WSJ: Dow Falls in High-Speed Drop (1000pts before recovering a little).

[techboy]

Whereas Westbrook can buy 1000 shares of FAZ for 12k and scalp a quick 500 bucks, these fund managers would have to buy every share of FAZ in existance to make a profit worth talking about.

If you want to pick up nickels in front of a steamroller, more power to you.

Care to comment on Sotheby's being priced at $100,000 in this supposedly "normal" and predictable (by charts, of course) drop? No glitch there, right?

[techboy]

How many shares of Sotheby's do you think sold for 100k? Anedotal evidence of miscalculations in stock price really isn't making your case, techboy?

You're mixing things up. Although that crazy volatility could be seen as a strong reason to buy and hold (and avoid getting caught on the wrong side of a loop like that), I was more pointing out that your assertion that there was no glitch involved in that 900 point drop is obviously erroneous, unless you think that those stock prices are normal. That's only 6, there are plenty more I've read about, to the point that several of the exchanges are invalidating orders, and you know, of course that some of the stocks that make up the Dow were involved in this.

[Westbrook36]

I don't understand why I'm responsible by being an active trader who thinks charts exist and can help to explain the Sotheby's stock price. Again, how many were sold at 100k? I know you had some problems realizing what the low was yesterday. Do I need to slow down and show you that none were bought or sold at 100k? I really don't feel like having to prove it to you. Let's move on. There was a momentary glitch in pricing having to do with computers. Has nothing to do with active trading.

[Westbrook36]

You're mixing things up. Although that crazy volatility could be seen as a strong reason to buy and hold (and avoid getting caught on the wrong side of a loop like that), I was more pointing out that your assertion that there was no glitch involved in that 900 point drop is obviously erroneous, unless you think that those stock prices are normal. That's only 6, there are plenty more I've read about, to the point that several of the exchanges are invalidating orders, and you know, of course that some of the stocks that make up the Dow were involved in this.

Sigh. When exactly did I say there was no glitch?

[techboy]

Let's move on.

Good idea. We're typing too fast and past each other, and the discussion's played out anyway.

[techboy]

Sigh. When exactly did I say there was no glitch?

THE MARKET IS FINE. TRADER HIT INSTEAD OF [M]. DO NOT TAKE MONEY OUT OF YOUR 401KS. EVERYTHING IS FINE.

The context (here and in the other thread) of course being, that this drop was legitimate (and in the other thread supported by the charts, apparently), and something to worry about, and not a glitch.

[PeterMP]

Ah, yes, techboy's "proof" is money managers for fund that are worth billions and billions of dollars. Whereas Westbrook can buy 1000 shares of FAZ for 12k and scalp a quick 500 bucks, these fund managers would have to buy every share of FAZ in existance to make a profit worth talking about. They can't do it.

The problem is that it isn't JUST YOU trying to do this, but lot's of other individuals and people that are managing pretty small amounts of money.

What is the total collection of money moving in that pot?

***EDIT***

I wanted to come back and make a couple of comments about a couple of things.

First, I like techboy's analogy about picking up coins in front of the steam roller. Even you if you believe they are $100 bills instead of coins, the same issues arise for day traders.

First, why would you encourage ANYBODY to come in start picking up the money? There is already competition out there, why would you invite more. In addition, it is even worse than the direct competition. Day traders will tell you they make money BECAUSE of the movements of the steam roller by encouraging people to leave the steam roller and become a person running in front, you've decreased the power of the steam roller and therefore decreased the number of $100 bills in front.

It makes ZERO sense, which largely is why when you hear about people offering to "share" their advice, I believe they either have no idea what they are talking, have an active way of making money based on you following their advice, or have decided they can make more money more easily by selling the advice than actually using it themself, which means you are almost certainly over paying for it.

The other thing I wanted to comment on was some of the things techboy has said about success bias. Techboy has compared active traders to people a large number of people flipping coins. This assesment assumes the market is optimally effecient, but the fact of the matter there is no way any method of transferring information is totally effecient.

A better analogy is there are a whole bunch of people and an infinite number coins (and realistically, there are an infinite number of ways on how to determine when and what stocks to buy and sell). Some of those coins are "true" that is that they really have an equal chance of landing on heads as tails, but some coins truely are biased, which means they will land on tails more than heads or vice versa.

Now, espeically for the people that have true coins, there will be real success bias, where they are successful due to completely dumb luck.

