An interesting study using the M/O Ratio, which is the ratio of people in the Middle (40-49 years old) vs. Old (60-69 years old) age cohorts, reveals two things:
1) High correlation/predictability of the market P/E ratio during the last 50 years.
2) Future market valuation will come at a lower P/E valuation.
The next FOMC meeting may be the beginning of high transparency communication. The Fed plans to communicate on concrete information regarding the state of the economy and the timing of interest rate changes. The Fed will officially publish to the public exactly when and why they would raise/cut rates in the future, an unprecedented move that will change how markets respond to FOMC meeting decisions. The FOMC regularly meets 8 times per year; the next decision will be on Wednesday, January 25, 2012 at 2:15 pm EST.
The following is a compilation of wise words from a list of well-known long-term investors. Enjoy the read:
The Superinvestors of Graham-and-Doddsville
The single greatest speech on investing is Warren Buffett’s The Superinvestors of Graham-and-Doddsville. To read it, click here. Here’s an excerpt:”We purchased National Indemnity in 1967, See’s in 1972, Buffalo News in 1977, Nebraska Furniture Mart in 1983, and Scott Fetzer in 1986 because those are the years they became available and because we thought the prices they carried were acceptable. In each case, we pondered what the business was likely to do, not what the Dow, the Fed, or the economy might do. If we see this approach as making sense in the purchase of businesses in their entirety, why should we change tack when we are purchasing small pieces of wonderful businesses in the stock market?” Read more
Goldman Sachs releases their 2012 outlooks for the World, US, China, and Europe. Watch Jan Hatzius of Goldman Sach’s Global Investment Research Chief Economist talk about the future of the markets.
We are releasing our new global outlook for 2012 and 2013 in a period of substantial economic and financial market uncertainty for the Euro area. The ongoing shocks from the region’s sovereign crisis—and policy responses to them—are likely to be the biggest determinant of the outlook over the next few months.
- For the world economy as a whole, our forecast for real GDP growth in 2012 is 3.2% and 4.1% for 2013.
- We expect growth to slow in the US, although we still do not expect a recession.
- We have made the biggest adjustment to our 2012 forecasts in the Euro area, where we now expect a deeper recession and only gradual stabilization late in 2012. But this is conditional on major policy changes in the region, probably involving a partial ‘mutualization’ of the existing debt stock supported by the European Central Bank.
- In the emerging world outside Europe, and especially in China, we expect the spillovers to be smaller, although a key risk to this forecast lies in more substantial disruptions to global capital flows. Read more
October has been historically bullish, but this last October, we had a 20% swing in the S&P 500, marking it the second largest monthly move since March 2009 when the market bottomed from the 2008 crash. October- December is typically known as the holiday run, and it applies more to Large Caps Growth than Small Cap Value stocks. The seasonality of the calendar effect is one of the few cycles that continues to exist. Using this information, we can be better prepared to rebalance our portfolios and position our trades.
The calendar effect findings show that the best months are:
BEST months to long
March through May, and October through December
WORST months to long
January through February, and June through September
BEST months to short
January, June, August (first half), and September (second half)
The Equity Risk Premium is the expected return above the risk-free interest rate for taking risk investing into the equity markets. The ERP is the expected return for the S&P 500 index above the risk-free rate. In the research paper highlighted later in this article, a survey of 150 sources on their estimates of the Equity Risk Premiums since 1979-2009 allows us to estimate the future of ERP. The results suggests a return of 5.5% over the risk-free rate for the next couple of years. With the risk-free rate at 0.25% today (December 2011), we can expect the S&P 500 to return 5.75% a year. As rates go up in the future, the expected return of the broad markets will also be higher. Read more
Why do over 90% of the traders lose money? The answer is not in commissions.
To explain that we must understand the difference in capital between the large institutional traders and the everyday retail traders/investors. Casino gambling is the best way to explain this:
Let’s assume you brought $100 to play blackjack at the casino. The casino’s edge in blackjack is approximately 1%. That means in the long run you are expected to lose money. So the odds are already stacked against you. But 1% seems like a very small margin, and it is. But if every game you must bet $10 and a losing streak of 10 games will cause you to go broke. That’s rare but it’s not impossible. The casino has millions of dollars so they can withstand any type of large losing streaks against them. This is exactly what’s going on in the markets. First the odds are stacked against you and second when you go broke you have no money left to play the game. Also people have a tendency to martingale that is increasing bet size when you are on a losing streak. That is the single most fatal thing to do in the markets. Because now instead of going broke when the stock drop 50% you’ll go broke when it drops 25%.
To become a successful traders/investor we must educate ourselves and avoid these common pitfalls. This website will soon launch an Education category with all the knowledge you need to be successful.
How do professional traders trade?
Professional traders buy low and sell high. Yes, that’s right buy low, sell high. It’s that simple. But why does that most simple concept not work for most traders/investors out there?
Most people find when they try to buy the low most of the time the stock keeps on going against them. This is due to several reasons:First is improper or lack of market analysis. One cannot just go in the market and pick a random low price and expect that to be the low. Second is psychological when they have bought what seem to be cheap price market then drop more against them they get scared of further losses and get out of the trade and often times that’s the market bottom. And that is not hypothetical–it happens a lot! Because the market is designed to make people lose money and professionals will use any tactics to get you out of a good position. Once most of the weak players in the market are shaken out of their positions the market will then start to make its bull move.
Therefore, we must understand how professionals use those tactics for our own benefits. This website will soon launch an Education category with all the knowledge you need to be successful.
Trend-lines are what I use to trade. In fact, I think this should be the main tool besides major support/resistance levels when doing swing trading. Trend-slopes can change, and be ready for it!
Tops can be calculated by using two recent lows and duplicating this slope and moving it to match a recent top.
An uptrend is dictated by a consecutive combination of higher highs and higher a lows. A downtrend is defined by a consecutive combination of lower low and lower highs.
This tool can be incredibly accurate (to the 0.1% in accuracy to pick a top). The key to trend lines is that the slope of the top and bottom trend lines should be IDENTICAL. Any significant differences are likely an indication of a trend change and should be re-evaluated.