Category Archives: Investments

Was the Removal of the Uptick Rule Stupid?

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The “Uptick Rule” was removed back in 2007 after a pilot study said that no manipulations occurred.This is what the pilot study found

“The general consensus from these analyses and the roundtable was that the Commission should remove price test restrictions because they modestly reduce liquidity and do not appear necessary to prevent manipulation. In addition, the empirical evidence did not provide strong support for extending a price test to either small or thinly-traded securities not currently subject to a price test.”

Not to be offensive, but isn’t this the most stupid thing that you’ve ever read?  Here is my take on why this is stupid, or maybe why the pilot program supporters think the American people are stupid.

So basically somehow the push to remove the “Uptick Rule” was put into place, not sure how, but I’m guessing lobbyists for hedge funds!  Sadly, the government removed the uptick rule for some of the largest stocks for this pilot program.  Umm, that’s kind of short-sighted, no?

These are the reasons that such a study is STUPID!

  1. If the lobbyist (who I assume are spending money to do this) are pushing to get such a rule removed, why would they sabotage their own efforts by taking advantage of temporary removal of the rule?  If the lobbyist (probably hedge funds) did take short-term advantage of the rule removal, wouldn’t that make the hedge funds (or lobbyist) look stupid?
  2. The pilot was done in the best of time, not the worst of times.  The major advantage of the uptick rule is protection for the worst of times,right?  Plus, if you run such a pilot program when time are good, who is really shorting large stocks much then anyway?
  3. If the rule had no effect on the market, then why not let it stay?  Instead they removed it and in a few short months boom, we have “The Great Recession”!
  4. The ones who would most benefit from the removal are those that least need any help in the stock market.  Everybody talks about Rich getting richer, well here is a direct effect and cause of that saying.  It’s like having an average person fight Mike Tyson, but tying that average persons left arm behind their back.  Would you fight such a fight, or does it sounds pretty stupid to you?  Well, removal of the Uptick rule is at that same level of stupidity..

Now I could say that I believe some agency should investigate to see how those involved with the removal of the “Uptick Rule” has fared from an increase in “Net Worth” perspective after the removal if the uptick rule.  But I’m not going there and I’m going to give them the benefit of the doubt (wink, wink).

Why not put it back into effect?  The worst that could happen is that the Uptick algorithm would slow down market trades a bit (a small reduce in liquidity, but just a little), is that such a bad thing?  For smaller stocks, the Uptick rule would practically have no noticeable trade volume change in transaction speed at all.  I don’t think it’s that important to have more than 1 thousand trades per second for any given stock, do you?  I know I don’t trade that fast, personally.  I like a quick execution time, but I have to wonder what the ratio of human verses automated trading is happening currently?  Are we fighting trading algorithms on way faster than human computers?

Check out this video at huffingtonpost.com site:  Trading in Johnson & Johnson in 1/2 second.

Okay, I put my “main street” take on the removal out there.  But I also understanding computer systems, I can imagine that there might be some legitimate reasons for the removal, and I invite any that know those reasons to speak up in the comments below!

In conclusion, what I really wonder is if government is trying to destroy the stock market for the little guy without even realizing it, or trying to help the Rich get Richer with the disabling of the “Uptick Rule” and the gutting of Glass-Steagall act (thanks Bret @ Hope to Prosper for the comment about Glass-Steagall!

What do you think?  Are you thinking WTF is going on anymore?  Are we small, main street investors really being taken advantage of?  if you want to read more, check out my original write up on this called “Where is the Uptick Rule“.

I’m still upset about this!

Grrrr,

Don

Financial Madness And My Financial Thoughts

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This year is crazy, but crazy good not crazy bad, with way to may financial thoughts over-flooding my brain.

Financial Madness:

I admit, I’ve been caught up in the incredible stock market rally… until lately.  While I was beating the market earlier, I’ve bought some more risky stocks lately that have taken my return down quite a bit.  Oh, I’m still up for the year so far, but I hit my highs a month or so ago.

Okay, that’s the stock market, on real estate front, I’m still looking for my first investment property, but with a catch!  I want to buy a property that cost as much as a mid-level luxury car.  Perhaps something like a high-end Lexus, but definitely no where close to the cost of a Ferrari…  So ideally, I would like to find a duplex or high that requires a little bit of work, but cost less thank 100k.  At this point in my life, I would like to just get a taste of what it’s like to be a landlord, then decide from there.

Primary Residence Thoughts:

I would also like to buy a bigger house.  Not that I need one, it’s just seems like a good investment while rates are relatively low.  But even this is maddening!  I want to buy a house that provides benefit from a taxes perspective, and one that I believe will rise in value more quickly than my current house has.  We were luck in that fact that our house value didn’t really drop during the “Great Recession”, but while this in and of itself was a blessing, it also means that any bigger house that I buy in the city also hasn’t declined in price.  So for me, I get now benefit from lower house prices.

Why do I want to say in my city? I don’t, but since my kids are in school and have established a place in the system, I won’t uproot them and move to a different city.  Financially maddening, but my kids come first… even when it hurts.

Speaking of kids, in the neighborhoods that I’m looking at, we are doing research to see how live in those areas so that I can ensure that there are kids that my kids can play with.  Perhaps I’m spoiling my kids?

My Personal Financial Thoughts:

I’m starting to realize that I’ve been too conservative with managing money, and while being in such a state is better than being in deep debt, it’s still not an optimal solution.  At one time in the past, I believed that financial asset class diversification was only for the millionaire and up crowd, but lately I’ve changed my mind.  I now believe that those options should be explored as part of any financial plan.  So gold (precious metals), currencies and other investment avenues is something that I’m considering, but not acting on currently.

