This may not be plannable, but I wonder how one can avoid stocks that get large price setbacks by kind of refinancing themselves. Not sure of the terminology, but some companies issue a lot of new stock or bonds and while it may be seen as good for the company, the original shareholders either have to share future profits with new shareholders or be burdened with higher leverage via debt. Maybe the money is to acquire some other company or expand into unknown areas which is hard to evaluate fundamentally.
I would guess small high growth company stocks get hit the most from this, but I hate to avoid them all. I have heard warnings about companies like they are shareholder unfriendly and liable to do this, at least for a certain time window. So it would be nice if there is a way to "plan" around this and avoid likely double digit percent declines or whatever. Maybe it will bounce back over the years, but the price action suggests others think not?
PS, this article tells why records may need saving for more years than usual:
I will propose an answer to myself... I think this is part of a larger problem of the market punishing stocks hard on the slightest excuse, especially if they are perceived to be in "weak hands'. For example Safeway was recently praised on a super popular stock picking TV program. Today it announced reasonable but not great earnings and crashed 16%. I don't know if predatory folks are shorting it or standing off to buy it at a bargain, but typically these violent pukes on soft news lasts at least a couple days... enough to squeeze out the amateurs. Then a quick halfway recovery, but only a slow full recovery.
Two thoughts: first, that **if true** that's hardly a problem, because it creates constant opportunities for rational investors. And second, isn't "super popular stock picking TV program" an oxymoron?? I don't buy the premise that any of them have true, lasting impact on stock prices, simply because of their limited audiences. Short pops on small/micro-caps, maybe, but I think it's just noise (in the sense of, "noise traders")...
I'm guessing you're talking about recapitalizations - issuing new stock, levering up with a bunch of new debt, paying special dividends, etc.
Unfortunately this may be the sort of strategy you can only apply with hindsight. You'd only want to avoid the stocks that go down after a recapitalization, not all of them. But how would you predict which ones will be the lousy ones? I don't think these are categorically bad, though some certainly seem designed purely for the benefit of the investment bankers involved! And for some companies - REITs come to mind
- it's just a routine part of business (REITs need to do this to expand, because they pay out most earnings as dividends).
Ahh, you must be blessed with not watching cnbc Jim Cramer's Mad Money tv show. Many of his strongly recommended stocks shoot up the next day or two. He warns of this and says to buying, and you can see why. I hate it when he mentions stocks I was thinking of buying because it truely does pop a lot. I suppose there would be good opportunities for stocks he slams... I will have to watch for that. I hate watching his hour long nightly show, but it helps when his fundamental stock choice agrees with my different screening approach. He is wrong a lot (without my brilliant screen - grin), him being until recently a blind fan of gold and apple.
Anyway, think back to the flash drop a few days ago due to algorithm programs getting tricked by the false tweet... I think a similar but probably human trade is going on that particularly attacks run-up stocks on the slightest weak news, trying to break the confidence of marginal players. Like I mentioned with reits, safeway, and several in the refinance category... I'm used to seeing a little weakness but recently it is vicious in the double digit declines. The next day usually compounds the problem as panic spreads. While it may recover, the back is broken momentumwise and it tends to become a cripple. Based on news chatter, I suspect this is due to a new predatory style of trade tactics.
show. Many of his strongly recommended stocks shoot up the next day or two. He warns of this and says to buying, and you can see why. I hate it when he mentions stocks I was thinking of buying because it truely does pop a lot. I suppose there would be good opportunities for stocks he slams... I will have to watch for that. I hate watching his hour long nightly show, but it helps when his fundamental stock choice agrees with my different screening approach. He is wrong a lot (without my brilliant screen - grin), him being until recently a blind fan of gold and apple.
getting tricked by the false tweet... I think a similar but probably human trade is going on that particularly attacks run-up stocks on the slightest weak news, trying to break the confidence of marginal players. Like I mentioned with reits, safeway, and several in the refinance category... I'm used to seeing a little weakness but recently it is vicious in the double digit declines. The next day usually compounds the problem as panic spreads. While it may recover, the back is broken momentumwise and it tends to become a cripple. Based on news chatter, I suspect this is due to a new predatory style of trade tactics.
Stronger than that - I don't watch CNBC at all! Seriously, I consider it to be bad entertainment packaged as information, with a goal of driving advertising revenue. And it's a backwater, based on Nielsen ratings. With Cramer specifically - look at the studies of his picks, on average they do worse than the market and "no better" even if you could buy them before he makes them. I suppose someone looking to play few-day pops and drops might watch that stuff but why bother with that?
