on Monday.

In South America, those who wear red underpants, are hoping for love in the new year. Those who wear yellow, are wishing for money.

The ancient Greeks paraded around in the streets with a baby in a basket on New Year’s Day. It’s part of the cradle to grave thingy.

Fire crackers are set off to frighten off evil spirits on New Year’s Day in China. They will create new and exciting ways to cook the books on their public companies on Monday.

The Romans began a tradition of exchanging gifts on New Year’s Eve, by giving one another branches from sacred trees, for good fortune. Berlusconi just sits around with hookers.

88 percent of all New Year’s resolutions end in failure.

As far as the market and trading goes this year, it will be more of the same for me. We are all a work in progress as traders, so to say that there the wont be tweaks and nuances would be a lie.

1- All media is shut OFF during trading. What Mike Holland and Bob Doll think I should do is meaningless. Please realize that when they come out positive on a stock it’s for a three year hold, if that’s your thing then have at it.

2-The hardest thing to do, tell myself every morning that what I think couldn’t be more meaningless. I may think the market will get crushed for a multitude of reasons, but if the tape is higher, I will just be long. Same goes for the short side.

3-I think my longest hold in 2011 was one month. I may extend that time frame on certain names. Almost perfect entries will be of utmost importance.

4-Based on that, more hedging will need to happen.

5- I will have more exposure to global markets both long and short, there will be a lot of action there.

6-No trend no trade. If it ain’t happening I’ll watch and wait. I don’t have to be in it to win it all the time.