I hope you’re well and surviving this wild ride we’re on.
We managed to survive the weekend with just one bank going bust (Germany’s Hypo Real Estate), the trouble was that there was a whole country also on the brink (Iceland). My friends in the city have never seen anything like it. Apparently the head of a credit department in one bank went into work last Tuesday last week and didn’t go home until Thursday.
Remarkable times and we could be living through one commentator called “the great financial crisis of 2008”.
Various experts and gurus are giving their two pennies worth on where we’ll go next. The BBC even showed a clip of Jim Cramer going on US breakfast Television saying that Americans should pull any money out of the stock market that they do not need for 5 years. Sensible advice you might think, except that Cramer’s track record is not the greatest. Cramer is a former hedge fund manager who started the thestreet.com, the financial portal hosting premium newsletters from some excellent traders such as Alan Farley. Some question Cramer’s investment calls, but he’s proven to be a canny business man with thestreet.com going well and his CNBC ‘Mad money’ show pulling in the viewers.
Not putting any money in the stock market that you might need in the next 5 years is always sensible advice in any market, the trouble is that Cramer has at other times go it horribly wrong, implying that people should pile into the stock market at various other times over the past few years. There’s also controversy of his recommendation to buy Bear Stearns just before it went bust. His call to sell all stock market holdings right now could be an almost perfect contrarian buy signal.
It got me thinking about trading ‘gurus’ and their websites. In uncertain times like this there’s an understandable desire to turn to a creditable expert who can explain what’s going on. The trouble is that unlike say medicine, expertise in the financial markets is very hard to quantify. After all, it is the so called ‘experts’ that go us into this mess in the first place. The BBC do a very good job of explaining what’s happening and poor old Robert Preston does a good job of not appearing overworked!
However, explaining what is happening and making some sensible predictions on what might happen next are two different things. There’s also the fact that organisations like the BBC have appeal to a wide audience and explain the very basics when specific insightful advice might be more useful.
Over the years I’ve built up a list of people I trust for their insightful commentary and reasonably accurate predictive ability.
Here’s my personal trading ‘guru’ website list:
1. Barry Rithholtz: http://bigpicture.typepad.com/
Via musings on his Big picture blog and various online articles Barry is someone I have great regard for. Barry uses facts and statistics to back up his opinions which is jives well with my philosophy on life. There’s nothing worse than financial commentators and politicians making fluffy statements that have no data to back them up. He’s from the same school of thought as Michael Shermer, a leader of the Skeptic society that seeks to promote scientific enquiry over beliefs and folktales (I can be a heavy read, but Shermer’s book Mind of the Market is recommended’).
Over the last few years and throughout the crisis, Barry has been constantly referring to the various data releases and cutting through the official interpretation. There’s plenty of articles, videos and podcasts for you to get your teeth into. All excellent stuff that will get you closer to the heart of the crisis than most other websites.
As it’s all US based, some of the terminology might take some getting used to, but I highly recommend a daily read of this excellent website. It will both educate and entertain.
2. Jason Goepfert: http://www.sentimentrader.com
I’ve covered Jason’s site in a previous edition of WRP. Jason’s site costs around £15 a month to access, but quite frankly I don’t know what I’d do without it. SentimenTrader keeps track of an amazing array of bespoke indicators and applies an overall commentary that interprets their findings based on years of experience. His most famous indicator is the Smart Money/ Dumb Money indicator that tracks the current market positions of those who’ve been proven to dumb newsletter advisors/ fund managers in the past and those that have been proven to be smart with their money. It isn’t perfect, but historically the smart money gets is right more often than the dumb money and when they cross over you get a reasonably consistent signal over a 3-6 month time frame. Right now the dumb money is selling and the smart money is buying. The analysis mainly applies to the US markets and there are very few clear cut buy and sell signals, but for me, Jason’s work is an indispensable discretionary filter to my trading.
3. Charles Kirk: http://www.thekirkreport.com/
Charles Kirk runs a popular trading blog with insightful commentary and useful trading tips. His daily musings and link fests offer a quick snapshot of the state of the current market.
4. Paul Hickey and Justin Walters: http://www.bespokepremium.com
Paul and Justin run the excellent Bespoke Investments blog which without fail will provide on interesting chart or piece of analysis each day. Whether it’s the rolling average of 3% days or the world stock markets in rank order, these guys know their stuff.
5. Rob Hanna: http://quantifiableedges.blogspot.com/
System designers dream. Daily trading ideas based on short term systems.
6. Floyd Norris: http://norris.blogs.nytimes.com/
New York Times Columnist Floyd Norris is a good daily read, better than anything you’ll read in most UK papers, that’s for sure.
Big name gurus
But what about big name gurus? How do they do?
You’d think it would be hard to tell, but actually with help of an excellent website, http://www.cxoadvisory.com you can track the performance of various big name gurus. Unfortunately these are all US based, but it makes for interesting reading. You can view their guru tracking page here: http://www.cxoadvisory.com/gurus/. They rank various big name gurus by the performance of their known market calls.
