Posts Tagged ‘risk taking’

The Buttonwood Gathering – View from the Top

This was an interesting event!  

On May 17th 1792, twenty-four stock brokers met under a buttonwood tree outside 68 Wall Street and agreed to set up the New York Stock and Exchange board. The tree was a symbol of Wall Street, but also, it was where people originally met to trade, to discuss and to argue.

The Economist has done an excellent job of keeping the tradition alive by bringing together top global financial executives, policymakers, global regulators and opinion leaders to discuss and debate proposed guidelines for the financial community, seeking to bridge fundamental financial issues with macroeconomic and geopolitical viewpoints.

As I mentioned yesterday, I usually don’t like conferences but not only did I find myself sitting between BOE Governor Mervyn King and Nobel Prize winner Joseph Stiglitz but we got to watch my favorite economics rap video together and even met the guys who created it from EconStories, who have lots of good videos on their site (of a more serious nature). 

The conference itself does not take itself too seriously.  Even Nassim Taleb was able to make a few jokes while explaining to us why the financial system is irrevocably screwed up unless we give it a major overhaul.  Taleb’s main points were:

  • People are inherently greedy.
  • The Financial Crisis was caused by and increase of hidden risks that was encouraged by the rules set forth in Basel II
  • Multiple exposure to low-probability, high-risk events accumulate to high probability of bad outcome (Taleb’s "Black Swan").
  • Bonus packages and compensation encourage very bad risky behavior. Stock options that offer potential upside and no downside encourage the maxing of risk-taking by potential beneficiaries.
  • This leads to a banking system where all the traders get rich and all the investors become poor.
  • There is a general,.chronic underestimation of risk and business schools reinforce this bad behavior.
  • Regulation gives investors a false sense of security. 
  • Capitalism must be symmetrical – bonus without penalties (clawbacks, etc.) must be eliminated.

When I am at one of these conferences, I like to watch the audience reaction to what is being said.  Here we have a gathering of the World’s movers and shakers and sometimes the reaction to what is being said is more important than the thing that is said.  For instance, my note on Taleb’s comment that regulations give investors a false sense of security is that
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2007 Redux?

2007 Redux?

Courtesy of Michael Panzner at Financial Armageddon

The market value of the high yield FINRA-BLP Active U.S. Corporate Bond Index relative to its investment grade counterpart has now exceeded the level seen in May 2007, at the peak of the credit bubble.

HYIG

If you ask me, it looks like risk-taking is back with a vengeance.


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Driven toward reward without regard for consequence

This is interesting. However, the conclusion that "individuals with antisocial personality disorder may not be unaware of… consequences… but instead that their intense reward-seeking motivation consumes their attention wholly until they have fulfilled their desire for reward" seems overstated, and only a small piece of the psychopath puzzle.

For a different perspective, that of a financial writer, and an even farther-fetched conclusion, read the second article below. The same data can be interpreted to show that a trader taking on excessive risk is "hopped up on dopamine" so they can’t see negative consequences, making them "kind of a psychopath." Take all this with a grain of salt haloperidol. - Ilene 

Driven toward reward without regard for consequence

Courtesy of TIME, by Tiffany O’Callaghan

TIMEAn overactive dopamine reward system in the brain may help explain why psychopaths pursue rewards without regard for consequences, according to new research published this week in the journal Nature Neuroscience. Previous research has found that individuals who suffer from antisocial personality disorder—often referred to as sociopathology or psychopathology, despite debate over whether these are distinct conditions—lack empathy and fear. Yet this new study, from researchers at Vanderbilt University examines what these individuals may have in excess. According to the study, led by Joshua Buckholtz, a graduate student in psychology at Vanderbilt, individuals with antisocial personality disorder traits show signs of dysfunction in dopamine reward systems—suggesting that, in psychopaths, the drive toward reward can overwhelm all else.

Prior to participating in two different experiments, study subjects completed personality tests to identify presence and severity of psychopathic characteristic—including aggression, lack of empathy, and capacity for manipulation, among other things. Drawing on previous research that has established a strong link between substance abuse and psychopathology, in the first experiment researchers gave participants amphetamine, then used functional Magentic Resonance Imaging (fMRI) brain scans to monitor how dopamine release was affected by the stimulant. In a second experiment, study participants were told that they would be paid for performing a simple task, and researchers conducted brain scans while they completed the tasks.

In both experiments, researchers found that participants who had psychopathic characteristics according to the personality test, were more likely than those without those traits to have greater activity in the nucleus accumbens, the area of the brain associated with dopamine reward processing—whether in response to the chemical stimulant, or the suggestion of monetary reward.

