June 2014

  • Smart Money Expects a Short-Term Top, Will the Rally Continue?

    Traders are often confronted by mixed signals. 

    Personally, when I have to choose between something straightforward or something complex – simple is better.

    For example, when large "Smart Money" traders show their directional bias, it often pays to follow in their tracks.

    Another technique would be to bet against the smaller retail "Dumb Money" traders (because, historically, they are often wrong at major turning points.

    However, if I have to decide between following "Smart Money" or doing the opposite of what "Dumb Money" does … then in the absence of other information, following Smart Money wins because it is more straightforward and simpler.

    Here is an example.

    Smart Money – Dumb Money Confidence Index.

    The chart, below, compares the bets made by small traders (a.k.a. the "Dumb Money"), to those of large commercial hedgers (a.k.a. the "Smart Money").

    In practice, Confidence Index readings rarely get below 30% or above 70% (they usually stay between 40% and 60%). When they move outside of those bands, it's time to pay attention.

    Even more noteworthy is when there is a wide confidence spread between the bets made by the Dumb Money and Smart Money traders. This type of sentiment spread only happens a few times a year. We often get substantial reversals when it happens.

    Consequently, you might want to note this chart from SentimentTrader. It shows that the confidence spread is at extreme levels.

     

    140620 Smart vs Dumb Money Confidence

    Conventional trading wisdom says that Crowds are usually wrong at turning-points.  That doesn't mean they are wrong all the time (yet, as discussed, it makes sense to notice when the Smart Money clearly disagrees). So, after such a strong rally, this is the kind of data that causes me to pay closer attention.

    Could this be  a trend-break?  Will Smart Money start actively making Bearish bets?

    Price is the primary indicator, and until it breaks down, expect that dips will be met with buying.

  • Here Are Some Links For Your Weekend Reading

    In 2013, the United States Patent and Trademark Office issued 277,835 patents for inventions—the most issued in a single year.
     
    Here is a list of the top patent-holders in the U.S.
     
    140612 Top Patent Holders

     

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

     

    Lighter Links:

     

    Trading Links:

  • Does the Market’s Complacency and Low Volatility Scare You?

    The S&P 500 has been hitting highs in a rally that's had only modest sell-offs.

    Here is a chart from BusinessInsider illustating Societe Generale's Andrew Lapthorne's research.

     

    140612 Complacency Building - Annual Peak to Trough Losses for SP500

     

    Lapthorne notes: "The number of 1% down days for the S&P 500 in any given year has averaged 27 since 1969; the S&P 500 has seen just 16 1% down days over the last 12 months. It has now been [almost 500] days since a market correction of 10% or more, the fourth longest period on record, and, as we show below, the annualized peak to trough loss has only been 5% compared to typical annual draw-down of 15%."

    As you can see, recently, volatility has been dramatically below normal.

  • 10 Life Lessons from Basic SEAL Training [Commencement Speech]

    This has been making the rounds.  Good stuff.
     
    Naval Admiral William H. McRaven, ninth commander of U.S. Special Operations Command, delivered the Commencement Address at The University of Texas at Austin this year.
     
     
     
    via YouTube.
    These are lessons worth sharing.

    10 Life Lessons from Basic SEAL Training

     

    1. If you want to change the world, start off by making your bed.
    “If you can’t do the little things right, you will never do the big things right.”

    2. If you want to change the world, find someone to help you paddle.
    “You can’t change the world alone—you will need some help— and to truly get from your starting point to your destination takes friends, colleagues, the good will of strangers and a strong coxswain to guide them.”

    3. If you want to change the world, measure a person by the size of their heart, not the size of their flippers.
    “SEAL training was a great equalizer. Nothing mattered but your will to succeed. Not your color, not your ethnic background, not your education and not your social status.”

    4. If you want to change the world get over being a sugar cookie and keep moving forward.
    “Sometimes no matter how well you prepare or how well you perform you still end up as a sugar cookie*.”

    *For failing the uniform inspection, the student [in Basic SEAL training] had to run, fully clothed into the surfzone and then, wet from head to toe, roll around on the beach until every part of your body was covered with sand.