Elliot Wave/ Robert Prechter: Readers will probably know my thoughts on Elliot wave so it’s interesting to note the performance of its proponent Robert Pretchner Since 1979 he’s be largely negative on stocks and CXO conclude:
“Based on our judgment, Robert Prechter’s accuracy rate is about 29%, which is very poor. However, especially because of his very long forecasting horizon, the sample is much too small for reliable inference.”
Prechter’s predictions are apparently made with a very long term time horizon that may even stretch beyond our lifetimes. He’s either going to be very right or extremely wrong. So far he’s extremely wrong, though the recent collapse has made him less wrong than he was before. More information here: http://www.cxoadvisory.com/gurus/Prechter/.
Warren Buffett: Buffett is lauded as the world’s greatest investor, but is he worthy
of the title?
According to CXO advisory he is. http://www.cxoadvisory.com/blog/external/blog9-29-05/
http://www.cxoadvisory.com/gurus/Buffett/
They conclude: “The mean (median) annualized returns for the stock investments in Berkshire’s portfolio from 1980 to 2003 are 39.38% (19.92%). The top five holdings often comprise over 70% of the total portfolio based on market value. The investment strategy is best characterized as big-growth.
While beating the market in 20 out of 24 years from 1980-2003 is possibly due to randomness at a 5% significance level, the magnitude by which Berkshire beats the market (an average of 12.24% annually) makes “luck” an unlikely explanation.”
Buffet’s annual letter to shareholders is required reading for many. You can read each previous letter here: http://www.berkshirehathaway.com/letters/letters.html.
If you want up to date Buffet words of wisdom. Go to news.google.com and type in Buffett. I’d also recommend doing the same for the UK’s own Buffett, Anthony Bolton.
System watch
Forex AutoCash Robot http://forex-autocash-robot.com is still being pumped out and the more I see of it, the more it makes me mad. Let me know if you missed my thoughts on it last week. The long and short of it is that it is highly misleading and highly likely to fail. The results boasted about are entirely backtested which means the future returns are questionable to say the least. The latest promo involves them getting the backtested returns ‘proven’ by a solicitor. This is ridiculous as it only proves that the backfitted system did indeed work in the past. It’s like me coming up with a system today that went short on black Monday 1987 and various other crash days like Monday the 6th of October. I could ‘prove’ to you it worked 100% in the past by running a back test and even showing this back test to a solicitor. Stay well clear of this.
I also had a ‘personal’ invite from Vince Stanzione to join his Millionaire Trader http://www.millionairetrader.co.uk seminar. Judging from feedback from other members, I’m not the only one to receive this personal invite. I’m not sure what the seminar involves, but I have heard from some other members who haven’t done too well trading his covered warrants strategy recently.
Other existing systems are performing well. www.marketclub.com has been on the right side of the collapse in the markets and major currency movements. The monthly charts have been even more impressive and have been on the right side of the major moves for at least a month.
www.thewizard.com has also been on a good run. The currencies have been on the right side of recent moves and so have the currency futures, particularly the Aussie Dollar. I’ve just been paper trading their futures filter, but that’s been going very well with all the indices signalling short moves. Most impressive has been the huge gains in natural gas and oil shorts. I recently reviewed The Gravity charts from www.clickthemarkets.com and am pleased to say that the indicators there have also been on the right side of recent moves. I’ve been a long term follower of www.tradewithpros.com and they’ve been doing very well of late after a recent rocky patch. Their performance to the 3rd Quarter is +38% against the Dow at -18.26%. There’s currently a free one month trial. www.FX53.com had a rocky September but has been performing well of late.
My trades
A better week, I caught a few nice moves on the currencies and I took a quick short trade last night on the S&P 500 as it made a failed retest of the days low in the evening. I was rather lucky as I closed the trade earlier than I planned because the cat coughed up a giant hair ball on the new office carpet that needed clearing up before it stained. I was up nicely at the time and decided there was no harm in booking profits, especially in the current environment. The market promptly reversed as I was clearing up the mess. The cat got some extra biscuits.
This week’s hot trading buttons
This week’s major economic announcements start on today with ECB chairman Trichet and FOMC chairman Bernanke due to speak. Tuesday evening also sees the release of the minutes from the last FOMC meeting. With traders speculating on an imminent rate cut and events moving quickly since the last meeting, the minutes may now be a little out of date. However, they will still be examined in detail for clues on future policy decisions. In the UK manufacturing production figures are released in the morning with Halifax hours price figures planned for release some time throughout the day. Thursday sees the Bank of England’s MPC set interest rates. Traders are currently pricing in a quarter point cut.
Trading wisdom
“…people who expect to earn 10% annually from equities during this century – envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about double-digit returns from equities, explain this math to him – not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.” Warren Buffett