Even thought I’m considering all financial avenues, I’m focusing primarily on stocks and real estate opportunities.  In a future post, I’ll share more of my financial thoughts and why I’m seriously thinking of buying a new house, rental property, and investing more in the stock market all at the same time.

Bests,

Don

 

Investing Is Like A Skill Based Game

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The more I think about it, the more it’s obvious that investing is like a skill-based game!

Like any skill-based game, the more you think about and practice with it, the better you become (hopefully).

I’m finding that in many ways investing is very similar to a game such as Risk, or even Chess.  Investing involves losing money as much as winning money. Much like skill-based games like Chess, you lose pieces, but sometimes you have great gains with one piece, and sometimes you hold onto that piece until the end of the game ends or at least for a long time.

A lot of people lose some money with stocks and get disillusioned with the entire process and quit.  But hardly anybody wins all the time with the stocks that they purchase.  It’s a matter of experimentation and experience.  I’ve had 6 bagger (stocks that increase their value 6 fold more than the purchase price), and I’ve had stocks that went to 0 (painful, but luckily it’s been just a few).

I’ve learned to look at more than just the financial statements, and I’ve learned to look at more than just the stock story.  I’ve seen some companies with incredible products that were brilliant go broke because the product was too expensive compared to competing products.  I’ve also seen a few stocks with rock solid financials but later it was revealed that the books were cooked, or at least questionable.  I’ve also seen a few stocks that were solid financially for many years, and that are now on the decline because of a changing business environment (think Pitney Bowes).

I’ve also learned that the management team (and especially the CEO), matters!  Look at Apple after Steve Jobs passed away for confirmation of a stock that looked like it would continually go up, and now has fallen quickly and some even believe has a questionable future.

I’ve also learned that I can’t do it like Warren Buffett.  His system is best done by him alone.  Considering he doesn’t even have a computer in is office at work really demonstrates that I won’t even invest like him.  That said, there are definitely techniques that I can learn from Warren, but in the end I would have to come up with my own system.

I have learned to diversify my stocks, and only put so much into each stock investment.  If I think I’m pretty sure a stock is a winner (much like Baidu was), then I invest more in such a stock, but those opportunities are rare for me.

I’ve just scratched the surface, there are many other facets to consider, such stock rotation during the year and other ever-changing strategies…

Bests,
Don

Why Diversifying Isn’t Always Necessary For High Stock Market Returns

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The following is a guest post by Ryan.  He brings up a great point about diversification in the stock market isn’t always the best option.   Without further ado…

In an era where financial markets market can fluctuate quickly and extremely, fortunes can be won or lost in an instant. However, smart investors try to minimize this risk through diversifying their investment holdings. Diversification is the process by which an investor chooses a mix of investment types that will experience fluctuations in the financial markets at different rates and times. Hopefully, if the investor has chosen wisely, when one investment is doing poorly or takes a huge loss, another investment is making gains that minimize the overall loss.

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One mistake that many investors make is trying to use diversification as a way to try to beat the market. Trying to shift assets into other classes that will perform better in the short-term is just another form of speculation and is not a smart move when you are trying for stability in your assets and long-term gain. Remember the big picture.

Another mistake investors make is falling victim to the buffet mentality (not to be confused with Warren Buffett!), just because it’s there doesn’t mean that it is good for your set of circumstances. Too much diversification leads to disorganization. Portfolios can become difficult to manage and fees can get expensive.

Stocks and bonds should be the cornerstone of your investments. Before you diversify, make sure that you have the right mix of bonds and stocks and that the quantity of those holdings is correct. Obtaining the correct mix is dependent on a variety of factors such as how long you have until you retire, and how much risk you are willing to take. People who are closer to retirement age, and don’t want to see a sharp dip in their assets, should choose a higher mix of bonds over stocks. Yes, they will get lower return on their investment; but, they will also benefit from added security. Younger investors, on the other hand, have more time to weather potential market storms in exchange for increased growth potential, so they can afford to ballast their accounts more toward stocks.

Once you have a comfortable stock to bond ratio figured out, you should turn your attention toward making sure that you are properly diversified within these two classes of investments. There are varying opinions on what constitutes adequate diversification within an investment class, but in truth, there is no one size fits all scenario. It is again dependent upon your particular set of circumstances at this point in time.

When speaking of bonds, you want to have a selection of bonds that are divided between corporate bonds, mortgage bonds and government bonds. You also want to make sure that you have bonds with varying term lengths so that they mature at different rates. With respect to stocks, you want to choose small, mid and large cap stocks. You also want those choice stocks that cover varying industries.

There are two different ways in which you can achieve these levels of diversification. The first is to pick and choose the various investments yourself. Or, you can choose from a wide variety of stock and bond funds. But, buying these funds are not always the magic pill as many of the funds can be very industry specific. And with that comes a problem, if that industry is taking a huge hit in the financial markets, so will your investment.

The process of diversification can be confusing at best, and it is easy to take the wrong path. Start branching out. To begin receiving expert help with your investments connect with Cavalry Portfolio Services on Facebook.

Diversification never eliminates risk entirely. The best that you are hoping for is to minimize the impact of the risk while reaping the benefits of the return. In fact, having too many stocks in your portfolio can decrease your returns. The way that it happens is this: you make an investment in a stock and that stock does very well. If you only have 5 stocks in your portfolio, then you see a greater percentage of return. If you have 500 stocks in that portfolio then the return, and the impact of it, becomes negligible.