For years now it has been an axiom that five stocks, each representing companies known for consumer technology, are leading the stock market. The accepted acronym for them has been "FANG," if the A is allowed to do double duty. Literalists write it out, accordingly, as FAANG. The stocks are: Facebook, Amazon [Apple], Netflix, and Google. But Google and Facebook have both changed their names. And other customer-electronics firms are also playing a leading role. So the wise guys have created a new acronym, "MANA MANA." Meta -- formerly Facebook Alphabet -- formerly Google Netflix Amazon Microsoft -- no longer bound. to Windows, still or again a powerhouse Apple Nvidia Adobe. That's cute, and as the title indicates it sounds like muppets singing. One more thing to say: about Microsoft. It was not included on the original FANG list because Microsoft was at that time considered a company in decline -- a giant that had linked itself too tightly...
Posts
Found on Quora recently: Does it make a lot of people angry how "rigged" the stock market seemed in 2020 and lately in 2021? Why or not? How is it true that the stock markets are more rigged than any time in history? Let us consider that question. It represents the failure of generations of finance journalist, including your correspondent, to convey to the public any real sense of how markets work. It also represents a stark case of presentism, the impulse to give the latest things the greatest importance, ad all superlative words, so that the latest rigging, whatever exactly it may consist of, must be the most rigged ... ever. Our friend may certainly be making reference -- since he has in mind the last year and a half -- to the Paycheck Protection Program and its fallout. As the severity of the pandemic became obvious, Congress passed the CARES bill, including the PPP. As a consequences, hundreds of millions of dollars seem to have been fraudulently allocated....
I don't believe in chartism. Let's start with that. Chartism is the hypothesis that stock markets, like an etch-a-sketch, draw pictures, and that some of these pictures are bullish, others bearish. But, just for fun, let's discuss a Chartist pattern today. The most renowned of them is the cup-and-handle. You see an example above. At the right edge of that chart, a true Chartist would be screaming to himself, "BUY!!!" Here are a couple of points: This formation only matters if it happens AFTER a longer bullish period. And it is a "continuation" pattern. That is: the cup-and-handle illustrate that the bull market in XYZ stock has taken a necessary "breather" and is ready to resume its upward course. You see that the "cup" formation is supposed to be a U-shape, not a V. Also, chartists are happiest when the volume numbers at the bottom of the cup are low. Both of those facts signal that there was no rush to dump the stock once it star...
Everybody's favorite avuncular billionaire, Warren Buffett, has said that the academic theory known as the capital asset pricing model and its underlying notion of beta (the systemic risk of a particular portfolio versus the market as a whole) is worthless. After all, he says, “ a stock that has dropped very sharply compared to the market … becomes ‘riskier’ at the lower price than it was at the higher price.” Value investors, like Benjamin Graham, know better. It may well be a bargain at the lower price, while it was an unreasonable risk while it was still at the higher price. Avuncular Charm Is there really paradox here? Let us now let ourselves be lulled by Buffett’s avuncular charm into seeing paradox where there is none. Let’s analyze this in pieces. I won't make you wait for the conclusion though. My own view is that though there are problems with the CAPM, Buffett's aphorism (if that's what the above sentiment is) doesn't address them. Indeed, C...
I don't like the term "mobile wallet" in its digital-world significance. The term refers (and I'm quoting from a banking-industry website here) to a smartphone feature that is linked to a user's credit or debit cards "to make payments in person at a physical point of sale." Got it. Not a very complicated idea. What I don't like about it is the implication that wallets had to become digital in order to be "mobile." Haven't wallets always been mobile? Hasn't that always been the point? A wallet [an "analog wallet" if I need to say that -- a wallet sans phrase] is to be carried, in a woman's purse or a man's pocket. A mobile wallet is now "in" your phone, in some sense of that flexible preposition. I don't really see a significant gain in mobility there. Anyway, the reason for bringing it up is that Apple has now jumped on the mobile-wallet bandwagon. The iPay system, the new mobile phone a...
In the spirit of a throwback Thursday, [oops, too late] here is a reflection about something that ran in FORBES magazine back in October 1987. "He [chairman AG] has argued in the recent past that import prices could climb almost 10 percent a year without generating dangerous inflationary pressure....Chances are that he will be willing to let the economy grow faster than many observers expect." The article also said that Greenspan expected the U.S. dollar to fall about 3 percent against the yen the following year. On October 19th, the first Monday after the appearance of this article, the stock market crashed. Cause and effect? Probably not. Synchronicity? Definitely. And Greenspan never gave another media interview throughout the remainder of his tenure as chairman.
