Stock Investing - Quant and Traditional

[john12ax7]

I thought I already mentioned this, some hedge funds use AI news readers to interpret market moving news and trade on it before the slow money figures out what is going on.

Yes they do. But that doesn't mean it's a good or feasible DIY solution.

 

[JohnRoberts]

Yes they do. But that doesn't mean it's a good or feasible DIY solution.

I never said it was, but that is what you are likely competing with by trying to perform algorithmic trading.

Markets can remain irrational longer than underwater investors can remain solvent, even if correct in their investment thesis.

Good luck

JR

 

[john12ax7]

There is the notion that you can't beat the pros.  But that is a misconception,  as you don't actually need to. You have certain advantages as an individual investor,  so you focus on those.

 

[JohnRoberts]

There is the notion that you can't beat the pros.  But that is a misconception,  as you don't actually need to. You have certain advantages as an individual investor,  so you focus on those.

As an individual investor since the 1970s I am all ears...

JR

 

[john12ax7]

The big boys are making billion dollar deals,  so their investment options are more limited.  With small money there are orders of magnitude more places to find value. Look at opportunities that are too small for the big money to bother with.

Small money can also be at an advantage with price movement,  as you do not need to factor in the ramifications of moving the market with your buy and sells.

Notables like Buffet and Lynch have both discussed some of these things.

 

[JohnRoberts]

The big boys are making billion dollar deals,  so their investment options are more limited.  With small money there are orders of magnitude more places to find value. Look at opportunities that are too small for the big money to bother with.

Small money can also be at an advantage with price movement,  as you do not need to factor in the ramifications of moving the market with your buy and sells.

Notables like Buffet and Lynch have both discussed some of these things.

I have followed Berkshire Hathaway for years and he often buys some of the same companies I wanted to buy (just before I did, his trades get reported months after they happen), but he often gets better deals, like preferred stock, and terms the little guys in the market (like me) don't get.

I find it interesting that Buffett has started buying back his own shares (he wouldn't do that for years). Companies like IBM borrowed money to buy back their own shares mainly to engineer improved P/E numbers by reducing the denominator. Warren buying back his own shares in not financial engineering funny business but his judgement that his stock price is relatively cheap, and he can't find something better to spend his cash pile on.

The market has been overpriced for some time, reducing Berkshires opportunity, but don't feel sorry for him (he still has a huge cash pile looking for opportunities when the valuations rotate back).

JR

 

[john12ax7]

If you like Buffet stocks,  yes just buy Berkshire.  I regret selling mine years ago.  But he's also said if he only had 1 million he would get 50% return, which is kind of the point.

I started buying Meta Financial (CASH)  two months ago. It was highly undervalued at the time, but  much too small to attract big money attention.  Since then it's up 80+%. Colossal blunder on my part not going big when it was cheap.  The deals are out there if you look where others don't.

 

[JohnRoberts]

If you like Buffet stocks,  yes just buy Berkshire.  I regret selling mine years ago.  But he's also said if he only had 1 million he would get 50% return, which is kind of the point.

I did buy more but it is already around 30% of my total portfolio, breaking my own rules about diversification discipline.

I started buying Meta Financial (CASH)  two months ago. It was highly undervalued at the time, but  much too small to attract big money attention.  Since then it's up 80+%. Colossal blunder on my part not going big when it was cheap.  The deals are out there if you look where others don't.

Ah hindsight... :  I can wish that I didn't sell my apple, google, microsoft, twitter, etc. when I did.  Then there is an equally long list of stocks I wish I sold sooner, but that's life.  8)

I worry about the large number of new investors who have only seen stocks go up... They also seem attracted to low dollar stocks even though they can now buy fractional shares of nominally high price stocks (the true price of shares is measured in P/E). For years companies stopped splitting shares to make the nominal price more attractive, it went out of fashion, but looks like it may be retuning with several recent high profile stock splits. (Hint- splits do not change the price of stock shares.)

