Monday, August 22, 2011

Don't Bet The Farm On Head-N-Shoulders Or Technical Analysis



By Victor Niederhoffer and Laurel Kenner


In times of great disaster and stress, we like to think of great ship commanders and generals heading toward their goals with cool calculation while the guns are blazing. Rather than succumb to the temptation to join in the general angst when the market plummets, we try to stay calm in order to figure out how to survive and make our next buck.
On such an occasion recently, we were thinking about a post that came across our monitors from a hedge fund manager whom we call Miss X. "The technical action in the S&P since the big-cap rally last week is being threatened by a massive head-and-shoulders going back to January 1998," she wrote. Thereafter, the S&P took out the January 1998 low and headed straight down to April 1997 levels.
Our correspondents pointed out at the time that if one used the classic Edwards-Magee head-and-shoulders method to project the "downside target" for S&P futures, 540 or so would have been the likely next stop. As for the Nasdaq 100, it was headed for negative 2,690 under the same method of reckoning.
In any event, the question was raised: Does trading based on head-and-shoulders patterns work?

Worthless nostrums and superstitions

It always helps to know what works and what doesn't. In times of plague, worthless nostrums and superstitions flourish. It's important to keep a clear head and take the long view.
As to whether head-and-shoulders patterns work well enough in the stock market to be profitable -- they don't, as we'll show.
Head-and-shoulders trading has been around since before 1930. The pattern consists of three peaks, the highest being in the middle. A horizontal line -- the "neckline" -- is drawn to connect the troughs between the shoulders and the heads. The crossing of the neckline is supposed to signal that prices will continue down away from the head. An inverted pattern is read as bullish.

45 years of testing

We'll start by saying that we avoid all vaguely defined "technical" indicators requiring visual evaluation by a gifted interpreter. Moreover, in 45 years of trading, Vic and his staff members have tested every indicator to which value is ascribed. If it works, he would be using it. Head-and-shoulders trading is a trend-following strategy. We believe that any wealth that accrued to Miss X as a result of trading this pattern -- and we do congratulate her for it -- was a lucky event, not a sure indicator of future success.
However, any important question deserves to be tested, and the results made public. Haphazard anecdotes, confident assertions and appeals to authority -- even, or especially, our own authority -- will not do.
As Steve Stigler writes in his magisterial "Statistics on the Table:"
  • If a serious question has been raised, whether it be in science or society, then it is not enough merely to assert an answer. Evidence must be provided, and that evidence should be accompanied by an assessment of its own reliability.
We have tested the head and shoulders strategy on S&P 500 futures and will report the results below. But we also will take the opportunity of passing along to our readers the results of a remarkable study by Carol Osler of the New York Federal Reserve that concluded head-and-shoulders trading in individual equities is, on balance, unprofitable.
Osler's tests were rigorous, and she presented her conclusions with great clarity in a study called "Identifying Noise Traders: The Head-and-Shoulders Patterns in U.S. Equities."
Osler wrote a computer program to identify head-and-shoulders patterns, based on the descriptions in eight technical manuals. She applied it to 100 companies with price data spanning July 2, 1962, to Dec. 31, 1993, selected at random from the Center for Research on Securities Prices at the University of Chicago.
All of the manuals were ambiguous about the criteria for exit, but they agreed that a head-and-shoulders pattern signified a major change of trend. Osler therefore wrote her program to require that a position be held until the price stops moving in the predicted direction, with a stop loss of 1%.

Irrational speculation

Her conclusion: Head-and-shoulders trading is unprofitable and "does not qualify as rational speculation."
Amazingly, head-and-shoulders trading is quite popular. Osler estimates that such trades account for as much as one-quarter of an average day's volume around the time of the "neckline crossing," the signal to put on a trade.
How to account for the popularity of an unprofitable trading strategy? Certain peculiarities of the human mind may account for its acceptance, Osler says. People are prone to see nonexistent connections between groups of things. They tend to be overconfident in their own judgment. And they remember pleasant or successful experiences (e.g., profitable head-and-shoulders trades) with far greater clarity than they do unpleasant experiences.
A few successes may bring the head and shoulders trader fame and funds, encouraging new entrants. As Osler notes, cognitive psychologists have shown through experiments that beliefs and behaviors are difficult to "extinguish" when they are randomly reinforced.
Osler's data ends in 1993, and we wondered whether the picture might since have changed. Fortunately, we were able to interview her. She told us that she is updating the database.
We have heard many market players say they don't believe in head-and-shoulders trading or any other technical analysis patterns, but like to know what such traders are doing so they can eat their lunch. Not likely, says Osler. Even before transactions costs, trading against head and shoulders traders is just not profitable in individual stocks.
After our conversation, Osler left the Fed to take a professorship in the international economics and finance department at Brandeis, where she planned to research the role of stop-loss and take-profit orders in the currency market. One area of interest is the possible clustering of orders at round numbers. She didn't have any plans to extend her head-and-shoulders work to S&P futures. "Technical analysis is just not a hot topic," she explained. "It's not the sort of thing you can make a big splash with."

