Michael Covel: News & Info.

Writing a book about the Turtles was an entertaining yet confusing process. It was entertaining because once the curtain was pulled back on the story and the characters were revealed as real people, not simply a homogeneous group of all presumed “winners”, true insights were revealed. What separates the winning Turtles today from those Turtles who have literally had no success since 1983? It is a core question addressed in my upcoming book. Why was the process confusing? Some Turtles who have never talked until now, opened up. Others who had gone on record over the years, got tight lipped. I still don’t know exactly what it is that some of them want kept from the public eye. In the end, they are all just people, which is motivating for everyone else who did not answer the 1983 and 1984 want ads.

From Trader Daily:

Does the public want to be protected from its own feeblemindedness in judging investment risk based on wealth? The SEC asked, albeit not in those words, and the public took ample advantage of the opportunity to comment. The answer was an emphatic: “No!” Last December the SEC proposed raising the required-asset bar for would-be investors in hedge funds and other pooled investment vehicles. The period for public comment on the suggested rule change ended on Friday, and the SEC had received more than 500 responses to what it had predicted would be an uncontroversial issue. Individuals from around the country protested the notion that assets in the safe were any way to judge financial acumen. Investors who qualify under current rules were horrified that they could be regulated out of the best and broadest range of investment opportunities available to them now. Some industry voices also questioned the impact on competition, as newly created hedge funds often depend on smaller investors to get off the ground. This feedback, though, may not be enough to influence the SEC’s ultimate decision on the rule. Since December, there has also been a contrary trend in thinking, which is that the higher-level entry requirement should also be extended to investments in private equity. As distinctions in investment strategy become harder to make among hedge funds, private equity and venture capital, the result may be a broader investor accreditation requirement applied to all.

More.

Am I the only person who thinks this is nuts and impossible to execute? Once the Social Investment Research Analysts weed out companies involved in nuclear power, major manufacturers of tobacco products, alcoholic beverages, weapons, and firearms, companies that have serious and persistent human rights problems or directly support governments that systematically deny human rights (does this rule Google out due to censorship in China?), the field has been narrowed hasn’t it?

I caught the headline “Are Some Stock Analysts Rewriting History?” An excerpt from the article:

In their paper titled “Rewriting History,” professors Alexander Ljungqvist of New York University, Christopher J. Malloy of the London Business School and Felicia C. Marston of the University of Virginia say they found 55,000 changes to the database from 1993 to 2002 that tend to make certain stock analysts look good. The database is widely used by fund managers, academic researchers, by regulators to track questionable activity on Wall Street — and by The Wall Street Journal to assemble its annual list of the best analysts.

Remember the Gomer Pyle surprise, surprise, surprise (MP3) line? It is amazing that this much effort goes into categorizing predictions. Am I surprised that efforts might go into making the prediction mavens look good? Not exactly.

Go to Second Article from Slate >

This Modern Markets Scorecard (PDF) from Rydex paints a case for diversification. Mebane Faber is thanked for bringing this to my attention.

After 2 weeks of Wall Street’s press core manically feeding us “news” about crashes, mini-crashes, Greenspan speeches, corrections and every other factoid under the sun, we are left with THIS. Is there anything special on that chart? After 2 weeks of “the world is ending”, what is so unique about that month of movement on the Nasdaq? I am sure some data cruncher can find any number of charts that look exactly like that one. My statement doesn’t mean that every quant or trend trader cleaned up in the last 2 weeks. The big difference is that trend traders expect loss, expect the unexpected and accept the volatility. The fundamental news driven crowd start with a prediction, then when it all backfires, we see the histrionics of the last 2 weeks.

Last night I posted an excerpt from The 1938 book “Commonsense Speculation”. Another very relevant excerpt:

Never forget that all market profits are “paper” until collected. A $1000 or $100,000 paper profit can soon turn into a loss from mental lethargy or indecision.

Continuing:

Inasmuch as 99% of speculators trade on the bull side, get out somewhere while the going is good. For most people a bull market is like a trip in a elevator. Floor after floor is called out by the starter, but few emerge. Finally, to continue the metaphor, the elevator reaches the roof as the bull market is culminating. Then the machinery breaks, the car plunges to the bottom of the shaft, and the passengers - most of them badly injured - struggle to climb out of the wreckage that a bear market has brought.

Of course, it goes without saying that getting into a market, or getting out, requires a preset plan before you ever take the first step to speculate.

The 1938 book “Commonsense Speculation” offers:

One of the most commonest of speculative sins is to be unduly influenced by the previous high of a stock. If the price has declined a good many points, a universal feeling is to assume that it cannot go much lower. The stock market can do anything and an individual stock can go almost anywhere - up or down - in the course of a dynamic move.

Further the book quotes the head of Chase National Bank from 1937 regarding speculation:

I know the whole system of speculation in securities is questioned by some; that speculation, as a whole, in any market is condemned by some; I know that there are those who identify all speculation with gambling, and would not rule out all speculators as social parasites who have no useful function. But the verdict of impartial economists on this point is clear and very nearly unanimous. The difference between speculation and gambling is that in gambling artificial and unnecessary risks are created; whereas in speculation the risks already exist and the question is simply who shall bear them.

James O. Rohrbach forwarded me some of his recent commentary:

If you listen to the to the Wall Street Experts, you know exactly what caused the big drop and you know where the market is heading from here. It’s amazing how these people can get on the tube and tell us exactly what is going to happen. I am listing a few Expert comments that I heard. They really clarify the current situation:

There, now you know exactly what caused the drop on Tuesday and you know exactly how to proceed with your investments.

When there is no volatility, the fundamental explanations in the “news” (regardless of how useless) don’t stand out as much. Now, they “look” inane. From the AP today:

NEW YORK (March 5) - Wall Street managed to stabilize itself Monday, although investors remained nervous about nagging mortgage default concerns and tumbling stock markets abroad. t managed to stabilize itself Monday, although investors remained nervous about nagging mortgage default concerns and tumbling stock markets abroad. The major indexes fluctuated as investors tried to size up where the market was headed, and as traders swooped in to take advantage of stocks left severely depressed by last week’s big decline.

1. How is “stabilization” defined with precision? Is there a rule or number?
2. How is “nervous” defined with precision? Is there a rule or number?
3. What investors are worried about “nagging mortgage default concerns”?
4. Now that markets are “fluctuating”, should we view that as something new?
5. Investors now have the ability to “size up” market direction? How do they do that exactly?
6. “Severely depressed” means what in terms of a precise number?