Monday, April 21, 2014

 T.E. Lawrence – “All men dream: but not equally. Those who dream in the dark recesses of the night awake in the day to find all was vanity. But the dreamers of day are dangerous men, for they may act their dreams with open eyes, and make it possible.”

Monday, April 7, 2014

quote of the day

“The spiritual adventure of our time is the exposure of human consciousness to the undefined and indefinable”—C. G. Jung

Friday, March 7, 2014

The Relentless Bid, Explained

Great piece from Josh at The Reformed Broker
You hear it all the time these days – “There is a relentless bid underneath this market just waiting to buy every single dip…” and you can’t really argue with the statement itself.
The dips have become shallower and the buyers have rushed in more quickly each time. Sell-offs took months to play out during 2011 – think of the April-October peak-to-trough 21% decline for the S&P. In 2012, these bouts of selling ran their course in just a few weeks, in 2013 a few days and, thus far in 2014, just a few hours.
It’s rather extraordinary. I’ve been thinking about the reasons why for a long time now and I believe I’ve got the answer – my unified theory of everything, so to speak. I’ll lay it out below…
Morgan Stanley Wealth Management is now the world’s largest retail brokerage and investment advisory firm, having bought Smith Barney from Citi in its entirety. When it reported 4th quarter earnings the other day, we learned that the firm’s wealth management unit took in a massive $51.9 billion in fee-based or fee-only asset flows for the full-year 2013. Further, we were told that 37% of Morgan Stanley Wealth Management’s total client assets are now in fee-based accounts, a record high.
Bank of America Merrill Lynch’s wealth division had similarly astounding results – Merrill Lynch Global Wealth Management saw “$48 billion in flows to long-term assets under management in 2013, up from flows of about $26 billion in 2012.”  This is a huge amount of gathered assets for one year’s haul. But more importantly for our purposes here, the brokerage reported that “44% of its advisers had half or more of their client assets under a fee-based relationship.”
Lastly, Wells Fargo Advisors – which is an amalgam of AG Edwards, Wachovia, Prudential and Wells all in one – said that “at the end of 2013 it had $375 billion in managed-account assets, roughly 27% of the unit’s $1.4 trillion in total assets under management. That’s up from $304 billion in managed-account assets.
Are you seeing a pattern? Wells Fargo brokerage account AUM is now 27% fee-based, Morgan Stanley’s is 37% and 44% of Merrill’s Thundering Herd has more than half its assets oriented that way. The nation’s largest traditional advisory firms have accelerated their push toward fee-based management and away from transactional brokerage. This has a huge impact on how the money itself is managed and this in turn greatly affects the behavior of the stock market.
These wirehouses, along with JPMorgan and UBS, have slightly less than half of the wealth management pie in America. Registered Investment Advisories (RIAs) have almost another 25% (the fastest growing channel by far) and they are almost completely fee-based – with the exception of some hybrid brokers-and-advisors. That’s 75% of the wealth business in this country being largely driven toward fee-based strategies and accounts.
In 2005, fee-based accounts directly managed by financial advisors and brokers totaled $198 billion. As of year-end 2013, that figure had soared to over $1.29 trillion – more than a sextupling in under a decade. It is safe to say that, while some of these fee-based accounts are managed actively (brokers picking stocks, selling options and whatnot), the vast majority are not. Most of this money is being run more passively – in the absence of a transactional commission incentive for the advisor to trade, why else would he? Edge? LOL.
No, the vast majority of this snowballing asset base being reported by both wirehouse firms and RIAs is being put to work in a calm and methodical fashion: long-term mutual funds, tax-sensitive separately managed accounts (SMAs) and, of course, index ETFs. Vanguard, State Street and iShares are to this era of investing as Janus, Fidelity and online day-trading were to the 1990′s. In fact, Vanguard’s share of all fund assets – now approaching 20% or $2.3 trillion – is the vexillum behind which the entire do-less movement marches.
What this means for the very character of the stock market and the way it behaves is very important. It means that, almost no matter what happens, each week advisors of every stripe have money to put to work and they’re increasingly agnostic about the news of the day. They’ve all got the same actuarial tables in front of them and they’re well aware that their clients are living longer than ever – hence, a gently increased proportion of their managed accounts are being allocated toward equities. And so they invariably buy and then buy more.
Whereas yesterday’s brokers were principally concerned with keeping money in motion and generating activity each month, today’s brokers – who call themselves wealth managers by the way – are principally concerned with making client retirement accounts stretch out over decades. Stocks are increasingly the answer to this puzzle. Bonds, with their fixed rate of income, by definition cannot get the job done. This means a bias toward buying equities everyday and almost never selling. It means adding to stocks sheepishly on up days and voraciously on the (rarely occurring) down ones.
In short, it means a relentless bid as the torrent of assets comes flowing in every day, week and month of the year.
My theory also explains several other mysteries.
For one, the lighter volume on the NYSE in recent years – trades are only taking place at the margin and about half of it is ETF creation-redemption related. Most of what’s invested in the market doesn’t move an inch. It also explains the depth-plumbing ratings of financial television. People are behaving differently with their assets, both individuals and the professionals who invest for them, and the TV networks haven’t figured out the right programming to cater to them. The community of really active traders that everyone in the financial media is trying to reach has been estimated at just 3 million. I’d take the under.
As the behavior of investors and their advisors has changed, it’s had an anthropomorphic effect on the stock market itself. It is the primary reason for the shallowness and shorter duration of corrections in recent years. It is the reason why both bad news and good news seems to be bought, almost as if the two things were entirely interchangeable. It is the reason for the low ratings of shows about trading and for the almost eerie lack of volume on the major exchanges.
It’s amazing that almost no one has connected these dots before.