I don't buy that algorithm trading had much to do with it; who decided that, and how do they know? A news item like "White House Attacked" should make the stock market go down no matter what the microstructure of the market is. I can recall incidents where incorrect news moved individual stocks or even the whole market temporarily, long before algo trading existed. This phenomenon is fundamental to penny-stock pump & dump schemes - propagating false news drives up the stock, until the information can spread to drive it back down again. Again, nothing to do with algo trading, everything to do with news propagation/lags.
More generally, I think all of these topics get back to a theme - that it's impossible to game short-term trading, through Cramer picks, or deciding whether algorithm trades are breaking down, or whether someone somehow is "going after" a stock to drive it down. I truly think it's all noise, and investing gets a lot easier once you completely dismiss noise trading and all the information outlets related to it. I guess the farthest I'd go is trying to play the upside of it - e.g. if a small stock spiked with the only news being a mention by a TV talking head, maybe that's time to pare it back...because on average, TV talking heads provide no useful information.
In my timezone I stay mostly glued to CNBC London or CNBC Hong Kong financial newscasts. The London one can be amazing and about 100 IQ points higher than any financial stuff on TV. When hosted by Geoff Cutmore, it has the most probing discussions with top economists - as well as with some of my emails (grin)... very useful for macro economics and for instance gave me confidence in staying in the titanic rise of the BRICs which allowed me to retire early.
The Hong Kong and New York feeds of CNBC give useful ideas; even when they are all wrong it helps to have suggestions that spurs you to delve deeper into timely issues and learn about them more from other sources. I sometimes leave the sound off and just glance at banners with the main points.
Cramer is extremely useful, but not for implementing his buy/sell choices. I hate his program and try to fast foward thru much of it, but it is the most must-see thing for me on NY CNBC. He may discuss scores of stocks, half suggested by his viewers, and highlight their fundamental, regulatory, or sector issues in a few seconds that would have taken hours for me in what is anyway only a pre-screen feed (among others) for my real screen. He brings up the right questions, and we can find answers for ourselves.
And he has been right on in debunking the popular macro fears of the day... calling out most of the recent fear swoons as false, and correctly urging folks to stick with their asset allocation. A day or two before the 2009 bottom he again gave a carefully reasoned analysis of overall book value, dividends and such and correctly called the bottom. His fame is for a stock picker which he is bad at, but in the process he provides valuable macro or micro info.
The story of his life might endear him to you folks... proving to be a disastrous intuitive stock picker, he wound up living in his car and diverting rent money to fidelity funds. Later he came up with more systematic researched way to buy and sell (those who can't do... teach?) and doesn't encourage turnover... just "consider" selling every week so you don't forget why you bought each position.
I thought the response was in micro seconds; too fast for humans.
CNBC has top traders... heads of hedge funds and such... saying something new is wrong and unfair for the retail investor, as well as hard to deal with themselves. In europe they have banned shorting of banks due to the clear evidence of piling on of short attacks. In the US we put up with this because it provides transparency as well as liquidity. But with the super fast algo's or predatory traders, a stock can be broken so deeply that it appears to take a year to recover.
You should not assume this is an issue just for fast trading... a quick 20% change around the time you want to get in or out is painful. Even the little 3% Cramer bump when he recommends a stock is maddening, because it seems to be due to gaming by the big boys, not the small retail demand. He has warned to not buy his recc's for a couple days due to this. That 3% is a small annoyance that will be smoothed out over time, but I seem to see the same thing on a bigger scale.
Only recently, multiple stocks I bought have crashed 20% a few days later based on some trivial news. This never happened before and is out of character with years and years of each of their price performance. True, it isn't fatal because their fundamentals are still good, and the performance before and after the dip will be adaquate to keep up with indexes. But it has every marking of short attacks that are so deep and profound that it breaks the outperforming momentum for a long time. Your money will do better elsewhere, but now you have to pay the tax to the predators to get out early.
Could the last statement I snipped above be related to the first three? Could those drops reflect risks related to these media outlets, the kinds of stocks they talk about, and the "illusion of urgency" they create (to increase viewership and therefore ad dollars)?
Ha-ha, you are stereotyping here... but thanks for inviting clarification. I don't trade Euro or Asian stocks (maybe I should) and those branches of cnbc rarely talk about indiv stocks... it's more like macro/sector/geo economics and financial news for business managers and professional financial folks. I don't think those geographical regions have many retail investors and it's broadcast in a cheap low def broadcast format anyway.
