Capitalogix

What Happens to the Best Old Traders?

I visited the trading floor of the CME this week with Bobby Schwartz.

 

 

Notice his badge number. He used to be one of the largest volume traders on the exchange.

While there, Bobby quickly slipped into his old rhythm, and I had a chance to experience his old persona.  He showed me the hand signals he used on the floor. It was complex, fast-moving, and cool to see.

On one hand, the mastery was undeniable. On the other hand, it's a reminder how fast things change. It doesn't matter how good you are, or what your edge was ... times change, markets change, and so does what a trader must do to make money consistently.

Bobby is a great example of that. He now runs one of the largest IBs and has shown, many times, that adapting quickly is the way to survive - and thrive. 

There's Usually Some Pain to Endure On the Road to Good Market Returns

No matter how you look at it, big stock market sell-offs happen regularly.

For example, we've seen two violent sell-offs in the second half of 2014. The first came when the S&P 500 quickly tumbled 9.8% from its then all-time high of 2,019 on Sept. 19 to as low as 1,820 on Oct. 15. The second came when the S&P plunged 5.1% from 2,079 ion Dec. 5 to 1,972 on Dec. 16.

Buy and Hold investors must stomach significant drawdowns to get their returns — even in 'good' years.

This chart shows S&P 500 intra-year declines compared with calendar year returns. The bars represent year-end returns since 1980, while the purple dots mark each year's market low.

 

Business Insider via JP Morgan Asset Management.

 

Basically, you have to understand that 10-15% pull-backs are normal (perhaps even healthy) for the market.

For reference, here are market correction averages and their historic frequency. Since 1900, we've seen:

• 5% market corrections: 3x per year.
• 10% market corrections: Once per year.
• 20% market corrections: Once every 3.5 years.

Interesting.

 

And yet, the S&P often recovered those losses and then some.

Importantly, these big sell-offs often occur during years when the markets head higher. 

Despite average intra-year drops of 14.2%, annual returns have been positive in 26 of 34 years.

Bottom line: Sell-Offs happen. And sometimes they're big ... But they're normal.  So, stay calm and carry on.

Best wishes for a Happy New Year!

Here Are Some Links For Your Weekend Reading

Here is a picture of Obama rocking a tiara like the leader of the free world should.

 

 

(h/t JB via ABC News)

The president understood that he was broke a cardinal presidential rule.  "Here’s the general rule," Obama explained: "You don’t put stuff on your head if you’re president.  That’s politics 101. You never look good wearing something on your head."

Chief White House photographer Pete Souza posted a photo to Instagram showing the president donning a tiara alongside a group of Girl Scouts from Tulsa, Oklahoma.

Some things you find on the internet actually happened.

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

 

Lighter Links:

• The 25 Top Personal Development Leaders of 2014. (Success)
• 22 Pictures That Prove That 2014 Is Already the Future. (Buzzfeed)
• See the Most Beautiful Data Visualizations of 2014. (Fastcocreate)
• 5 Most Insidious Conspiracy Theories of 2014. (Alternet)
• The 20 Best Songs of 2014. How many do you know? (Vulture)

 

Trading Links:

• Citigroup to Move Headquarters to U.S. Capitol Building. (New Yorker [Humor])
• The Federal Government Now Employs the Fewest People Since 1966. (RTE)
• Top Market Themes for 2015. (Goldman Sachs)
• Frequent - But Inefficient. HFT might reduce liquidity, not boost it. (Economist)
• A Good Problem to Have During the Holidays: Vatican Finds Hundreds of Millions of Euros 'Tucked Away'. (Reuters)

Look for Excellence Wherever You Can Find It - There Is Some Here [Video]

I love stuff like this. 

To juggle five balls at once is quite a difficult task. To do it on your back is even harder. Then to incorporate your legs and feet into the juggling ... well, that would seem impossible.

 

  

Like with anything, though, doing it proves it's possible.

 

Look for excellence wherever you can find it ... and study it.

What do you think makes it possible?

The End of the Population Pyramid

The shape of the world's demography is changing.

The traditional way of visualizing and explaining the age structure of a society has been a pyramid.

If you draw a chart with each age group represented by a bar, and each bar ranged one above the other—youngest at the bottom, oldest at the top—a pyramid is the shape you would get.

This was true because, with shorter lifespans and higher mortality rates, there were always more young people than old people.

Now the shape of the global population is changing.

 

 

Between 1970 and 2015 the dominating influence on the global population was the fertility rate (the number of children a woman would typically bear during her lifetime). It fell dramatically over the period, meaning that the world shifted from having larger to smaller families. 