Follow the algorithms

Always ready to jump into the breach, we tested the head and shoulders strategy on S&P futures prices beginning in 1996. Shi Zhang, Vic's computation assistant, wrote a program based on Osler's description of her head-and-shoulders algorithm.
Zhang's program looked for six points on a bearish head and shoulders pattern -- the right shoulder, the right trough, the head, the left trough, the left shoulder and "neckline" crossing. The time between points had to be at least five days and no longer than 180 days. Various distances were used to make sure that no patterns were missed.
After running his computer nonstop for 10 hours, Zhang came up with seven patterns, which he then evaluated for profitability 1, 2, 3, 4, 5, 10, 20, 30 and 60 days out. The results appear
 
 Number of days after neckline crossing
1
2
3
4
5
10
20
30
60
Average profit/loss
0.30%
1.60%
1.20%
1.10%
1.30%
-0.70%
0.70%
-0.20%
-2.60%
Standard Deviation
0.01
0.03
0.01
0.02
0.02
0.02
0.02
0.04
0.1
We conclude that head-and-shoulders trading does not work either as a signal of a trend change or as a profitable strategy.
We will therefore go back to picking up good stocks at good prices, and we'll try to restrain ourselves from using the rent money.
Laurel Kenner is a financial writer in New York City. Her 18-year journalism career includes five years as chief US stocks editor at Bloomberg News (1995-2000) and five years as an award-winning aerospace reporter for Copley Los Angeles Newspapers (1989-1994). She is a classical pianist, and worked as an accompanist before becoming a writer. Victor Niederhoffer is a private speculator specializing in futures and options trading. A graduate of Harvard ('64) and the University of Chicago (Ph.D. '68), Victor founded a merger-and-acquisition firm in the mid-1960s. For a decade, he was unbeaten as national squash champion. In the late 1970s Victor began speculating in commodity markets, making and losing several fortunes. He started trading for customers (and George Soros) in the early 1980s and was managing more than $100 million by the mid-1990s. For several years he had the best track record in the world before investments in emerging markets in 1997 caused his fund to close. Since 1997 he has continued to trade for his own account using principles outlined in his best-selling book, "The Education of a Speculator." He currently writes a weekly column on the markets with co-author Laurel Kenner on MSN Money. His interests include electricity, ecology, musical theater, chess and checkers, sports, old books and folk art. Mail Laurel and Victor
MSN

Saturday, August 13, 2011

Short Selling Needs To Be Reined In, Uptick Rule Needs To Be Reinstated, & Warning To Bears

The reason most bears don't understand why short selling needs to be regulated is because they treat the market like a casino. As such, they want things to be fair. They want to be able to short at will, anytime, anywhere, anyhow. They want instruments that offer them super leverage. They even want the uptick rule to be gone forever. As such, they are generally clueless what the stock market is about -- why it's there and how it functions.

Bullish investors, on the other hand, treat the market as an investment. They make an investment in a company's stock in hopes of gaining a positive return for the risk they take. They are taking the risk in supplying their money to the cash equities market so companies can borrow money to grow their business. They are in essence doing a good thing for the companies and for America. Yes, shorts take risk too but the kind of risk is quite different.

With investors' help, individual companies can access the capital markets and efficiently raise risk capital to grow their business, or borrow money if they run into temporary problems. So the onus should be put on the short sellers. Investors should be more protected than short sellers because investors provide a very important function to the market place. The uptick rule helps make the marketplace process more efficient.

You may think Proctor & Gamble, for example, is a safe company and nothing can happen to them even if people gang up and short their stock, but I can assure you that one of these days if they don't have access to cash equities market due to huge and fast plunging stock market prices, the company can go belly up. Most companies have some form of debt and need working capital that is borrowed. Note that Proctor & Gamble has 32 billion in debt: http://finance.yahoo.com/q/ks?s=PG+Key+Statistics . Could PG go bankrupt if stock market plunges 70-90% and stays there for awhile? You bet PG can go bankrupt, similar to Lehman. The question then becomes, "Will the govt or anybody step in and save Proctor & Gamble if the company couldn't borrow enough for working capital?"

The truth is, Lehman could have survived had the credit markets not froze on them. There was so much fear (as result of massive and fast decline of stock prices everywhere) that no one would extend them credit (or, as the case may be, they weren't extended sufficient credit.)

This is how a great company could go belly up (not so much because nobody wants to buy their products but because of a freeze in working capital), and in short fashion. It is very important the govt at the very least reinstates the uptick rule.

Sure puts some light on short selling, doesn't it? Perhaps you may want to study what is the function of the stock market, no? That's why I sometimes say that bears are like cancers. Sometimes they destroy everything around them without understanding the consequences fully.

Thursday, June 30, 2011

Follow My Tweets And Visit Xbeanie

Bettertrading blog is now temporarily winding down due to time contraints.  Here are two things to do now:

1) Follow me on Twitter and get some free nuggets.

2) Join me at Xbeanie and learn how to elegantly maximize your stock market returns without complicated charting or sophisticated mathematics. That's where I'll be during market hours. In 2008, I wrote a book on a revolutionary approach to trading. This approach is now being used by many traders and bloggers.  Get the book through the link above.