They used to be very beneficial for investing in foreign funds that massively outperformed US ones... now it's mainly useful to me to get a read on the shockwaves that Cyprus, Greece, China may be sending to US stock and commodity markets. Nice just to hear smart people interpret the news, and they are cheaper than my old favorite magazine The Economist. While traveling I had chance encounters with a regular interviewee, the Easyjet empire founder Stelios, and we got along fine picking up on where cnbc London left off.
Now for the flashy NY CNBC, I very rarely use their info on a particular stock. Instead I use two parallel filters that automatically screen all US stocks down to a manageable number based on encoded criteria, then do a different manual final analysis on those. To introduce a little diversity, I have added some Cramer stocks (usually suggested by his viewers) only as another input to my manual final analysis (which ignores his spin). I originally hated the Cramer show, and only taped the first 5 minutes because the macro introductory comments could be very wise. Stereotype such programs as you like, but they can be useful in unintended ways. Remember, from a distance a garden appears mainly manure and mud, but closeup 1% of it may be exquisite.
I think there is too much cynicism here, that trying to beat the market is doomed. My intnl/macro interest led me to quite greener pastures in past years, and even to big domestic outperformance by equal weighted indices. I posted the spectacular outperformance of them until recently, and now the Cass Business School in London gives me backup in Financial Times "Monkey beats man on stock market picks"
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Notice that while monkeys making random choices can usually easily beat the sacred cap weighted indices, that simple timing tactics can improve the cap weighted ones... says those well qualified heretics. And to circle back to the common issue of my last series of topics... an active mutual fund manager said on CNBC today that this is the rabbit market. Hunting rabbits without dogs mean the rabbits that stick their heads up get blasted, but the ones crouching still are never seen. Similarly steady outperformer stocks are now getting viciously attacked by the hedgies, etc who don't have their normal volatility market setbacks to play with. He says therefore stick with the slow growers, but I think it implies to sell the fast growers before any planned announcements.
I hate to do that, but it just seems like it would work. I am not suffering because of several 20% setbacks... 85% of my picks are almost always greatly beating sp500 on the plots I keep on webpages for all to see. But my criteria of
5 months steady outperformance with still reasonable peg ratio seems to be specifically under attack at about the sixth month. I can read your mind that I should make more conservative choices like that fund manager suggested, rather than sell before news... ahh, I wish I could just return to etfs but they seem to have uniformly boring returns.
Funny, I almost closed the last post with I'm off for lunch over the Economist - my Monday routine. I think nobody does a better job of covering the macro stuff, it's worth every penny. FT as well. Those are key info outlets for me that I consider orders of magnitude better than anything I'd glean from TV sound bites. As much about the format as anything - 10 pages on energy use in China vs. a 45-second piece and some hedgie talking his book, or a smart economist given only 30 seconds on a complex topic. Simply put, TV is way too slow, in a limited workday.
I don't think that, but I think the methods most people (including paid pros) use are low-probability - high-turnover stock picking, playing macro themes that even specialists can't grasp or predict, sector plays, etc. I see financial media as playing a role in this by not pointing out that these are low-probability methods - why would they? It would be boring to keep saying see, if you (still) own these 5-6 index funds you're sitting pretty and incidentally, beat the hedgies collectively. Who would watch that daily? Note that as of this moment, with the S&P
500 at an all time high and many other indices close to it, the winning strategy for the past decade has been "do nothing, ignore your investments" (assuming regular saving & a diversified mix of index funds). Think of all the commentary spewed in the interim, and time wasted watching that commentary.
I now have the confidence of hearing, and ignoring, commentary like that for many years -- I firmly believe they have no idea what they're talking about. This specific narrative doesn't hold water. If hedgies are attacking quality stocks (how exactly?) to drive them below their real value, isn't that an excellent opportunity for long-term investors to buy on the cheap? And don't other hedgies, or big institutional investors, know that, so they'll buy in and prevent the dip from persisting, or even happening? Ditto algo trading which I see as zero-sum minus costs. If it wasn't we'd be seeing much bigger tracking error in the big index funds due to the "alpha" shifted over to the algo traders. It hasn't appeared - yet? Then when?
Long replies here but the thread taps into some fundamental beliefs I have about the markets, and media, and how it affects individual investors.
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