Between 2015 and 2060 the biggest influence upon the population will be aging. Fertility rates are slowing, and  now almost everyone is living longer than their parents—dramatically so in developing countries. 

The result will be a larger, and growing, older population.  This will drive massive infrastructure projects and business opportunities.

 

via The Economist.

Read the full article from The World In 2015.

Here Are Some Links For Your Weekend Reading

This cartoon made me chuckle. Perhaps you know someone like this?

 

 

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

 

Lighter Links:

• Lockheed Martin's New Fusion Reactor Might Change Humanity Forever. (Sploid)
• Which Technologies Will Dominate in 2022? (Wired)
• The Odds, Continually Updated. A surprisingly understandable look at Statistics. (NYTimes)
• Mind Expanding: 7 ways to fine-tune your brain. (New Scientist)
• How Pixar Uses Math to Make Characters Look Perfect. (Gizmodo)

 

Trading Links:

• Big Banks Manipulate Physical Market Prices. (The Big Picture)
• Tony Robbins: Mastering the Game of Money. (Interview)
• The Decline and Fall of Fund Managers. (WSJ)
• Future Opportunities, Future Shocks. 6 Trends Reshaping the World Economy (Citi)
• Attack of the CyberMen. Sophisticated viruses will be the workhorses of 21st-century spying. But there should be rules. (Economist)

A Jazz Quartet Explains High-Frequency Trading

There was an opinion piece on MarketWatch about how information flow influences how often you should trade.

As part of it, there was a video that explained how algorithms effect trading (using a jazz quartet).

 

via Marketwatch.

The Meaning of Money: Listen to how computer algorithms changed the music of the market.

 

Faster trading brings up important economic questions: What are the costs and benefits to investors for speeding up trading? Is there an “optimal” trading frequency at which the financial market should operate? And does a faster market affect one group of investors more than another?

 

Here are a few of the points made:

• A higher-frequency market is more responsive to new information.

• The optimal trading frequency depends on how the benefit and cost balance each other.

• The more frequently the market allows investors to transact, the stronger their incentive to split orders over time to avoid price impact.

From my perspective, faster trading is inevitable.  However, as more traders gain access to it, speed for the sake of speed will lose its appeal.  What will continue to matter is the speed at which a trader can identify an edge and capture its profit opportunity.

Here Are Some Links For Your Weekend Reading

Apple figured out what caused some early iPhone 6 Plus phones to bend.

 

 

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

 

Lighter Links:

• The 12 Best Business Books of All Time. (Motley Fool)
• Automation Makes Us Dumb. (Wall Street Journal)
• The Business Value of Pervasive Analytics. (Data Science Central)
• How to Get in Shape Using Psychology: 6 New Tricks from Research. (Time)
• Another Reason to Spend Money on Experiences Rather Than Things — The Positive Benefits of Anticipation. (Quartz)

 

Trading Links:

• Central Bank Credibility … Now Here's a Bubble. (Forbes)
• ▶ Masters in Business Podcast: Dallas Mavericks Mark Cuban (Audio). (SoundCloud)
• 10 Reasons The Stock Market Rally Still Has Legs. (Investing)
• Putting the “Underperformance” of Active Managers in Perspective. (Pragmatic Capitalism)
• Elon Musk’s Next Mission: Internet Satellites. SpaceX, Tesla Founder Explores Venture to Make Lighter, Cheaper Satellites (Wall Street Journal)

Should I Buy It? [Flowchart]

Tis the season ...

 

via Good.

Is Obamacare Really Driving Up Health Costs?

You've heard the stories ... "I had better insurance and much lower rates before all the ObamaCare Affordable Care Act mess started."

Healthcare premiums are rising; but, slower than before (according to the Kaiser Family Foundation's annual survey of employer health benefits).

Obamacare, Assessed

Start with the basics. On average, the cost of employer-sponsored health insurance increased 26 percent from 2009 to 2014. But costs increased faster before the law was enacted: From 2004 to 2009, costs increased 34 percent. From 1999 to 2004, they went up 72 percent.

 

 

Are premiums rising faster for small employers? No, actually, the opposite is true. For companies with 200 workers or more, average 2014 premiums were $17,265, or 3.3 percent higher than in 2013. At companies with 3 to 199 workers, annual premiums in 2014 averaged $15,849 -- 1.7 percent more than in 2013, when average premiums were 2.2 percent higher than in 2012.

None of that takes away from the economic hardship imposed on people whose premiums have gone up since the law was passed.  My premiums are certainly higher.  This just helps put things in perspective.

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