As far as the market is concerned, I think we're headed to Dow 36,000 this decade.  Be invested and enjoy the ride.

Tuesday, June 28, 2011

Breakout Stocks: Netsuite

Netsuite (N) is an accounting software firm that is now trading at lifetime highs. Though the company isn't yet profitable, it will soon be.


Sunday, June 26, 2011

This Stock Is The Next VMWare: ****

You may want to get in now before it's too late.  I think it's an easy 10-bagger.

http://xbeanie.blogspot.com/

Thursday, June 23, 2011

Netflix CEO Reed Hastings Predicts Gigabit to the Home by 2021

What Not To Do

Math idiot risking $600k for $400k possible gain, and ends up 0.

Wait! Isn't that what options trading is all about?

Monday, June 20, 2011

Tim Westergren 2011 Interview (Part I) -- Pandora.com CEO Tim Westergren



2010 Interview:

2009 Interview with Mrs. Peggy Yu Yu, Co-founder dangdang.com; $DANG

Youku, Dangdang, Youku, Dangdang. Yes, no, yes, no, Yes.

Both DANG and YOKU are extremely oversold and are great buys right here right now.

Technically, they are so overstretched to the downside it's not even funny.

Fundamentally, they are both good stocks for the long haul.  YOKU is the Youtube of China and DANG is the Amazon of China.

Youku, Dangdang, Youku, Dangdang.  Yes yes yes.

Breakout Stock: CBOU


AAPL Is Simply Too Cheap

Yeah, the bears may scare the masses by plundering this fine leader and innovator but at $317 it's such an immense bargain no matter which metric you use to measure cheapness.  It's a buy and it's going to $600.


Sunday, June 19, 2011

Precious Metal Bugs Are Loading Up On Bitcoins? $GLD, $SLV, $GG, $GPL, $GOLD

Gold and silver bugs hate fiat and want it gone NOW.  Since it appears that the process is taking forever(?), some are converting their US Dollar fiat into Bitcoins, hoping to make a killing (thousands of percents) most likely.






The people really excited about bitcoins are those that got in at a few pennies, as it is currently trading near $20.  The rest is hoping that it'll go up a few thousand dollars or to infinity after they buy in.  Why does it sound so much like a Ponzi? 

At any rate, bitcoins are not for me. And I suggest to avoid it.

Gold and Silver Bugs Have Gone Insane With Bitcoins

Gold and silver bugs hate fiat and want it gone NOW.  Since it appears that the process is taking forever(?), some are converting their US Dollar fiat into Bitcoins, hoping to make a killing (thousands of percents) most likely.






The people really excited about bitcoins are those that got in at a few pennies, as it is currently trading near $20.  The rest is hoping that it'll go up a few thousand dollars or to infinity after they buy in.  Why does it sound so much like a Ponzi? 

At any rate, bitcoins are not for me. And I suggest to avoid it.

Henry Ford On The Banking System

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."


Henry Ford

Jim Rogers: The Dollar Is Doomed, Buy Real Assets

16 Meaningless Market Phrases That Will Make You Sound Smart On TV

Funny but true.

Friday, June 17, 2011

Keep Adding Pandora $P, It Has Magic


You already know what I think of P.

Remember the analyst who slammed the AMZN ipo years ago when it had revenue of $16 million and $6 million loss? Most thought Amazon would never be profitable and would bankrupt itself as it grows.  Ooops, what were they thinking?

Keep buying Pandora and ignore today's analyst with the sell rating and $5.50 price target on P. His sell rating was the major catalyst that spooked traders into dumping the stock.

Perhaps you may want to go experiment with Pandora yourself for a few days and see if the company has vast potential.  I personally think P is the next Netflix (NFLX) but it could be more.  Pandora has amazing technology and is extremely easy (and convenient) to use.  It may not be a profitable business at this time but increased popularity will drive mass adoption, and then they can shove ads down the users' throats, a la Facebook.  (Their subscription model can also be tweaked to increase subscribers. ) Everything changes if Pandora can increase their user base from 100 million to 300-400 million (like Facebook).

The way to play P? Keep buying small on dips for now, then back up the truck as the company shows you the path to profitability in the weeks and months ahead.

There's magic at Pandora.  Just open the box.

Thursday, June 16, 2011

Get Ready For The Bounce

This is not the time to sell, but rather the time to buy.  Talk of Greece's default (again) and Jim Cramer's Armaggedon scenerio are contrarian signals to get back in the market.

Today, the SPX got close to 1250 late afternoon, and the bulls came charging back.

Open your wallets and buy some stocks!

Pandora Media (P) Is A Fantastic Buy Here

Dr. Burzynski: Cancer Is Serious Business

Wednesday, June 15, 2011

My Unfiltered Thoughts On Pandora Media (P)


You're Still A Bunghole For Loading Up On Gold & Silver; $GLD, $SLV, $PSLV


Yeah, you...the stock market bear of bears, the good guy in the world of evil.  You're never gonna invest a dime in the market anymore.  Instead, you're loading up on precious metals, water, guns, bullets, and you're gonna electrify the perimeter of your home (both above and under ground).

