Go to Jeff Salisbury LWGate Home Page.From: "Steve Foulks" <steve_foulks@up.bresnan.net>
Subject: Re: Investing
Date: Wed, 26 Aug 1998 23:15:29 -0400
Next Article (by Subject): Re: market makers Rich Carreiro
Previous Article (by Subject): Re: Income tax on investments Rich Carreiro
Articles sorted by: [Date]
[Author]
[Subject]
Michael E Kurela said >Fortunately there are as many different methods of investing as there >are investment opportunities. I found myself disagreeing with both you >and Steven Foulks. I do not purchase Blue Chips, nor do I purchase >top companies and hold them for long periods of time. I also do not >believe in the notion that the market is purely efficient. In order for stock markets to be efficient there have to be some nonbelievers who believe that there is some reward for analyzing stock data, making sure that stock prices reflect underlying economic values. However they are not rewarded for their efforts unless they are fund managers, employees who earn a salary, in which case they make money whether their fund does well, or not. In your case, assuming you aren't a person paid for analyzing stocks, you are simply wasting your time. Capital Market efficiency isn't a religion, so believing in it isn't important. What do empirical tests show? Given that tests of the proposition are always going to be somewhat deficient (i.e., they require a mathematical definition of risk), they do show that markets are highly efficient. >Do you realize that there are many people who bought into a two-bit company years >ago called Microsoft who have since not regretted their investment ? First, Microsoft was not a two bit company when it went public. It wrote the operating system used on all PC computers. Secondly, if they followed your strategy (below) of never holding a position for a week, those people would have never had the excellent long run returns that you mention. >For the individual investor, the market is *far* from >efficient. Case in point - you can open a margin account and trade >securities during the normal market hours. You could, alternatively, >establish a Level II margin account (NASDAQ), enabling you to trade >on the fringe (before/after market open) of those hours. As a daytrader, I >have seen more colleagues earn abnormal gains during pre-market trading >than proponents of "market efficiency" would have you believe. This shows is that you don't have a clue, what it means for capital markets to be efficient. It simply hypothesizes the following with respect to the stock market: STOCK MARKETS PRICES REFLECT ALL INFORMATION WHICH COULD EFFECT A STOCK, INSTANTLY, AND CORRECTLY. If market functions in that way then by the time you get your information, it is old, dated, and reflected correctly in the price - it is useless to you. If people earn more by day trading after hours as you allege, that becomes information that the market will use, in which case it can't be used to make abnormal profits again. Capital market efficiency doesn't preclude an individual from having a technique that can earn abnormal profits, but if that person blabs about it to the world, and then everyone else uses it because it is so great, then it won't work any more. I think you would agree that logically everyone can't earn above normal returns. >The majority of my securities are never held for more than a week. Most of them are held for only >a few hours. By using my trading methodology, I turned $6k into $23k >in under a month. It's a simple one, too, that limits your exposure to >broad market, macroeconomic, and microeconomic effects. After >all, the idea *is* to buy low, sell high. Michael, you are a broker's dream. I hope you use Charles Schwab (I own stock in it). I love your statement about your investment performance, but if you have been at it for less than a month, I think it is a little too soon to start crowing about how wonderful your system is. Ignoring taxes for a moment let's assume it took you a whole month to turn $6M into $23M, that translates into a 283% monthly return, or an annualized return of 996,288,900% return(assuming monthly compounding)!!!! Even Warren Buffet would be impressed. After one year your $6M will be worth $21 billion plus, putting you up there with Gates, Buffet and the Sultan of Brunei, and after two years you will be worth $210 quadrillion (210 million billion), at which time you will own every asset on the face of the earth and then some!!! Two things are possible for investors like you, you wake up to reality (which is what happened to me), or you waste a lot of time and money chasing after the next Microsoft, and give up on investing altogether when you have shot your wad. Steven M. Foulks, CPA, CFP, PhD <http://www-instruct.nmu.edu/business/sfoulks/> Northern Michigan University <http://www.nmu.edu/home.shtml> - -
Next Article (by Subject): Re: market makers Rich Carreiro
Previous Article (by Subject): Re: Income tax on investments Rich Carreiro
Articles sorted by: [Date]
[Author]
[Subject]