source: http://www.thereformedbroker.com/2014/03/05/the-trouble-with-relentless-bid-theories/

Saturday, March 1, 2014

portfolio allocation in a nutshell

"Can I ask what would be Lex's recommendation for the portfolio allocation of different positions for the various strategies? What I mean is at any given time, "ideally", how many open positions would be say swing trade positions, position trade positions and day trading positions? I remember watching million dollar traders and it was mentioned about being fully invested as opposed to money just sitting there. I am asking this partly due to his best practice risk allocation of 0.5% for Day trades, 1% for swing trades and 2% position trades."
Lex answers:
It depends on the correlation between the trades and the amount of trading ideas that you can follow at the same time and the amount of money that you can lose when all trades go wrong one after another. Key remains to never lose too much money so you can always trade again and reduce the amount of trades you have on when you are having a difficult period trading. Of course in general the shorter the time-frame you operate in the less trades you can be on top of.

source: Lex Van Dam

Wednesday, February 26, 2014

quote of the day

At a conference years ago, a young teen asked Charlie Munger how to succeed in life. "Don't do cocaine, don't race trains to the track, and avoid all AIDS situations," Munger said. 
Which is to say: Success is less about making great decisions and more about avoiding really bad ones.

Thursday, February 13, 2014

The Periodic Table of Emerging Markets


source: http://www.businessinsider.com/annual-emerging-market-country-returns-2014-2#ixzz2t9W9XDES

Sunday, December 15, 2013

How the monkeys saved the fish

The rainy season that year had been the strongest ever and the river had broken its banks. There were floods everywhere and the animals were all running up into the hills. The floods came so fast that many drowned except the lucky monkeys who used their proverbial agility to climb up into the treetops. They looked down on the surface of the water where the fish were swimming and gracefully jumping out of the water as if they were the only ones enjoying the devastating flood.
One of the monkeys saw the fish and shouted to his companion: "Look down, my friend, look at those poor creatures. They are going to drown. Do you see how they struggle in the water?" "Yes," said the other monkey. "What a pity! Probably they were late in escaping to the hills because they seem to have no legs. How can we save them?" "I think we must do something. Let's go close to the edge of the flood where the water is not deep enough to cover us, and we can help them to get out."
So the monkeys did just that. They started catching the fish, but not without difficulty. One by one, they brought them out of the water and put them carefully on the dry land. After a short time there was a pile of fish lying on the grass motionless. One of the monkeys said, "Do you see? They were tired, but now they are just sleeping and resting. Had it not been for us, my friend, all these poor people without legs would have drowned."
The other monkey said: "They were trying to escape from us because they could not understand our good intentions. But when they wake up they will be very grateful because we have brought them salvation."

(Traditional Tanzanian Folktale)

Monday, October 7, 2013

food for thought

A foolish inconsistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.  With consistency a great soul has simply nothing to do.  He may as well concern himself with his shadow on the wall.  Speak what you think now in hard words and to-morrow speak what to-morrow thinks in hard words again, though it contradict every thing you said to-day. – 'Ah, so you shall be sure to be misunderstood.' – Is it so bad then to be misunderstood?  Pythagoras was misunderstood, and Socrates, and Jesus, and Luther, and Copernicus, and Galileo, and Newton, and every pure and wise spirit that ever took flesh.  To be great is to be misunderstood.
– Ralph Waldo Emerson