    The effect was known as a “sugar cookie.” You stayed in that uniform the rest of the day—cold, wet and sandy. There were many a student who just couldn’t accept the fact that all their effort was in vain. Those students didn’t understand the purpose of the drill: You were never going to succeed. You were never going to have a perfect uniform.

    5. If you want to change the world, don’t be afraid of the circuses.
    “Life is filled with circuses. You will fail. You will likely fail often. It will be painful. It will be discouraging. At times it will test you to your very core.”

    6. If you want to change the world sometimes you have to slide down the obstacle head first.

    7. If you want to change the world, don’t back down from the sharks.
    “There are a lot of sharks in the world. If you hope to complete the swim you will have to deal with them.”

    8. If you want to change the world, you must be your very best in the darkest moment.
    “At the darkest moment of the mission—is the time when you must be calm, composed—when all your tactical skills, your physical power and all your inner strength must be brought to bear.”

    9. If you want to change the world, start singing when you’re up to your neck in mud.
    “If I have learned anything in my time traveling the world, it is the power of hope. The power of one person—Washington, Lincoln, King, Mandela and even a young girl from Pakistan—Malala—one person can change the world by giving people hope.”

    10. If you want to change the world don’t ever, ever ring the bell.

    “In SEAL training there is a bell. A brass bell that hangs in the center of the compound for all the students to see. All you have to do to quit—is ring the bell. Ring the bell and you no longer have to wake up at 5 o’clock. Ring the bell and you no longer have to do the freezing cold swims. Ring the bell and you no longer have to do the runs, the obstacle course, the PT—and you no longer have to endure the hardships of training. Just ring the bell. If you want to change the world don’t ever, ever ring the bell.”

    To end, here are a few extra …

    “Start each day with a task completed. Find someone to help you through life. Respect everyone. Know that life is not fair and that you will fail often . . . [T]ake some risks, step up when the times are toughest, face down the bullies, lift up the downtrodden and never, ever give up.”

    “Changing the world can happen anywhere and anyone can do it.”

    Click here or the full text of the speech.

  • The Scariest Chart in the World Just Got a Lot Less Scary

    Last week, the Jobs Report hit a big milestone.

    The U.S. economy has finally recovered all of the jobs lost during the recession.

     

    140608 Employment Losses in Recessions

     via Calculated Risk.

    It took more then 6 years to exceed the previous employment peak. However, this recovery took place during a period of declining participation – partially due to demographics – and that made making the  milestone harder.

    Of course because of population growth, we're still "behind" in terms of total jobs, but at least this is one benchmark that's been cleared.

    Many people called it the "Scariest Jobs Chart Ever".  Well, it got a lot less scary.

    Nonetheless, there is still a long way to go.

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  • Here Are Some Links For Your Weekend Reading

    Everything in this 1991 RadioShack ad now exists in a single smartphone … Tough Business!

     

    140608-Radio-Shack-Ad-from-1991-vs-SmartPhone
     

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

     

    Lighter Links:

     

    Trading Links:

  • What It Is Like to Prepare to Speak at a TEDx Conference (Part 2)

    To use an athletic analogy, a normal speech and a TED Talk are totally different events (like a sprint vs the decathlon).  It takes a surprisingly different set of skills and type of preparation to perform well.

    I've given hundreds of presentations, and don't normally stress about them.  I did for this one.

     

    140531 HMG Speaking at TEDx Plano 2

      
    In most of my talks, there is very little "set in stone" to memorize.  I tend to have a main topic (or theme), and each slide serves like a module … and I think, talk, interact, and improvise throughout the framework.

    This works well for me because I tend to think in anecdotes that branch out from the main theme. That may be a great skill to have, but it's not one that helps you write a good TED Talk.

    Why?  Because, in contrast, a TED Talk is really about "one idea worth sharing".  

    In many respects, it's much harder to write and deliver a good 10 minutes about one idea, than it is to prepare to talk about a much broader topic for one hour.

