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

[JMS]

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..

The problem is the money managers don't even need to lift a finger in order to capitalize on their built in advantages. And Westbrook36's argument that the stocks are too small to interest the large funds are also wrong. The big boys don't need to limit themselves to 1 stock... they can play across 10,000 stocks, all faster and better than you can manipulate one manually. Automated systems do all that for them. They know how many people are trying to buy, they know the spot price, and they know what the support will move that spot price too. These are all simple algorithms, and based on the accuracy of data which nobody else can match. They can get in and out faster and they have more information than others. Thus any time you make a move in the stock market you are subject to a penelty which magnify the negatives in the favors of the larger players.

It's a totally corrupt, fixed game.... Especially in IPO's.... but also in everyday tradeing.

Their advantages are built in, their profits are built in, and you take your chances. Your interests actually increase their paydays.

[JMS]

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

It's crazy to think your investment strategy doesn't need to change with the changing economic realities you face. Good has been a good buy in the 21st century and presently.... Doesn't mean it had to be a good buy in the 90's.

[zoony]

At the risk of sounding like a broken record

http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm

...Taleb knew how heretical that thought was. Wall Street was dedicated to the principle that when it came to playing the markets there was such a thing as expertise, that skill and insight mattered in investing just as skill and insight mattered in surgery and golf and flying fighter jets. Those who had the foresight to grasp the role that software would play in the modern world bought Microsoft in 1985, and made a fortune. Those who understood the psychology of investment bubbles sold their tech stocks at the end of 1999 and escaped the Nasdaq crash. Warren Buffett was known as the "sage of Omaha" because it seemed incontrovertible that if you started with nothing and ended up with billions then you had to be smarter than everyone else: Buffett was successful for a reason. Yet how could you know, Taleb wondered, whether that reason was responsible for someone's success, or simply a rationalization invented after the fact? George Soros seemed to be successful for a reason, too. He used to say that he followed something called "the theory of reflexivity." But then, later, Soros wrote that in most situations his theory "is so feeble that it can be safely ignored." An old trading partner of Taleb's, a man named Jean-Manuel Rozan, once spent an entire afternoon arguing about the stock market with Soros. Soros was vehemently bearish, and he had an elaborate theory to explain why, which turned out to be entirely wrong. The stock market boomed. Two years later, Rozan ran into Soros at a tennis tournament. "Do you remember our conversation?" Rozan asked. "I recall it very well," Soros replied. "I changed my mind, and made an absolute fortune." He changed his mind! The truest thing about Soros seemed to be what his son Robert had once said:

My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking, Jesus Christ, at least half of this is bull****. I mean, you know the reason he changes his position on the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and it?s this early warning sign.

....

Entire article is long but worth the read

[SkinsHokieFan]

It's crazy to think your investment strategy doesn't need to change with the changing economic realities you face. Good has been a good buy in the 21st century and presently.... Doesn't mean it had to be a good buy in the 90's.

Agree, and I think its part of the overall point.

If you were bearish on the future in 2006 and 2007, it would have only been wise to adjust.

Likewise, if you were bearish in 1996, you were a fool and would have missed out.

Basing investment strategy on the data and trends available at the present time isn't "predicting the future," its smart strategy.

[JMS]

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?

Since 1990? Since 1998 it's up nearly 600%.. I bought at 220-240 / oz.. and it's now what 1200?

Gold could easily crack 2k by 2020. if not 3k. Chinas got tons of US dollars looking to diversify, so does India. Both love gold. Add to that the instability in the EU and US and you've got a perfect storm which shows no signs of abaiting, only accelerating..

[Southtown]

Since 1990? Since 1998 it's up nearly 600%.. I bought at 220-240 / oz.. and it's now what 1200?

Gold could easily crack 2k by 2020. if not 3k. Chinas got tons of US dollars looking to diversify, so does India. Both love gold. Add to that the instability in the EU and US and you've got a perfect storm which shows no signs of abaiting, only accelerating..

I was just picking a few random years for reference. I wanted to be "fair" in my comparison to inflation when answering zoony. (without picking gold at $800/oz in 1980 )

[Larry]

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.

Remembering a scene in the book From Russia With Love.

One of the things that Bond's tricked-out briefcase contains is twenty gold sovereigns. The stated reasoning for this is that gold is the preferred currency for making bribes.