However, there will be people that pick a biased coin that allows them to "win" (let's say heads is "winning" and tails is "losing"). Sometimes, they will pick the heads biased coin by random chance, and sometimes even the heads biased coin will go through a "losing" streak, and they might throw it out. Some people might actually go through a trial and basis process of picking and discarding coins, and eventually, from the combination of experience and sheer luck, pick a heads biased coin.

In either case, the person might not even understand why their heads biased coin is biased towards heads.

In other cases, people will do sophisticated analysis to select coins that are biased towards heads.

Now, the system is a little more complex than that because we normally think of coins as being static in terms of biased or true. That isn't true for market trading techniques. The dogs of the dow are a good example of this (of course its elimination as a good trading method conincided with somebody publicizing that it was a good way to make money stocks). What other people are doing and other things can affect your trading method.

IF YOU HAVE A GOOD TRADING METHOD, THE LAST THING YOU WANT TO DO IS ANYTHING TO CHANGE THE MARKET.

Unless you are completley cluess, the last thing you are going to do is go on the internet and tell people to change anything about how they are investing. Given that your coin might go bad at any time, the last thing you are going to do is show somebody how to find another good coin. You might need your method to find another good coin at any given time, and there are not an infinite number of good coins.

I believe you can make money off day trading, but unless you have a lot of money to throw away finding one (and are disciplined to keep the recods and do the post-analysis to actually realize you have one once you've found one) or are familiar with ideas realted to things like multivariate statistics, markov models, principal component analysis, and stochastic differential equations (and even better would be machine learning and neural networks) because if you are day trading, you are in competition with people that do understand those ideas, and despite what people might have you believe, there is not an infinite amount of money sitting in from of those steam rollers.

[Westbrook36]

Peter, you bring up great points. I'm a real small timer who has gotten lucky a few times. I don't consider myself a professional trader. I've made like 4 trades in the last year. I normally always make money when I trade. One time I lost 5k on a SDS trade. I went long on BRK-A and lost 3k another time. I am way in the green but I might just be fortunate. I like betting for or against the overall movement of the market. So many people have said that it is pretty obvious we are due to go lower; why wouldn't people want to dabble and make some money off of it?

Buying Dec 2010 Leap Puts a week ago would have had you triple your money already because of the VIX. If we were to go down another 1000 points and increase the VIX, they might wind up being 10 baggers.

[zoony]

Bad news for chicken littles.

http://www.cnn.com/2010/WORLD/europe/05/09/greece/index.html?hpt=T2

[AsburySkinsFan]

Bad news for chicken littles.

http://www.cnn.com/2010/WORLD/europe/05/09/greece/index.html?hpt=T2

Any guesses on how high the DOW rebounds today? I heard that futures are up 400pts this morning.

http://online.wsj.com/article/SB10001424052748703880304575235790051926202.html?mod=WSJ_latestheadlines

[War Paint]

Bad news for chicken littles.

http://www.cnn.com/2010/WORLD/europe/05/09/greece/index.html?hpt=T2

Another bailout? Joy.

[AsburySkinsFan]

Another bailout? Joy.

Yeah, you know because Greece is just another Fortune 500 company and not like a real nation or anything whose collapse would crush the value of the Euro. Joy.

[JMS]

Another bailout? Joy.

France and Germany own the banks who are heavily invested in Greece. So you either bail out Greece or let them fail and bail out the banks. Either way France and Germany are going to have to spend the money.

[JMS]

Yeah, you know because Greece is just another Fortune 500 company and not like a real nation or anything whose collapse would crush the value of the Euro. Joy.

Greece's GDP is about 2% of the EU's. Weekness in the Greece economy sending shutters through the EU is overblown.

The real issues are that Greece isn't alone. Spain, Portugul, UK, and Italy are all right behind Greece.

Popular myth was in order to join the EU, Greece had to get their financial house in order. Popular myth was Greece did this in record time in order to be an initial member of the EU. Those myths have now been blown out of the water. Greece simple lied on their admissions package.

What's sending shutters thought the EU's economy is the question, who else lied and what shoe is going to drop next.

[zoony]

Any guesses on how high the DOW rebounds today? I heard that futures are up 400pts this morning.

http://online.wsj.com/article/SB10001424052748703880304575235790051926202.html?mod=WSJ_latestheadlines

Already up over 350 points.

European markets were up anywhere from 4-8%

Oh, and gold is down. Not only is it down today, it doesn't even keep pace with inflation.

It's a crisis hedge. But even at that, it fails. You'd be better off investing your money in bunkers and ammo and canned food and cisterns.

