Capitalogix

How a Few Poorly-Timed Trades Can Wreck Decades of Healthy Returns

Few investors are good at swing trading — meaning, they're not good at predicting short-term swings in the market.

 

Recently, BusinessInsider observed that more often than not, investors find themselves buying high and selling low. And when the market starts selling off sharply, investors will panic, sell their own shares, and sit on the sidelines.

 

Here is a great way to visualize that.

 

 

via BehaviorGap.

 

Unfortunately, some of the biggest one-day upswings in the market occur during these "tough to trade" volatile periods.

 

In its 2014 Guide to Retirement, JP Morgan Asset Management illustrates what can happen to investor returns when they miss out on these good days.

 

 

 

 

via BusinessInsider.

For instance, if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would've had a 9.2% annualized return.

 

However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%.

 

In this trading methodology, missing 'big win' days does so much damage because those missed gains aren't able to compound during the rest of the investment holding period.

 

Here Are Some Links to Start Your Week

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Leadership Expert Simon Sinek On Putting Others First - Video. (CBS News)
• Game-Changing IT Trends: A Five-Year Outlook. (Daniel Burrus)
• Facebook's 'Deep Learning' Guru Reveals the Future of AI. (Wired)
• Writing the Rules of CyberWar. We need a Geneva Convention for cyber-combat. (Spectrum)
• The Psychology of Gamification: Can Apps Keep You Motivated? (Lifehacker)

 

Trading Links:

• iTunes Is a Bigger Business Now Than Apple Was In 2004. $12 Billion a Year (BizInsider)
• Amazon's Future Is Not Selling Stuff – and That's a Good Thing. (Wired)
• The Probability Problem. "Unlikely" happens with surprising frequency. (PragCap)
• After 15 months, Windows has 8 sold 100 million fewer copies than Windows 7 did. (TNW)
• Rise of the RoboTraders. The 'Masters of the Universe' are being humbled by microchips. (Economist)

The Big Mac Index - A Feast of Burgernomics

Image by Simon Miller via Flickr

The Economist's Big Mac index seeks to make exchange-rate theory more digestible.  They say, tongue-in-cheek, that it is arguably the world's most accurate financial indicator to be based on a fast-food item.

The Big Mac index is based on the theory of purchasing-power parity (PPP), according to which exchange rates should adjust to equalize the price of a basket of goods and services around the world. For them, the basket is a burger ... a McDonald’s Big Mac.

According to this measure, the most undervalued currency is India's Rupee at about 67%  below its PPP rate.  In India, a McDonald’s Big Mac costs just 95 Rupees on average, the equivalent of $1.54 at market exchange rates. In America, the same burger averages $4.62.

The interactive graphic, below, shows by how much, in Big Mac PPP terms, selected currencies were over- or undervalued.

 

 

The index is supposed to give a guide to the direction in which currencies should, in theory, head in the long run. It is only a rough guide, because its price reflects non-tradable elements ­such as rent and labor. For that reason, it is probably least rough when comparing countries at roughly the same stage of development.  The Economist has added an adjustment option to account for this in the interactive version of the data.

Related articles

The Euro Is Not Overvalued (Nor Is Any Other Currency)

Spotify The New Big Mac Index, Priced Lowest In Malaysia

Beeronomics Ousts Burgernomics

Here Are Some Links to Start Your Week

Tech can be sexy ... but this headline surprised me. "Tokyo Robots Drawing Crowds at Cabaret."  Would you pay to watch "female" robots at a club?

 

 

No, not those kind of robots ... there is a video.

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The Most Popular 20 TED Talks [as of now]. (TED)
• Leadership Is About Emotion. (Forbes)
• Top 10 Trends in Business Intelligence for 2014. (TableauSoftware)
• 1 In 4 Americans Thinks The Sun Goes Around The Earth, Survey Says. (NPR)
• The Future Of Relationships: 10 Ways We'll Be Dating, Having Sex, And Breaking Up In 2025. (FastCoExist)

 

Trading Links:

• 5 Tech Trends That Will Change How People Conduct Business This Year. (Tech)
• Expect More Tech Acquisitions in 2014. (TIME)
• Here Are The Asset Classes Hedge Funds Are Loving and Hating Right Now.  (Insider)
• Rising riches: 1 in 5 in US Reaches Affluence. (BigStory)
• The Truth About the 'One Percent'. The typical 'rich' person works for a salary. Only 18% are in the financial industry. (Wall Street Journal)

Related articles

Have Fun at Tokyo's Robot Restaurant

MIT Technology Review's List of 50 Smartest Companies for 2014

It might seem difficult to define what makes a smart company, but you probably know one when you see it.