[Burgold]

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

I worry about him a little. There's a part of me that imagines he's like that guy at the roulette wheel who keeps putting all his money on a single number and going bust. Then, after begging and scrounging for more pocket change goes back and puts all his money on green 17 again only to lose it all again in a single spin of the wheel. Then, when he finally sees a day where others might have one with his strategy, he goes and begs all his friends for money and does it again.

I think he loses a lot. I have never seen an "investor" so desperate for the economy to tank. Most traders and investors I know prefer to pick winners than always betting on the loser.

[Westbrook36]

Definitely bad news for the chicken littles. It's almost like that one time we finished up 1100 points in one day during the first collapse!

Truth be told, the fierce upswings and downswings simply don't happen during an uptrending market.

The best thing about today was it put some meat back on the bone for you to reload on the short side. VIX was down 30 percent too. A gift from the Gods.

[JMS]

Definitely bad news for the chicken littles. It's almost like that one time we finished up 1100 points in one day during the first collapse!

I don't think so.. Gold droped 9$ to basically what it was on Friday before trading that's not really a serious swing. I don't think too many chicken little gold investers are sobbing into their hankies over $1200 / oz, on one of the few positive days in the market.

Truth be told, the fierce upswings and downswings simply don't happen during an uptrending market.

Exactly correct. It's not the single dip which get's you... It's the uncertainty.

The best thing about today was it put some meat back on the bone for you to reload on the short side. VIX was down 30 percent too. A gift from the Gods.

Derivatives and selling short, now that really is gambling. But at least the up side can be used to justify the risk.

[Burgold]

Well, we had months and months and months of huge daily upswings (I define huge as triple digits) in the 1990's. It was a pretty common occurence. It eventually led to the irrational exuberance and bubble stuff, but for a good five years it was pretty exciting.

[JMS]

Well, we had months and months and months of huge daily upswings (I define huge as triple digits) in the 1990's. It was a pretty common occurence. It eventually led to the irrational exuberance and bubble stuff, but for a good five years it was pretty exciting.

Yeah but that was different. In the 1990's personal efficiency increased by such a high rate that it justified unprecidented growth... add to that everybody was looking for the next microsoft, and the government finally looked like they had the deficite in check. So sucessive upswings was a good thing... We don't call that uncertainty... we call that an under valued market finding it's level.

What we have today is Friday down 400, Monday up 400. See Saw, back and forth... which does cause uncertainty and fear.

[zoony]

This is interesting...

http://www.cnbc.com/id/37063488

Stock Markets Agree to Create Uniform Rules to Slow Selloffs

The leaders for major securities exchanges have agreed in principle to a uniform system of "circuit breakers" that would slow trading during periods of intense market volatility, federal regulators said Monday.

The heads of the biggest exchanges "agreed on a structural framework, to be refined over the next day," Securities and Exchange Commission Chairman Mary Schapiro said.

The agreement has been reached by leaders of six exchanges, including the New York Stock Exchange and NASDAQ. The absence of a uniform system is being looked at as a possible trigger for last week's historic stock market plunge.

In an effort to calm Thursday's rapid market swings, the New York Stock Exchange invoked a measure to slow trading. Some analysts believe that drove trades onto other electronic exchanges, which didn't slow trading.

That left fewer buyers and sellers to help set prices, potentially accelerating Thursday's drop.

Financial regulators met with the heads of major exchanges to discuss how conflicting trading rules may have contributed to the market's fall. The meeting was set to continue Monday afternoon with Treasury Secretary Timothy Geithner.

Meeting participants were weighing possible solutions to reconcile the often-conflicting rules written and enforced by different exchanges.

Several exchanges, including NYSE and NASDAQ, already have circuit breakers that slow trading when stocks move too fast in either direction. Yet the trigger for those circuit breakers varies from exchange to exchange.

That discrepancy can disrupt markets if some exchanges slow trading and others don't, as happened on Thursday.

Streamlining the rules for triggering circuit breakers could prevent another chaotic market drop.

One possibility being discussed is for exchanges to simultaneously slow trading of a specific stock if its price moves too quickly, according to a person with knowledge of the talks.

Exchanges also are discussing whether the trigger for slowing trading should be based on the rate of percentage change in the value of a stock or its trading volume, according to the person, who spoke on condition of anonymity because he wasn't authorized to publicly discuss the matter.

Regulators and exchanges have been poring over data from millions of trades trying to pinpoint what caused Thursday's massive, computerized sell-off, which at one point had the Dow Jones Industrial Average down by nearly 1,000 points. The Dow later recovered to close the session down 342 points.