I said a few posts back that in order to understand the assumptions behind the efficient capital markets hypothesis (ECMH), it will help us to state the case for that hypothesis with some clarity. Here we go: when there is a way for someone to make alpha, that way comes about because there is some exploitable inefficiency in the system. For example, XYZ may be listed on stock exchanges in two cities: Philadelphia and Pittsburgh. Due to some inefficiency, XYZ trades at a lower price in Philly than in Pittsburgh. We know that’s inefficiency because the equity of XYZ is worth only what it is worth; there is only one possible complete discounting of all relevant information on that matter. If Pittsburgh and Philadelphia differ, one or both are wrong. Since listed exchange prices are themselves public information, arbitrageurs will almost instantly pickup on this, and will quickly start buying XYZ at the lower price in Philadelphia and then selling it for a risk-free profit for a hi...
We can reasonably hypothesize that “Mr. Market” is rational, and knows a lot of stuff, because there are a lot of people out there looking to make a buck off of any slip-up, looking to get an edge, to learn something he doesn’t know, and to trade on that basis. Further, all their trades on the basis of what they learn in that effort make him smarter. They contribute to determining prices, so that an “edge” that still worked a month ago may be outdated now, as Mr. Market has learned to factor it in. And that is why (especially according to advocates of the ECMH) stock prices move in a random walk. It is random to any observer not as smart as Mr. Market himself. Any given neuron will presumably see the thoughts of the whole of the brain as a random result of who-knows-what. There is nothing mystical about this – the confused neuron, in its own trading, helps to bring the situation about. Now, when I’m asked whether I believe in ECMH, I generally reply, “yes and no.” It ...
Aside from the considerations we discussed last week, there is this to remember about stock performance, the performance of a stock as an investment is not (entirely) a matter of whether it rises or falls in price. A stock also entitles its holder to a portion of whatever dividends the issuing company may declare. Suppose, then, that we do the arithmetical magic to factor in the dividend stream as if it were being paid out day by day, and we included that along with the stock price move as the performance of XYZ. Once we do this, we’ll want to be sure that we’re matching the stock price against a broad market benchmark that also includes dividends as part of performance. Fortunately, these are readily available. The S&P Index, for example, comes in three variants: one that considers solely the price of component stocks; one that factors in dividends (the “total return” index); and a third that subtracts the tax on those dividends (“net return.”) We might make discussi...
Last week our discussion took us as far as to a description of the normal or Bell curve. See a depiction above. The numbers at the bottom of the graph refer to “standard deviations” from the norm. We were discussing specifically mileage errors on maps. One standard deviation from the mean (the area between -1 and +1 on our graph above) accounts for roughly 68 percent of all the maps in our hypothetical database. Two standard deviations from the mean (the area between -2 and +2) account for roughly 95 percent of the maps. Three standard deviations account for 99 percent. A normal curve for a phenomenon is taken as evidence of randomness. If there were some reason why the mapmakers of 17 th century England were inclined to make a particular error that reason would show up as some non-normality in this chart. Perhaps the roads between these two places were especially good by the standard of the day, and the ease of travel created a general impression that the cities were...
As I noted in yesterday's entry, the U.S. Supreme Court this week declined to hear an appeal from State Street Bank & Trust after the 6th Circuit Court of Appeals gave the go-ahead to litigation against it brought by former (pre-bankruptcy) employees of General Motors. State Street had tried to get this case squashed on a motion to dismiss for failure to state a claim on which relief can be granted (the old-fashioned term for that was a demurrer). SCOTUS' non-decision decision means that it has failed in that effort. State Street's claim had been that ERISA shielded it from immunity. Other fiduciaries in similar situations may continue to make such claims (outside of the 6th Circuit), because SCOTUS' s refusal to take an appeal has no precedential significance. Still, the 6th Circuit, which consists of the federal districts within Tennessee, Kentucky, Ohio, and Michigan, ain't peanuts, and the 6th Circuits decision is sure to be cited elsewhere. This m...
A bit of fascinating news this week was mostly overlooked. The U.S. Supreme Court, on Monday, December 3, declined to hear an appeal from State Street Bank & Trust after the 6th Circuit Court of Appeals had given the go-ahead to litigation against it. So, without having to do the work of listening to arguments or reading briefs and writing an opinion -- all that tiresome stuff -- the high court has determined this lawsuit will proceed. The underlying lawsuit is a big enough deal to make that nod a big deal as well. Here's a link to the 6th Circuit decision which, we now know, stands. Before the fateful year 2008, auto giant General Motors offered its employees 401(k) plans with a variety of investment options, including mutual funds, non-mutual fund investments, and the General Motors Common Stock Fund itself. The later option was intended to enable both salaried and hourly employees to acquire an equity interest in their employer. Defendant State St...