Your new mission in life now is to convince all your friends and family or anyone who is willing to listen to you that they too should load up on gold and silver...because the central banks are too stupid and too addicted to printing money.  As a result, your fiat money and everybody's fiat money will go to 0.

You go on the web daily and blast the fed and worldwide central banks for devaluing your hard-earned money.  Your mission takes on a sense of urgency.  Your thinking is that the middle class and the poor are going to be much poorer due to inflation and the coming massive hyperinflation.  You are the savior and you're going to help protect the middle class and the poor.  But first they must listen to you and buy gold and silver with every paycheck they get.  They must take all the money out of their 401ks.  They must do it now.  They must do it yesterday. 

By loading up on precious metals, you and your army of gooddoers help cause prices to move higher and accelerate the destruction of the fiat currency.  Higher prices beget higher prices as more and more people abandon fiat.  You secretly or openly celebrate the eventual destruction of fiat and it can't happen soon enough.   "Die fiat die!" is your favorite weekend chant.  Life will be better for everybody afterwards, you envision.   But, with your AK-47, you'll whack anybody who should come to your property and steal or ask for food/water.  You got some grenades if they all come at once.

Life will be better, really?  If the worse case scenerio plays out, the poor and the middle class will still be much poorer.  Because, let's face it, there's just not that much silver and gold to go around for everybody.  And the rich will stay rich on the other side because they can buy all the precious metals they want in one fell swoop.  They can, they will, and they can do it the very last minute.

What changes?  Nothing.  The rich stays rich, the poor and middle class becomes super poor and Untouchables.  They were better off with the original fiat currency, even as it depreciated decade after decade.

Nothing changes....And you're still a bunghole.

You Are Still A Bunghole For Loading Up On Gold And Silver

Yeah, you...the stock market bear of bears, the good guy in the world of evil.  You're never gonna invest a dime in the market anymore.  Instead, you're loading up on precious metals, water, food, guns, bullets, and you're gonna electrify the perimeter of your home (both above and under ground).

Your new mission in life now is to convince all your friends and family or anyone who is willing to listen to you that they too should load up on gold and silver...because the central banks are too stupid and too addicted to printing money.  As a result, your fiat money and everybody's fiat money will go to 0.

You go on the web daily and blast the fed and worldwide central banks for devaluing your hard-earned money.  Your mission takes on a sense of urgency.  Your thinking is that the middle class and the poor are going to be much poorer due to inflation and the coming massive hyperinflation.  You are the savior and you're going to help protect the middle class and the poor.  But first they must listen to you and buy gold and silver with every paycheck they get.  They must take all the money out of their 401ks.  They must do it now.  They must do it yesterday. 

By loading up on precious metals, you and your army of gooddoers help cause prices to move higher and accelerate the destruction of the fiat currency.  Higher prices beget higher prices as more and more people abandon fiat.  You secretly or openly celebrate the eventual destruction of fiat and it can't happen soon enough.   "Die fiat die!" is your favorite weekend chant.  Life will be better for everybody afterwards, you envision.   But, with your AK-47, you'll whack anybody who should come to your property and steal or ask for food/water.  You got some grenades if they all come at once.

Life will be better, really?  If the worse case scenerio plays out, the poor and the middle class will still be much poorer.  Because, let's face it, there's just not that much silver and gold to go around for everybody.  And the rich will stay rich on the other side because they can buy all the precious metals they want in one fell swoop.  They can, they will, and they can do it the very last minute.

What changes?  Nothing.  The rich stays rich, the poor and middle class becomes super poor and Untouchables.  They were better off with the original fiat currency, even as it depreciated decade after decade.

Nothing changes....And you're still a bunghole.

Tuesday, June 14, 2011

Warren Buffett: Why I'm Giving 99% Of My Money To Charity

"I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing."

Warren Buffett

Humans Created The Atomic Bomb, They Can Certainly Create 5-Minute Electric Vehicle Chargers!

It can be done and it will be done.

We need a Manhatten Project for electric cars. A cheap and elegant solution can be gotten probably in a matter of weeks...and we can say bye-bye to the internal combustion engine once and for all.

Monday, June 13, 2011

Don't Get Sucked In By The Bear Borg Collective

We're seeing signs that insiders are finally coming back and buying stocks, for the very first time in a very long time.

This coming gigantic bull market (green tech, mobile tech, and social media) is destined to pull everyone back from the brink of the collective Bear Borg depressive mind state.  The chatterbox Borgs, who will probably never ever invest another dime in the markets again (aside from loading up on precious metals and burying them in the backyards),  have been successfully converting the confused masses by endlessly feeding them black death juice.


Hopefully, you won't be the last one in as Dow marches towards 36,000.  You can't fight the bull anymore.  Come back, come back to the light.

Jim Rogers: U.S. May Face Fresh Recession in 2011-12 Worse Than Before

Ignore the Bearish Hyperbole

What is it in these charts that says we're doomed?

