Michael Covel: News & Info.

American Home Mortgage Investment Corp. (AHM) lost 90% today. Big news? Not really.

Look at the chart.

Wasn’t that chart telling you there was a problem LONG before today? Did you even have to know what this company did to know there was a problem LONG before today’s 90% drop? The “price” was talking loud and clear all along.

Following a weekend in New Jersey for a family reunion, I find myself looking for fun sound bites in advance of tomorrow. I found a good one:

Was Thursday’s stock sell-off a one-day event or part of a longer trend?

My question? What percentage of people tried to answer that question one way or the other versus realizing that there is no accurate answer? More importantly, why did they not edit the question to include Friday too?! That got me to thinking…

CNBC had me pitch them on a “show” several months back, but I don’t think my perspective would mesh well. Don’t get me wrong, I would take the air time, but on the flip side I am not going to roll over and stop preaching the benefits of trend following and systematic trading. Right now CNBC, and to put it into political terms, is a “one party” show. They need to get away from being only “Democrat” or only “Republican” and start giving the other side a voice.

Gerri Willis of CNN writes:

This past Thursday was the second worst day of the year for the Dow Jones Industrial Average. But remember, it was just a week ago today that the Dow closed above 14,000 for the first (and only) time. Fluctuations in the market shouldn’t get to the 401(k) investor. Keep in mind your time horizon - most of us are going to be invested in the market until we retire, often decades from now. On average, stocks move higher - their long term average gain is 10.8 percent each year, according to Hugh Johnson of Johnson Illington Advisors.

Question one: does everyone ONLY want 10.8%?

Question two: does this writer think a return of more than 10.8% a year is even possible?

Before you fall in love with 10% a year, take a look at what compounding does to “other” returns (i.e. 12%, 14%, etc.).

I found this guy on YouTube. An American original!

I have a feeling George would not mesh well with trend following.

From the AP today:

NEW YORK (AP) — Wall Street suffered one of its worst losses of 2007 Thursday, leading a global stock market plunge as investors succumbed to months of worry about the mortgage and corporate lending markets. The Dow Jones industrials closed down more than 310 points after earlier skidding nearly 450. Investors who had been able for months to largely shrug off discomfort about subprime mortgage problems and a more difficult environment for corporate borrowing finally decided it was time to sell after the Commerce Department issued another disappointing home sales report. Feeding the plunge were concerns that higher corporate borrowing costs will curb the rapid pace of takeovers that had driven stocks higher this year. Investors also feared the sluggish environment for home sales and continued defaults in subprime loans would spur debt defaults and weigh on corporate earnings. While stocks plummeted, investors poured money into the safe haven of the bond market. The soaring price of Treasurys pulled yields lower, and the rate on the 10-year note plunged to 4.79 percent from late Wednesday’s 4.90 percent. “Worries that have been out there for the past couple of years are coming to a head right now,” said investment strategist Edward Yardeni, president of Yardeni Research Inc. “It’s show time.”

Show time?

The above analysis sounds smart. It is from very bright people. But what do you do with it? If you were not paying attention to anything, and were simply “long only” before today, do you now read this excerpt from the AP and take action? What’s the point?

Nice bit of motivation…

C.E.O. Libraries Reveal Keys to Success.

I found a great example clip on YouTube of what systematic trading and trend following are NOT. Opinions, opinions and more opinions do not help you to answer these 5 questions:

* How do you determine what market to buy or sell at any time?
* How much of a market do you buy or sell at any time?
* How do you determine when you buy or sell a market?
* How do you determine when you get out of a losing position?
* How do you determine when you get out of a winning position?

At what point in the below clip do you want to jump off a bridge?

Here are examples of trend trading performance from multiple traders from around the world. “AUM” stands for “assets under management”.

BusinessWeek has a story about how the time is “now” to sell stocks. However, if you are long equities it seems following the price as it continues to rise may be a better strategy. History is littered with folks trying to predict tops. Let the price action dictate the top, not your opinions or feelings.