The SEC is leading the investigation with the Commodity Futures Trading Commission. Those agencies are ultimately responsible for overseeing markets, but they rely heavily on exchanges to write and enforce their own rules.

And the exchanges' rules vary widely, prompting top lawmakers to call for greater consistency.

Sen. Charles Schumer, a New York Democrat and member of the Senate Banking Committee, urged the exchanges to adopt systemwide circuit breakers.

"It appears that our fragmented market structure may very well have contributed to the difficulties we experienced last Thursday. Coordination and consistent safeguards between trading venues—and across markets—is essential," Schumer said in letters to Schapiro, CFTC Chairman Gary Gensler and the heads of all the major stocks and futures exchanges.

Schumer also asked the SEC to put in a new centralized market surveillance system to watch for risk and manipulation across all exchanges and trading platforms.

As regulators seek to understand the root cause of Thursday's dive, they again are relying on the exchanges—this time to flag suspicious trades and help the SEC narrow the focus of its probe. One reason: Market-wide trading data is not collected in a single location.

Instead, each exchange's trades are reported to its designated self-regulator—often part of the same company that owns the exchange.

Regulators now believe the disruption was caused by a toxic, not-yet-understood, feedback loop created when multiple trading schemes interacted, according to people familiar with the situation. That contradicts earlier speculation that the trigger was a small number of erroneous trades.

That means it could take weeks to sort out the problem, said the people, who spoke on condition of anonymity because they were not authorized to discuss the investigation.

High-frequency trading uses mathematical models and computers to buy and sell huge numbers of shares in milliseconds.

It accounts for two-thirds of all stock trading in the U.S., and proponents say it makes the stock market run more smoothly by efficiently connecting buyers and sellers.

On Capitol Hill Tuesday, Rep. Paul Kanjorski, D-Pa., will hold a hearing into Thursday's market activity.

Kanjorski's subcommittee—which is responsible for overseeing and crafting legislation on capital markets—hasn't held a hearing on flash trading to this point.

Schapiro and Gensler will appear together at the hearing, as will key executives from the NYSE, Nasdaq and Chicago-based CME Group Inc.

The Senate subcommittee that oversees financial markets is preparing to hold its own hearing on the matter in the coming weeks, said a spokesman for Chairman Sen. Jack Reed, D-R.I.

Stocks rocketed higher Monday after European leaders agreed to a nearly $1 trillion rescue plan to avoid a major debt crisis and the U.S. Federal Reserve said it would also provide loans overseas.

The Dow Jones industrial average rose more than 340 points in afternoon trading.

[techboy]

It's crazy to think your investment strategy doesn't need to change with the changing economic realities you face.

What you describe as "change with the changing economic realities" is market timing, as is buying gold when you think it will go up.

Market timing has been demonstrated by overwhelming academic research to be a suboptimal strategy.

If not pursuing a suboptimal strategy makes me crazy, then call the loony bin.

[Southtown]

Market timing has been demonstrated by overwhelming academic research to be a suboptimal strategy.

A serious question: When is someone market timing vs. rebalancing? Since people don't rebalance everyday, aren't they picking the best "time" to rebalance their portfolio?

If last week I used part of my cash position and bought into the Vanguard S&P 500 Fund, what just occurred?

Was I a gambler who is trying to time the market?

Or was I an investor who rebalanced his portfolio?

I'm trying to figure out the difference. (not that it would change my current investment/gambling strategy, but I'm curious in the opinions)

[AsburySkinsFan]

Looks like someone lost their shorts today. Hey wait, where are the charts that predicted this?

[techboy]

A serious question: When is someone market timing vs. rebalancing? Since people don't rebalance everyday, aren't they picking the best "time" to rebalance their portfolio?

Generally speaking, market timing is adjusting one's allocation based on one's expectation of future events, i.e "I think that we're due for a rally, I'll buy in" or "this Selsun Blue pattern indicates that the market is overbought, time to short". Purchasing/shorting/selling is done, on that basis, in an attempt to beat the market. Research shows this is generally futile, and a suboptimal approach.

Rebalancing, on the other hand, is a method of controlling risk. A person sits down and decides, based on his or her need, ability, and willingness to take risk, an asset allocation that is suitable. It might be, say, 60% stocks (2/3 U.S., 1/3 foreign), and 40% bonds.

After a prolonged run-up in the stock market, though, that investor's portfolio might be 70% stocks and 30% bonds. Stocks are riskier than bonds, and suddenly that investor is taking more risk than planned. He or she sells 10% of the portfolio worth of stocks, and uses it to buy bonds.