DJIA:

SPY:

QQQ:

Schwarzenegger Stocks -- Ecolab


Friday, June 10, 2011

Schwarzenegger Stocks -- FusionIO


With Steve Wozniak (cofounder of Apple) as Chief Scientist, who wouldn't want a piece of the action?  

Apple and Facebook are FIO's biggest customers.

Challenges and Opportunities for Alternative Transportation Fuels and Vehicles


The Promise of Electric Vehicles

"...Our long term success will only be insured by the adoption of our product by paying consumers and our ability to make and sustain a product while delivering it on a profitable basis. However, for this and other promising early stage energy technologies to gain a foothold in a market monopolized by the large incumbents, policy makers and legislators must take action and create breathing room for these new technologies to gain a foothold in the commercial marketplace. This must happen if we ever have a hope to achieve the larger national and economic security advantages of a diversified transportation energy sector..." 

Tuesday, June 7, 2011

Don't Get Scared; Buy The Dip This Week


We should get a rally Tuesday.  Both Madmoney and Fastmoney were negative last night.  Almost without fail, when both segments have the same strong sentiment on the same day...the market goes contrarian on the following day.  In the long term scheme of things this contrary play is meaningless, but for the immediate short term you can make some dough.  Futures are already gapping up huge.

The market is now very very oversold in the intermediate term as well and a reversal could be at hand any day now.  The risk/reward doesn't favor shorting stocks here. 

Q2 is about to end at the end of this month.  It's likely why market participants have been jittery lately.  We probably don't need Q3.  The full effects of Q2 hasn't been felt yet until about 12-24 months later, which means the stock market will be on massive nitro bull mode in 2012.  Bears, you've been warned.

Sunday, June 5, 2011

Charlie Munger: Google Has Incredible Moat

"Google has a huge new moat.  In fact I've probably never seen such a wide moat.  I don't know how to take it away from them.  Their moat is filled with sharks."

Charlie Munger (via Marketwatch)

Friday, June 3, 2011

James Altucher: Dow Jones Headed To 20,000

I believe that, since I called Dow to 36,000 before just about anyone (including Altucher) right in the middle of the financial crisis.

Thursday, June 2, 2011

Jamie Dimon: The Economy Is Getting Stronger


(Reuters) - JPMorgan Chase Chief Executive Jamie Dimon is upbeat on the prospects for the world's largest economy, telling investors on Thursday that pessimism is overdone and the economy is actually "getting stronger."

"The underlying dynamics are pretty good, pretty broad-based and getting stronger, not weaker," Dimon said.

U.S. companies have the most cash in decades and are making "good profits," said Dimon, who heads the second-biggest U.S. bank by assets.

"The consumer is far stronger than two or three years ago," added Dimon, who was speaking at a Sanford C.Bernstein investor conference.

Tuesday, May 31, 2011

Warren Buffett: America Is Going To Be Ok

In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
 
Warren Buffett

They Just Don't Get Tesla Motors


Of course Eric Bolling didn't get it because he was an oil trader all his life.  Ironically, he must have been aware that the oil industry gets $2 trillion a year of government subsidies.  Tesla got merely a $400 million business loan.

Why was Willard fuming with anger on the government giving Tesla a loan going towards innovation? Let's not forget, the internet was built on government loans/handouts. Willard indicated that $400 million could be better used to cure childhood cancer.  How noble, but tens of billions of dollars (from govt funding and huge public/estate donations) already go towards cancer research every year ....with still not anywhere near a cure for cancer.

TSLA is going higher.  The company is expected to be profitable in 2013.

Friday, May 27, 2011

10-Baggers; Buy The 5 Horsemen Of Social Media: $LNKD, $Twitter, $Groupon, $Facebook, $Zynga

In a recent post on the recommendation to buy the social media giants as they come public, I forgot to mention the 5th horseman -- Zynga.

The social media horsemen are great investments and when they reach a bubblicious fever pitch within 5-7 years, most of them will be 10 baggers above their IPO price.  Really, you say?  Really.  The Fed has already inflated another bubble that will be the biggest the world has ever known.  With trillions of dollars dropped from helicopters, the money will find their way into the markets, and ultimately into the next generation of tech stocks -- social media, mobile tech and greentech.  Unlike mobile tech and green tech, it is fairly easy to pick the winners in social media.  They are obviously LinkedIn, Twitter, Zynga, Groupon and Facebook.

Bing Gordon thinks social media is only 10% done.  (View video here.)  10% done means 90% to go, which means the 5 Horsemen of Social Media are all 10-baggers in the making.

Thursday, May 26, 2011

Time To Back Up The Truck On Technology Stocks, Again

A tech revolution is coming that will propel the indices to lifetime highs, within the next 5-7 years.  Tech what?  Green tech, mobile tech and Web 2.0, that's what!

In the medium term,  shorting the market in the 3rd year of the Presidential Cycle isn't a great idea.   