The findings suggest that individuals


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The Lottery of Stock Picking

This is a terrific essay on risk taking by Tim.  Highly recommended reading for traders. – Ilene

The Lottery of Stock Picking

Courtesy of Tim at The Psy-Fi Blog

Crumpled Lottery Ticket

Risk Seekers, Risk Fearers

On average stock traders lose money. So do people who play the lottery. Yet both sets of people will often buy insurance as well. On one hand people are risk takers, engaging in risky and usually unprofitable activities, yet on the other they’re risk adverse, looking to protect themselves against possible, although often unlikely, losses.

Mostly we don’t find this particularly odd. Yet it poses a particular problem for economists and psychologists trying to disentangle the various threads that make up the skein of the human condition. They feel we should either be risk seekers or risk fearers: to be simultaneously both suggests something strange is going on. Stock pickers take note: sell insurers, buy lotteries. Or is it the other way around?

Markowitz’s Lottery Puzzle

One of the earliest researchers to note this gambling/insurance peculiarity was Harry Markowitz who we’ve met before in Markowitz’s Portfolio Theory and the Efficient Frontier. In the same year he published the paper that eventually led to modern Portfolio Theory, the efficient markets mayhem and a Nobel Prize he also wrote The Utility of Wealth in which he both described this confused risk model and sought to explain it.

It’s a bit of surprise to find the father of rational investing theories elaborating on a subject which describes how irrational people really are. However his two 1952 papers are linked. While The Utility of Wealth describes how people really behave Portfolio Selection describes how they should behave to maximise their wealth. We can’t blame Markowitz for the investment industry using his ideas with all the subtlety of a Mob family collecting a debt from the man who wasted their mother with a cheesegrater.

Models which really aim to describe the way humans deal with risk are deluded and denuded if they exclude the risk-seeking part of the human experience. Deluded because they ignore the evidence of everyday life and denuded because they strip away the essence of human experience. Humanity would still be trolling around on its knuckles in East Africa if curiosity about what was on the other side of the forest canopy hadn’t…
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Investors, Embrace Your Feminine Side

Investors, Embrace Your Feminine Side

embrace the feminine sideCourtesy of Tim at The Psy-Fi Blog

Testosterone Is Not Destiny

There’ve been a lot of studies that indicate that women make better investors than men. They’re less inclined to overtrade, which reduces the fees they pay and means they start with an inbuilt advantage. However, there’s not been much analysis of why this behaviour occurs.

For it’s not self-evident that the lack of a pair of testicles should automatically make you a better investor. The pop-psychological view that this is due to surges of testosterone driving risk taking actions by red-blooded alpha males is highly seductive, but also pretty useless. Humans are uniquely evolved to allow us to override the urgings of of our genes, regardless of what sex organs they endow us with.

Cool Female Heads

femalenessHowever, there’s not much doubt that the basic finding – that women are less active traders and produce better returns on average over the long-term – is correct. Odean and Barber showed this in their 2001 study on overconfidence for instance. What’s more interesting, though, is how easily the idea that this is simply due to non-eradicable sex differences is accepted. In fact some observers have gone so far as to suggest that market extremes could be avoided by ensuring more women are present in investment houses – the idea being, presumably, that the cooler headed females will reduce the hot-headed male impulses to trade irrationally.

Like hell. More likely, of course, the presence of additional women would simply stimulate the men into ever more risky trades in feverish attempts to impress them: taking risks may have benefits that don’t translate into pure financial advantage. Meanwhile any women interested enough to get involved in market trading are more likely to do so in order to become rich rather than to act as a self-regulating safety valve for their male colleagues.

Risky Sociobiology

Now before we can investigate this more we need to take a careful look at what causes sex differences. It’s perfectly obvious that our genes have fitted males and females differently for the purposes of reproduction but beyond that it’s surprisingly difficult to definitively tease apart the influences of genes and environment. Even the well known male map reading advantage can be traced to the greater willingness of parents to allow young


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Phil's Favorites

Interview with John Rubino

I had the good fortune of visiting with my friend John Rubino from Dollar Collapse last weekend, and that led to my latest interview with John in which we discuss the likely effects of Donald Trump's plans to stimulate the US economy and "make America great again." John shares some investing ideas to help guard against the probable outcome of increased borrowing and spending and the eventual devaluation of the dollar.  

****

Ilene: What are your investing expectations and premises now that we know that Donald Trump has been elected president? Have any of your premises changed as a result?

John: Trump is looking like Obama/Bush on steroids. That...



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Zero Hedge

"Hard-Core Clinton Fanatic" Manufactured "Viral Fake News" That MSNBC Used To Discredit Wikileaks

Courtesy of ZeroHedge. View original post here.

Authored by Glenn Greenwald via The Intercept,

The phrase “Fake News” has exploded in usage since the election, but the term is similar to other malleable political labels such as “terrorism” and “hate speech”; because the phrase lacks any clear definition, it is essentially useless except as an instrument of propaganda and...



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ValueWalk

Do Electoral College Challenges Have Any Chance Of Succeeding? Not Likely Says One Organizer

By Mark Melin. Originally published at ValueWalk.