This often has the effect of forcing a person to buy low and sell high, but that's not really the point. The point is to stick to the plan and keep risk at the pre-determined level.

It's also really hard for a lot of people, because it entails selling things that are doing well, and buying things that are doing poorly.

[Southtown]

Thanks for taking the time to respond techboy. Appreciate it.

[Ken]

Definitely bad news for the chicken littles. It's almost like that one time we finished up 1100 points in one day during the first collapse!

Truth be told, the fierce upswings and downswings simply don't happen during an uptrending market.

The best thing about today was it put some meat back on the bone for you to reload on the short side. VIX was down 30 percent too. A gift from the Gods.

Dumping a trillion fictitious Euro's into the system tends to have that effect on the market.

Wonder what happens when they don't do that?

[TheGoodBits]

Looks like someone lost their shorts today. Hey wait, where are the charts that predicted this?

He's still got them. Only problem is he's got this rare form of dyslexia that causes him to read graphs and charts upside down.

[JMS]

A serious question: When is someone market timing vs. rebalancing? Since people don't rebalance everyday, aren't they picking the best "time" to rebalance their portfolio?

My thoughts too. Gold has been an excellent investment for the last decade.... I've owned gold for more than a decade. That's market timeing? Buying something and holding it for a decade?

Here is there definition for market timeing.... I like your investment strategy we call it investing.... I don't like your investment strategy then I call it market timing... It's as absurd as that.

[JMS]

Dumping a trillion fictitious Euro's into the system tends to have that effect on the market.

Wonder what happens when they don't do that?

Wonder what happens when they figure out a trillion dollar slush fund isn't enough? Or the trillion dollar slush fund doesn't change the underlying problems in the European market...

Guess we find that out today, the FTSE, CAC and DAX are all down 1-2%.....

Gold up $20 again..... $1220/oz in early tradeing..

Gee I wonder what's going to happen when the knee jerk investors figure out the Chinese economy is on the verge of tanking? (10-12 months out)... Wonder what that's going to do for stability and the international economic markets. Or the price of Gold.

[techboy]

My thoughts too. Gold has been an excellent investment for the last decade.... I've owned gold for more than a decade. That's market timeing? Buying something and holding it for a decade?

I guess it depends. Did you buy gold because you thought you could time your way in (it's low now) and out (I'll sell when it's at its peak)? Then it's market timing, even over a long period.

If, on the other hand, you bought it as part of your portfolio and intend to hold it, then it's not market timing. I know of many investors that hold a chunk of gold (or more generally, commodities) in their portfolio, and they are not market timers. The Harry Browne Permanent portfolio is one such example, and it's 25% gold (and 25% stocks, 25% long term treasuries, 25% short term treasuries, with the idea being that one part of the portfolio always does well, regardless of the economic climate... in this one rebalancing is done too to remain at 25/25/25/25).

I would argue in that case, though, that gold is a bad investment, because the longer you hold it, the more likely it will revert to what it is, a negative real return. As I have already said, if inflation protection is your goal, I much prefer TIPS.

Here is there definition for market timeing.... I like your investment strategy we call it investing.... I don't like your investment strategy then I call it market timing... It's as absurd as that.

That's not true at all. I don't like the Browne PP, but I wouldn't call it market timing.

Market timing is when a person attempts to jump in and out of positions based on what he or she thinks the future holds in an attempt to beat the market.

[GibbsFactor]

What you describe as "change with the changing economic realities" is market timing, as is buying gold when you think it will go up.

Market timing has been demonstrated by overwhelming academic research to be a suboptimal strategy.

If not pursuing a suboptimal strategy makes me crazy, then call the loony bin.

I did buy gold as an investment, also to hedge. When the printing presses are fired up, commodities are where it's at.

However, I don't think I'll ever sell my Gold. I don't have paper or some stock in some mining company. I have actual bullion. It's not longer an investment for me, but rather my own "holy ****" reserve. People may scoff at it, and I know they will, but it makes me feel more secure and that's really all that matters.

[zoony]

However, I don't think I'll ever sell my Gold. I don't have paper or some stock in some mining company. I have actual bullion. It's not longer an investment for me, but rather my own "holy ****" reserve. People may scoff at it, and I know they will, but it makes me feel more secure and that's really all that matters.

Have you ever thought about selling your gold and buying land? That's a much better investment and hedge against "holy ****" times... especially as low as the market is right now.

I bet you could buy an acre or two (buildable site) in appalachia for $10k.