There are two tech stocks - one in mobile tech and one in green tech - I believe has the potential to become the next Intel or Apple. By that time (5-7 years) the Dow may be trading at 36,000, courtesy of the Helicopter Fed.  It's time to get on board and buy tech, and ignore the market doomsdayers.

Jim Rogers On New Opportunities Amid Economic Uncertainty




Wednesday, May 25, 2011

Mark Haines Is Gone Now, Died At 65

He was really good at picking on the bullsh*t.



via InfectiousGreed

Tuesday, May 24, 2011

Buy $LNKD, The First Of The Four Social Media Horsemen; And Buy The Russian Google $YNDX While You're At It

Groupon, Twitter and Facebook make up the other 3 horsemen.  They are great investments.  Buy them as they go public, and don't let the bears scare you out of the shares.

Yesterday, Marketwatch's Mark Hulbert takes another stab at slamming an ipo. This time, he thinks investors need to do the math and LinkedIn is a bad investment. I suppose he probably thinks LinkedIn at $30 is a bad investment also, base on the math.

So what did Mark Hulbert think of the Google IPO back in 2004? "Don't do it! The odds are against investors."  Should we believe Mark will be right this time around?  You be the judge.

The bears are always clawing down on stocks for crazy reasons.  It's too expensive, they say.  Reality check -- fast growers are always expensive!

They say don't touch YNDX, the Russian Google, with a 10-foot-pole.  But I give a more profitable take.

Shai Agassi: The End Of Oil And The Beginning Of Lithium And The Green Transport Revolution

Monday, May 23, 2011

Steve Cohen: Market May Pause For Summer


Legendary hedge fund manager Steve Cohen expects that the markets will "pause" this summer. Speaking to the audience at Skybridge Alternative Investment Conference Tuesday afternoon, Cohen said that the run up in the S&P 500, which has gone from around 1000 to around 1500 since last just, is probably coming to an end.  "We’ve had a good run and I think we’ll see a little pause," he said.

Cohen, who founded hedge fund giant SAC Capital, rarely speaks publicly and was one of the most hotly anticipated names on the roster of speakers at the conference.  He made some macro-economic predictions as well. The second half of 2011 could see more robust growth than the first half, he said. "We could see 4 percent growth in the second half," he said.
But that growth won't last, according to Cohen.  "I’m more worried about 2012 as some of the stimuluses wear off," he said. "But we’ll worried about it when we get there."

CNBC

The LinkedIn Bears Are Out Again

Marketwatch's Mark Hulbert takes another stab at slamming an ipo. This time, he thinks investors need to do the math and LinkedIn is a bad investment. I suppose he probably thinks LinkedIn at $20 is a bad investment also, base on his math.

So what did Mark Hulbert think of the Google IPO back in 2004? He said, "Don't do it! The odds are against investors."

Sunday, May 22, 2011

Russian Search Engine Yandex $YNDX Is Going IPO This Week, And Should You Buy It?

Consumer Internet stocks are a hot commodity now, especially following LinkedIn Inc.'s stellar initial public offering last week, during which its shares doubled on the first day. Though Yandex isn't in the same coveted social-media space as LinkedIn, it lays claim to some impressive bragging rights in the search-engine game: It is bigger than Google Inc. in Russia.

At 64% of the Russian market vs. Google's 22%, Yandex is a major force in one of the few countries in Europe not dominated by the U.S. search-engine company, which has been operating a Russian-language site since 2001.

Yandex, which also is the largest Internet company in Russia by revenue, has been profitable since 2003. In the first quarter, net income rose 62% to $29 million, and in 2010 it increased 90% to $134 million. The company is aiming to raise as much as $1.15 billion on Tuesday through a listing on the Nasdaq under the symbol YNDX.

WSJ


Should you buy the stock? Of course.  But just don't back up the truck.

Anybody that beats Google, even if only in home turf, is still worthy of your investment dollars.    

Congratulations, You're More An IPO Expert Than Anybody Else; And Friends Don't Stop Friends From Buying LinkedIn $LNKD


When it comes to ipo's you probably shouldn't listen to the talking heads because they can't seem to see future potential of the company better than you or your friends can.

Consider BIDU, back in 1995:

"Even with increased revenue and net income results for Q2 (around $8 million), this deal has got to have Benjamin Grahm rolling in his grave. Consider that CBS Marketwatch cited a IDC report as saying the entire China online ad market was $130 million in 2004. Now I think Baidu may surpass a $1.3 billion market cap by the end of first day of trading (China Net Investor: Baidu now has a market capitalization of $3.92 billion!), and if that happens, then I must say that I don't know of that many other companies that trade at 10x INDUSTRY revenues, even if the industry happens to be growing real fast."
Philip Lin, former executive at private equity firm, Kluge & Company; entrepreneur-in-residence at Kleiner Perkins

"You want me to talk about Baidu.com? OK. The stock, which climbed $95, or 354%, to $123.06 on its first day of trading Friday, trades at 1,000 times earnings. It trades at 128 times sales. You know what to do - SellSellSell!"
Jim Cramer on his "Mad Money" show

"This one is the return to the Internet bubble"
John Fitzgibbon, analyst in New York with IPODesktop.com

"Baidu.com's P-E ratio is sick"
Enzio Von Pfeil, chief executive of Commercial Economics Asia Ltd., who stressed he was speaking for himself and not his company.