     

    140531-HMG-JBR-and-ZAG-at-TEDx-Plano

    My wife, son, and me at the TEDx Plano event

     

    The TEDx committee created a sense of formality with stringent standards and deadlines.  My guess is that, during the planning and rehearsal  process, they wanted uncomfortable speakers to provoke better speeches.

    As a result, I prepared (and threw away) four separate talks before coming up with something that felt right and flowed properly.

    Here are some bullet points that highlight lessons learned.

    • One of my early listeners coached me that the trick to a good TED Talk is that it is not about what you say, but rather about what they feel. In other words, for a TED Talk, evaluate the story and the particular wording choices based on the emotions they elicit in listeners.
    • One of the best ways to get a point across emotionally is to tell a story.  And, if I couldn't remember it easily, it probably wasn't a story.
    • The speech committee and several early listeners strongly encouraged me to go with as few slides as possible. I started with 15 … I got it down to six  … and I ended up with two (relying, instead, on the performance and connection rather than images and words).
    • They encouraged me to take almost everything about business (in general) or my business (specifically) out of the talk.
    • In fact, they kept encouraging me to make it simpler and more basic on almost every level. "Why did you say that?" I would answer; and they would say "Then say that."

    I didn't realize how hard it was to make something simple.

    The video should be ready next week.

     

    EDIT: Here it is:

    Related articles
    How to Create and Deliver a TED talk
    How to prepare and deliver a TEDx talk
    What It Is Like to Prepare to Speak at a TEDx Conference (Part 1)
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  • What It Is Like to Prepare to Speak at a TEDx Conference (Part 1)

    140601 HMG at the GymTED Talks are pretty well-know for their quality.  So, I was understandably excited (nervous, even) about presenting at the TEDx Plano Conference this past weekend.

    It was fun (in the way that preparing for a marathon is "fun").

    For example, in the days leading up to the event, I would give it to the unsuspecting people who chose to use the StairMaster next to me. It seemed like a good way to practice with my heart rate up.

    I also gave it one-on-one to employees.  Why? Because it gave me extra practice runs, and I got to experiment with different variations to gauge responses.

    How did it go?  The speech, itself, went pretty well … Though it is hard to believe how much work goes into something so fleeting.  I guess that is why they have video.

    They filmed it with a professional multi-camera crew. At this point, I still have no idea how long it takes for them to edit it and then put it online. I will let you know when I get the link.

    By the way, my topic was "The Time Value of a Life Worth Living — An entrepreneur's reflections on not letting life get in the way." It is about a year that brought my Dad's death, the forced sale of my company by venture capitalists, and a divorce (in that order).  Sometimes, life's darkest days bring the greatest gifts … if you are willing to look for them.

     

    140531-TEDx-Plano-HMG

    Next week, I'll write about what it is like to prepare for a TED Talk, and what I believe are some of the key differences from traditional presentations.

     

    EDIT: Here's the video:

     

     

  • Here Are Some Links Worth Reading This Weekend

    Does writing something with a #Hashtag constitute "doing something"?

     

    140601 Hashtag - Do Something

     

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

     

    Lighter Links:

     

    Trading Links:

  • How Much Luxury Real Estate Will a Million Dollars Buy You in Global Cities?

    When it comes to luxury real estate, a million dollars goes a lot further in some places than it does in others.

    According to the latest Wealth Report from real estate consulting firm Knight Frank, Monaco has the most expensive luxury real estate in the world, with $1 million buying just 15 square meters (161 square feet) of prime property.

    In Cape Town, on the other hand, $1 million will buy more than 14 times that much space.

    The chart, below, gives a great visualization of what $1 million buys in various luxury housing markets around the globe.

     

    140601 How Much will a Million Dollars Buy

    via Business Insider.

     

    Here is a different look at the data.  At the high end of the spectrum, luxury real estate in Monaco costs $6,800 per square foot. In Cape Town, however, it's just $470 per square foot.  See the full range of prices in the table below.
     

    140601 Luxury Real Estate Price Per Square Foot