I've watched GE double over the last several months, Ford is another low price runner. These won't do well in the next correction, while long term both companies will likely survive.

I am not smart enough to give specific stock advice but in general even just the talk about another government COVID shut down can spook the market, the real thing would do a lot more harm to GDP. We would survive that too, but expect a bumpy ride in the markets. 

JR

 

[john12ax7]

For those so inclined,  feel free to post your stock picks.  My latest investment is INMD.

 

[JohnRoberts]

For those so inclined,  feel free to post your stock picks.  My latest investment is INMD.

I am not smart enough to profitably perform short term trades... I have been successful a few times over the decades when markets behave extremely irrationally. One time I harvested a quick pop in less than two weeks when Barney Frank talked down fannie and freddie stock in congressional hearings. They usually aren't that obvious.

I am not expert at statistical analysis but read at least one book on the subject. The first thing I notice about the INMD chart is that it goes back just one year.  The company is profitable (good) and apparently in a good sector for now.

A handful of previous highs ($50-60) are likely to be future resistance levels, but if you punch through that resistance it can go even higher from there (statistical analysis just suggest probable outcomes not certainty). Resistance and support levels are based on previous trade history. 

=====

I can't suggest what to buy, but here is one I just sold this morning. SQ (square) it was up huge and I had already taken out my basis but it was selling at a 200+ P/E. It is in my roth account so no capital gains tax to worry about, but there is nothing wrong with locking in a profit.

If you think I am uniformed about investing maybe buy the SQ stock I just sold. In my judgement it is still a good company, just a little expensive for me, but I am old and probably shouldn't be buying any common stocks. I have cash piling up in my accounts but no obvious investment looks attractive right now.

JR

 

[Gold]

My cousin is a computer scientist who works for Blackstone in the Quantitaive Analysis group. They just closed his group because of lack of business...

 

[JohnRoberts]

My cousin is a computer scientist who works for Blackstone in the Quantitaive Analysis group. They just closed his group because of lack of business...

When everybody is using the same algorithms there is no advantage to profit from. I think the hedge fund community is small and everyone watches what their competition is doing.

I have heard rumors that the massive influx of new younger traders are a new tail that is wagging the old dog. Apparently they are not behaving like the older more experienced investors that dominated major market moves previously, making the market harder to predict.

JR   

 

[JohnRoberts]

I am not smart enough to profitably perform short term trades... I have been successful a few times over the decades when markets behave extremely irrationally. One time I harvested a quick pop in less than two weeks when Barney Frank talked down fannie and freddie stock in congressional hearings. They usually aren't that obvious.

I am not expert at statistical analysis but read at least one book on the subject. The first thing I notice about the INMD chart is that it goes back just one year.  The company is profitable (good) and apparently in a good sector for now.

A handful of previous highs ($50-60) are likely to be future resistance levels, but if you punch through that resistance it can go even higher from there (statistical analysis just suggest probable outcomes not certainty). Resistance and support levels are based on previous trade history. 

=====

I can't suggest what to buy, but here is one I just sold this morning. SQ (square) it was up huge and I had already taken out my basis but it was selling at a 200+ P/E. It is in my roth account so no capital gains tax to worry about, but there is nothing wrong with locking in a profit.

If you think I am uniformed about investing maybe buy the SQ stock I just sold. In my judgement it is still a good company, just a little expensive for me, but I am old and probably shouldn't be buying any common stocks. I have cash piling up in my accounts but no obvious investment looks attractive right now.

JR

Do what I say not what I do,,, Square is up a bunch since I sold it, a little painful to watch...

That's life in the markets.

JR

 

[john12ax7]

I looked at SQ a ways back,  lots of potential but thought it was too expensive even then.  And it's only gotten worse.  I wonder how much of this is sustainable or is it dot com bubble mania all over again. Some of the high flyers will eventually justify the sky high valuations, many will not.