"This is a `son-of-Google' investor mentality. Everyone remembers they could have had Google at $85 and don't want to let it happen again."
David Menlow, president of IPO Financial

"For the investor who thinks that Google or Yahoo are at a premium, how can you justify Baidu at even five times greater valuation than Google or Yahoo when it's only a China play?"
Martin Pyykkonen, managing director at money management firm Hoefer & Arnett

"It's a tsunami of retail interest. The guys doing the pricing priced it for the fund market and they didn't realize the huge wave of retail interest. And the retail investors don't have a clue about the valuation. (...) The whole online e-commerce market in China last year was $130 million. "So, [Baidu.com's market cap] is approaching 30 times the entire market in 2004. And it's just a regional market. Chinese is not the international language. People are buying the story that it's the second largest web site in China's growing market. But they forget it's very much a one-country wonder."
Francis Gaskin, editor of Los Angeles research firm IPOdesktop.com.

"I think the stock's rise is outrageous. This is another one of those bubbles. At the $27 offer price it was trading at 64 times sales. Even though its sales tripled last year, that doesn't justify a 64 price-to-sales ratio."
Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University

"It's a speculative fever right now. It doesn't make any sense. But as we saw in previous bubbles, that doesn't mean it can't keep going and make people money in the short term as they profit off of the greater fool. But if you're a long-term trader looking for valuation and the worth of the business based on its general future profits and cash flows, this is a ridiculous price."
Raymond Lin, portfolio manager with Tricera Capital, a San Francisco hedge fund specializing in Asian markets

"Congrats to Baidu and their investors. But if I am Baidu, I am seriously pissed at my bankers. They left almost USD $100m of Baidu company money on the table. Either they were really incompetent in gauging investor demand, they decided rewarding their institutional accounts with an Internet bubble throwback freebie was more important, or they figured they needed to keep the raise relatively low to encourage future fundraising business by Baidu. The approximately USD $100m Baidu raised is chump change when you are competing in this market sector against Google, Yahoo and Microsoft."
Bill Bishop, CEO, Red Mushroom; Co-founder CBS MarketWatch


And what did some manly guy at the Motley Fool say about GOOG, back in 2004?

My take?  If you personally use LinkedIn or know lots of people who use the site, then buy some shares.  Don't go all-in, of course -- but buy some.  Isn't this what investing is all about?  You buy what you know and you buy the companies that make the products you use.  So don't listen to the pundits on IPO's.  They all go by valuations to make their usually negative calls.  And aren't all IPO's overvalued by their very nature?

'Nobody Knows Nothing' When It Comes To IPO's, And Why You Should Buy Some LinkedIn $LNKD

When it comes to ipo's you probably shouldn't listen to the talking heads because they can't seem to see future potential of the company better than you or your friends can.

Consider BIDU, back in 1995:

"Even with increased revenue and net income results for Q2 (around $8 million), this deal has got to have Benjamin Grahm rolling in his grave. Consider that CBS Marketwatch cited a IDC report as saying the entire China online ad market was $130 million in 2004. Now I think Baidu may surpass a $1.3 billion market cap by the end of first day of trading (China Net Investor: Baidu now has a market capitalization of $3.92 billion!), and if that happens, then I must say that I don't know of that many other companies that trade at 10x INDUSTRY revenues, even if the industry happens to be growing real fast."
Philip Lin, former executive at private equity firm, Kluge & Company; entrepreneur-in-residence at Kleiner Perkins

"You want me to talk about Baidu.com? OK. The stock, which climbed $95, or 354%, to $123.06 on its first day of trading Friday, trades at 1,000 times earnings. It trades at 128 times sales. You know what to do - SellSellSell!"
Jim Cramer on his "Mad Money" show

"This one is the return to the Internet bubble"
John Fitzgibbon, analyst in New York with IPODesktop.com

"Baidu.com's P-E ratio is sick"
Enzio Von Pfeil, chief executive of Commercial Economics Asia Ltd., who stressed he was speaking for himself and not his company.

"This is a `son-of-Google' investor mentality. Everyone remembers they could have had Google at $85 and don't want to let it happen again."
David Menlow, president of IPO Financial

"For the investor who thinks that Google or Yahoo are at a premium, how can you justify Baidu at even five times greater valuation than Google or Yahoo when it's only a China play?"
Martin Pyykkonen, managing director at money management firm Hoefer & Arnett

"It's a tsunami of retail interest. The guys doing the pricing priced it for the fund market and they didn't realize the huge wave of retail interest. And the retail investors don't have a clue about the valuation. (...) The whole online e-commerce market in China last year was $130 million. "So, [Baidu.com's market cap] is approaching 30 times the entire market in 2004. And it's just a regional market. Chinese is not the international language. People are buying the story that it's the second largest web site in China's growing market. But they forget it's very much a one-country wonder."
Francis Gaskin, editor of Los Angeles research firm IPOdesktop.com.