When such a company commercializes a truly innovative technology, things happen ... leadership in a market is bolstered or thrown-up for grabs. Competitors have to refine or rethink their strategies.

Here is a list compiled by the editors of MIT Technology Review.

 

 

They didn’t count patents or PhDs; instead, they asked whether a company had made strides in the past year that will define its field.

 

“Vision is not enough; it must be combined with venture.  It is not enough to stare up the steps; we must step up the stairs.”   ~ Vaclav Havel

 

This list highlights companies where important innovations are happening right now, regardless of reputation.  Perhaps that is why familiar names (such as Apple and Facebook) aren’t on this list.

It is kind of fun to read through what is being created now.

 

The number of millionaire households in the United States is at a new record.

There are more millionaires in the United States than ever before.

 

 

via Spectrem Group.

The number of households with net worth of $1 million or more, excluding their homes, is at a record 9.63 million, according to a new report.

That eclipses the old mark of 9.2 million in 2007 before the global financial crisis, according to  Spectrem Group research. The tally of millionaires slipped to 6.7 million in 2008 as the financial crisis struck.

This study reinforces other data showing that the wealthy in the U.S. are doing well.

Here Are Some Links to Start Your Week

First they will laugh ... Then they will copy.

 

 

Don't give up. 

"Many of life's failures are people who did not realize how close they were to success when they gave up."   ~  Thomas A. Edison

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Do Entrepreneurs Have an Optimism Bias -- Or Do You Have a Pessimism Bias? (HBR)
• Why Positive Encouragement Works Better Than Criticism, According to Science. (Buffer)
• 'Hey Dumbass, Say Something Nice to Your Wife' — There's an App for That. (Mashable)
• 21 Awkward Cards For Your Confusing Modern Relationships. (HuffingtonPost)
• You'll Be Surprised How Many Donuts worth of Sugar Are in These 10 Everyday Foods. (BI)
  
  

 

Trading Links:

• That Viral Chart Predicting Another 1929 Stock-Market Crash? It's Absurd. (The Atlantic)
• This Good News Might Actually Be Bad News: Americans Are Borrowing Big Again. (Quartz)
• Do Stress Hormones Fuel Volatility In Financial Markets? (LATimes)
• The Average Successful Startup Raises $41M, Exits at $242.9M. (TechCrunch)
• Accidental Tax Break Saves Wealthiest Americans $100 Billion. (Yahoo Finance)

Misled by a Map: The True Size of Africa Might Surprise You

Here is jigsaw graphic that shows the size of Africa relative to other countries.

 

via Kai Krause.

 

This video from the second season of "West Wing" presents other misleading map distortions. 

 

 

 

Interesting stuff ...  Click here for more.

 

Here Are Some Links to Start Your Week

We just passed the five-year anniversary of economic stimulus.

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Are We Alone in the Universe? (NYTimes)
• Some of the Most Plausible Scenarios for Alien Civilizations. (Io9)
• Lockheed Martin Working on a Spy Plane that Can Fly Anywhere on Earth—in an Hour. (Newser)
• The Future of Health Tech Is Going to Try to Improve Your Life In 2014. (TechCrunch)
• Six Famous Thought Experiments, Animated in 60 Seconds Each. (Brain Pickings)

 

Trading Links:

• Are Banks Obsolete? (Forbes)
• How close are we to the self-driving car age? (The New Yorker)
• Drone Deliveries May Be a Sideshow to Amazon’s Real Ambition for the Skies. (Quartz)
• Why colonize planets when you can colonize outer space? (Dvorak)
• A “Future-Hunter” Examines the Dangers of Stock Trading at the Speed of Light. (ScientificAmerican)

This is What a Bull Market Feels Like

Were you surprised how quickly Markets digested the risk of Russia and the Ukraine?

It's not the news ... it's what markets do after the news hits.  In Bear Markets, markets are looking for excuses to pull-back and take risk off the table.  In Bull Markets, things can advance, even with uncertainty. 

The New York Stock Exchange publishes end-of-month data for margin debt.  Historically, surging peaks of margin debt often happen before big market pull-backs.

The chart, below, shows the relationship between margin debt and the market (using the S&P 500 as the proxy for the market). Even adjusted for inflation, the latest data puts margin debt as at an all-time high.

 

 via Doug Short.

Victor Sperandeo advised speculators to ride the false train of hope as far as possible and jump off just before it falls into the abyss.

Good luck.