People who aren't foolish know that. Why do you think you always hear it advertised on Rush and Savage?

[Southtown]

Oh, and gold is down. Not only is it down today, it doesn't even keep pace with inflation.

It's a crisis hedge. But even at that, it fails. You'd be better off investing your money in bunkers and ammo and canned food and cisterns.

People who aren't foolish know that. Why do you think you always hear it advertised on Rush and Savage?

Again, I can understand not liking gold (at $1200/oz) going forward, but I don't see how anyone would be considered a fool for having bought gold in the last 20 years. Since 2005, gold is up 100%. Since 2000, gold is up 250%. Since 1990, gold is up 300%. That hasn't kept up with inflation?

[Monte51Coleman]

Funny to see who is not posting/lecturing here today, though not surprising.

[techboy]

Again, I can understand not liking gold (at $1200/oz) going forward, but I don't see how anyone would be considered a fool for having bought gold in the last 20 years. Since 2005, gold is up 100%. Since 2000, gold is up 250%. Since 1990, gold is up 300%. That hasn't kept up with inflation?

Don't confuse strategy with outcome. Gold has bursts where one can be lucky (and others where it sucks), but over the long run, it keeps up with inflation. No more, no less. After costs, that's a negative real return.

If you listen to the ads, when they talk about a certain amount of gold buying a nice men's suit in various time periods, that's what they're talking about.

I suppose it's a good "investment" if you think you can predict the future, but in that respect, just about anything works.

[zoony]

Again, I can understand not liking gold (at $1200/oz) going forward, but I don't see how anyone would be considered a fool for having bought gold in the last 20 years. Since 2005, gold is up 100%. Since 2000, gold is up 250%. Since 1990, gold is up 300%. That hasn't kept up with inflation?

Well you can't pick and choose timelines for one.

If we're going to do that, I choose gold prices in 1980

[SkinsHokieFan]

Don't confuse strategy with outcome. Gold has bursts where one can be lucky (and others where it sucks), but over the long run, it keeps up with inflation. No more, no less. After costs, that's a negative real return.

If you listen to the ads, when they talk about a certain amount of gold buying a nice men's suit in various time periods, that's what they're talking about.

I suppose it's a good "investment" if you think you can predict the future, but in that respect, just about anything works.

I think "predicting the future" is an unfair way to label things.

There were many people in the middle of the decade that saw the impending storm coming (GibbsFactor being one person) who bought gold, and have seen their investment double.

When signs point to an impending collapse, its smart to read those tea leaves

[SkinsHokieFan]

Well you can't pick and choose timelines for one.

If we're going to do that, I choose gold prices in 1980

Sure you can. I started buying gold in 2006, upon the strong suggestion of a personal mentor.

I am making out like a bandit thus far

[zoony]

Don't confuse strategy with outcome. Gold has bursts where one can be lucky (and others where it sucks), but over the long run, it keeps up with inflation. No more, no less. After costs, that's a negative real return.

Then it doesn't keep up with inflation

If anyone wants a hedge against inflation- go with treasuries. If you want a hedge against crisis, which gold is, seriously, buy canned food, water filtration systems, and ammunition. Much better hedge against crisis than gold.

[techboy]

I think "predicting the future" is an unfair way to label things.

I don't. If you don't want to settle for the investment return (which is negative real), you have to go for the speculative return, and that requires predicting the future.

You, for instance, bought gold because you thought there was a collapse (and concurrent rise of gold) coming. That's predicting the future.

You were right this time, but I seem to remember you also making various other predictions, about the boom in Dubai and the total death of the Republican party...

Don't confuse strategy with outcome.

[techboy]

Then it doesn't keep up with inflation

No, the gold itself keeps up with inflation. It just doesn't grant the full benefit to the investor, who has to pay someone to store it.

Yes, I know you were just messing around.

If anyone wants a hedge against inflation- go with treasuries.

TIPS, specifically, pay a bit plus inflation, and make a fine addition to the bond component of a portfolio. Some research indicates that 100% of an investor's bond side should be in TIPS, because of their diversification benefit.

[SkinsHokieFan]

You were right this time, but I seem to remember you also making various other predictions, about the boom in Dubai and the total death of the Republican party...

Don't confuse strategy with outcome.

Thank God I didn't put my money into Dubai or the R party collapse

I think though when its obvious some disaster is about to occur, its best to prepare.

Where I was wrong was underestimating the government's response, or else I'd have made a few other moves rather then standing pat.