"I think the stock's rise is outrageous. This is another one of those bubbles. At the $27 offer price it was trading at 64 times sales. Even though its sales tripled last year, that doesn't justify a 64 price-to-sales ratio."
Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University

"It's a speculative fever right now. It doesn't make any sense. But as we saw in previous bubbles, that doesn't mean it can't keep going and make people money in the short term as they profit off of the greater fool. But if you're a long-term trader looking for valuation and the worth of the business based on its general future profits and cash flows, this is a ridiculous price."
Raymond Lin, portfolio manager with Tricera Capital, a San Francisco hedge fund specializing in Asian markets

"Congrats to Baidu and their investors. But if I am Baidu, I am seriously pissed at my bankers. They left almost USD $100m of Baidu company money on the table. Either they were really incompetent in gauging investor demand, they decided rewarding their institutional accounts with an Internet bubble throwback freebie was more important, or they figured they needed to keep the raise relatively low to encourage future fundraising business by Baidu. The approximately USD $100m Baidu raised is chump change when you are competing in this market sector against Google, Yahoo and Microsoft."
Bill Bishop, CEO, Red Mushroom; Co-founder CBS MarketWatch



And what did some manly guy at the Motley Fool say about GOOG, back in 2004?

My take?  If you personally use LinkedIn or know lots of people who use the site, then buy some shares.  Don't go all-in, of course -- but buy some.  Isn't this what investing is all about?  You buy what you know and you buy the companies that make the products you use.  So don't listen to the pundits on IPO's.  They all go by valuations to make their usually negative calls.  And aren't all IPO's overvalued by their very nature?

Friday, May 20, 2011

Jim Cramer Sick And Down On LinkedIn, But $LNKD Is A Good Investment




There's a lot of negativity out there towards LNKD and its valuation.  But then, many of these same people were also negative on YHOO, EBAY, CMG, PCLN, GOOG, BIDU, MA, V when they came public, on valuation concerns.   Cramer didn't like BIDU until much later.  He wasn't promoting GOOG when it went ipo, until it was trading around $300 or so, if I remember correctly.  He certainly wasn't hot and heavy on Mastercard (MA) when it went ipo at $40.  The fine folks who are now pooping on LNKD are also likely the same people who didn't like the YHOO's and EBAY's and BIDU's of yesteryear, until most of the stock gains were made.

I think LNKD is a good investment worthy of a few of your dollars, once the frantic trading settles down a little bit (maybe within a week or two).  Likewise, Facebook, Groupon and Twitter will be good investments as well when they go ipo.

The key here is to put a little bit of money into the leaders.  LNKD certainly qualifies as a leader in their field.  Remember, all great stocks start with an ipo.  The leaders may look expensive on their first day of trading, but several years down the line most people will wonder why they didn't buy the 800lb gorrilla on ipo day.  How many people wish they had plunk some money into BIDU ('The Google Of China") on its first day of trading?  BIDU is now more than a 10-bagger.


Wednesday, May 18, 2011

Berkshire Hathaway Buys Stake In Mastercard


NEW YORK (Dow Jones)--Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) took a stake in MasterCard Inc. (MA) in the first quarter as a new investment manager took over a portion of the company's $115 billion portfolio.
Berkshire disclosed the holding of 216,000 MasterCard shares in a regulatory filing Monday that shows its U.S. stock holdings as of March 31. The holding is valued at about $60 million based on Monday's closing share price.
But Berkshire also said it had omitted some information on its holdings in the filing, an action some investment managers take when they're building a new position.
The addition of MasterCard to the portfolio could be the work of Todd Combs, the former hedge-fund manager who was tapped by Buffett to manage a portfolio of about $2 billion to $3 billion at Berkshire. Combs was selected as the company prepares for the day the 80-year-old Buffett will no longer run Berkshire.
Berkshire also disclosed a reduced stake in oil producer ConocoPhillips (COP), trimming the holding less than 1% to about 29 million shares.
All told, Berkshire bought $834 million of equity securities in the quarter, and sold just $9 million of equities, according to the company's quarterly earnings report filed earlier this month.
Combs's $400 million hedge fund, called Castle Point, favored investments in financial stocks.
Buffett's company, like other firms that control an investment portfolio of more than $100 million, is required to report its U.S. stock holdings 45 days after the end of a given quarter.
News about Berkshire's stock picks has the power to move the shares of the newly disclosed companies as money managers look to mimic the investment success of the "Oracle of Omaha." MasterCard rose 1% to $281.99 in after-hours trading on Monday.
But Buffett had long warned that some of the moves in the portfolio are the result of decisions made by Lou Simpson, the investment manager at Berkshire-owned car insurer Geico Corp.
Simpson retired last year, and Berkshire exited from many of its smaller stock positions in the second half of 2010. Castle Point also spent the last few months of last year selling off its positions as Combs prepared to start his job at Berkshire.
The value of the stocks listed in Monday's filing--which includes only U.S. holdings--was $53.6 billion as of March 31, up slightly from the $52.6 billion Berkshire listed as of Dec. 31.

WSJ