I still think SQ has lots of long term potential.  But paying too much upfront can give sub-par returns,  for even great companies.

 

[JohnRoberts]

I looked at SQ a ways back,  lots of potential but thought it was too expensive even then.  And it's only gotten worse.  I wonder how much of this is sustainable or is it dot com bubble mania all over again. Some of the high flyers will eventually justify the sky high valuations, many will not.

I still think SQ has lots of long term potential.  But paying too much upfront can give sub-par returns,  for even great companies.

I made a nice profit (but a week later would be better)... I think some of the recent excitement is related to bitcoin...

Paypal is also moving with it (also messing with bitcoin), but I feel a little better about holding on to paypal than SQ at least for now,

JR

 

[john12ax7]

If you want high growth next big thing I would suggest looking at the ARK ETF offerings.  Stellar track record thus far. Can buy the ETFs or look at the holdings for ideas. But, they might be getting taken over,  so who knows what that will mean for the future.

 

[JohnRoberts]

If you want high growth next big thing I would suggest looking at the ARK ETF offerings.  Stellar track record thus far. Can buy the ETFs or look at the holdings for ideas. But, they might be getting taken over,  so who knows what that will mean for the future.

I am at the stage of my investing cycle where I am not pursuing high growth. I am more interested in revenue and safety. In a normal market I would be largely invested in bonds, but the bond market is not normal these days.

JR

 

[john12ax7]

Some preliminary data over a couple months.  During the time period my algorithmic trading is down -10%, my old school fundamental picks are up +30%. S&P was up +10% over the period.

Small sample size,  but does suggest the algorithmic model needs some work.  Also surprising is the better than expected value investing results, suggesting that might be a better stylistic fit. Too early to draw firm conclusions,  but I would have guessed the opposite before hand.

 

[JohnRoberts]

Some preliminary data over a couple months.  During the time period my algorithmic trading is down -10%, my old school fundamental picks are up +30%. S&P was up +10% over the period.

Small sample size,  but does suggest the algorithmic model needs some work.  Also surprising is the better than expected value investing results, suggesting that might be a better stylistic fit. Too early to draw firm conclusions,  but I would have guessed the opposite before hand.

Good luck, I am not making excuses but have watched Square continue to soar after I sold it, :'( no regrets, I was up huge and had already captured my basis, but the free stock research from my broker  (morgan stanley) suggested a price target for Square of $40 when I sold it for $170. I continued to check and for weeks after I sold and watched it soar over $200 the price target didn't budge from $40. Today the price target is $203. Thanks for finally recognizing the market reality. I think I will stop looking at Morgan Stanley price targets in the future.

If I was willing to short stocks (I am not) I see lots that seem to have run too far too fast... GE is already over $10 while who knows, the robin hood crowd likes low dollar stocks, and create their own momentum when they follow each other en masse in and out of stocks (like Kodak). 

The stock market is a future discounting mechanism so mostly reacting to expectations of a future post-covid world. Another potential market moving event will be the GA senate seats vote early next month. If the Republicans lose the senate majority the market expects tax increases and more. It looks like the market is predicting a republican hold, and future divided government which are generally good for markets, but that future hasn't happened yet.

If that vote outcome projection changes I would expect a bunch of tax selling this month to lock in profits at current capital gains rates, in anticipation of future capital gains tax rate increases.

Market looks overvalued now, but keeps rising. I expect at least a modest correction, within a long term bullish trend. Some reports of insider selling, that are not generally a good sign, but not definitive as insiders sell for many reasons.

JR 

 

[john12ax7]

I've found analyst recommendations to be mostly useless. And agree things look overvalued.  Basically every historical metric is near an all time high,  or close to it.

There was a rather interesting new study though,  essentially that $1 in net money flow creates a $5 change in market valuation. Given the insanity that is the fed, stocks could potentially be pushed much higher.