A major anti-Trump protest is being planned for December which, in part, supports Electoral College elector revolt against the voter’s state-by-state decision. Does it have a high probability of succeeding?  Don’t count on it, says one of the movement’s organizers.

Electoral College

Image source: Wikimedia Commons

Texas Republican elector, upset with Trump tweets and policy choices, makes a stand

Texas Republican elector Christopher Suprun made waves when he said he will not be voting for Donald Trump on the basis of his judgement Trump is not qualified for the job.

“Mr. Trump goes out of...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

OPEC, Russia see smooth road to global deal on output cut (Reuters)

Russia and Saudi Arabia said they expect OPEC and non-OPEC producers to reach an agreement on Saturday to curtail oil output and prop up prices in the first such joint move since 2001.

OPEC, Russian Oil Cut Deal Pushes Up Asian Natural Gas Prices (Forbes)

The OPEC agreement reached last week to cut oil output by 1.2 million b/d (removing around 1% ...



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Kimble Charting Solutions

Gold could blast off, if this resistance cluster holds!

Courtesy of Chris Kimble.

Below looks at the US Dollar/Gold Ratio over the past 30-years. When the ratio is heading lower, US$ is weaker than Gold/Gold stronger than US$. When the ratio is heading higher, US$ is stronger than Gold/Gold weaker than the US$

At this time, the ratio in the chart below, has created a Power of the Pattern setup, that is seldom if ever seen.

CLICK ON CHART TO ENLARGE

A rare cluster of resistance is in play for the US$/Gold ratio at (1...



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Biotech

The Medicines Company: Insider Buying

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

I'm seeing huge insider buying in the biotech company The Medicines Company (MDCO). The price has already moved up around 7%, but these buys are significant, in the millions of dollars range. ~ Ilene

 

 

 

Insider transaction table and buying vs. selling graphic above from insidercow.com.

Chart below from Yahoo.com

...

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Members' Corner

How To Poop At A Party?

Courtesy of Nattering Naybob.

Once again, it's "Toilet Thursday" or "Thursday in the Loo", so we follow up on Second Hand Stink with How to Poop At A Party. 

This hilarious video demonstrates how to control the Shituation when needing to Poopulate at a gathering, in no uncertain terms. 

We hope this recurring bathroom humor theme "shits" well with our readers. So please do relax, drop the cursor below, click and enjoy.

...

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Chart School

Dow Jones Gann Angle Update

Courtesy of Read the Ticker.

When the Dow Jones moves the media must have an explanation for it. However the insiders have the nod to what is going on.

The media story so far is that since the TRUMP win, managers have been rotating their portfolios to represent TRUMP trends (lower taxes, go easy on the 'too big to fail' Wall Street banks, more jobs for Americans). Prior the election the stock market was set up for a HILLARY win, due to more of the same, status quo, FED support. But....

Using Richard Ney logic, the short answer is, stocks were always going up and the election results do not matter nor would a higher 10 yr bond or lackluster fundamentals. The real story is the marke...

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Promotions

Phil's Stock World's Las Vegas Conference!

 

Come join us for the Phil's Stock World's Conference in Las Vegas!

Date:  Sunday, Feb 12, 2017 and Monday Feb 13, 2017.            

Beginning Time:  8:00 am Sunday morning

Location: Caesar's Palace in Las Vegas

Notes

Caesar's has tentatively offered us rooms for $189 on Saturday night and $129 for Sunday night. However, we have to sign the contract ASAP. We need at least 10 people to pay me via Paypal or we may lose the best rate for the rooms. (Once we are guaranteed ten attendees, I will put up instructions to call the hotel for individual rooms.)

The more people who sign up,...



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OpTrader

Swing trading portfolio - week of December 5th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

Largest US Bitcoin Exchange Is "Extremely Concerned" With IRS Crackdown Targeting Its Users

Courtesy of ZeroHedge. View original post here.

Last Thursday we reported that in a startling development seeking to breach the privacy veil of users of America's largest bitcoin exchange, the IRS filed court papers seeking a judicial order to serve a so-called “John Doe” summons on the San Francisco-based Bitcoin platform Coinbase.

The government’s request is part of a bitcoin tax-evasion probe, and se...



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Mapping The Market

The Most Overlooked Trait of Investing Success

Via Jean-Luc

Good article on investing success:

The Most Overlooked Trait of Investing Success

By Morgan Housel

There is a reason no Berkshire Hathaway investor chides Buffett when the company has a bad quarter. It’s because Buffett has so thoroughly convinced his investors that it’s pointless to try to navigate around 90-day intervals. He’s done that by writing incredibly lucid letters to investors for the last 50 years, communicating in easy-to-understand language at annual meetings, and speaking on TV in ways that someone with no investing experience can grasp.

Yes, Buffett runs an amazing investment company. But he also runs an amazing investor company. One of the most underappreciated part of his s...



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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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