Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Top, Day Traders 2.0 Will Tank Your IRA

Stock-Markets / Stock Markets 2010 Apr 14, 2010 - 03:10 PM GMT

By: Paul_Lamont

Stock-Markets

Best Financial Markets Analysis ArticleA constant theme in the Investment Analysis Report has been to expect the market to move in the opposite direction of the positions of day traders. This has proven successful with regards to the Japanese Yen, the U.S. dollar and the Treasury Bond. Therefore, we were very interested in the New York Times article Day Traders 2.0. We expect that day traders, who are now buying stocks, are again on the wrong side of the trade. 


The New York Times provides some statistical research on a day traders’ success rate. Not surprisingly, in a “yet-to-be-published study conducted in Taiwan…the authors sifted through tens of millions of trades, from 1992 to 2006, and found that 80 percent of active traders lost money.” With that kind of win/loss ratio, it is no wonder that “’only 1 percent could be called predictably profitable,’ says a co-author, Brad M. Barber, a finance professor at the University of California, Davis.” A day trader’s failure is as close to a statistical certainty that you will find in this life. These speculators show up en masse when they are most comfortable investing, which turns out to be at the end of a trend. As the NY Times concludes, the day trading philosophy “is a Newtonian principle formulated more than 300 years ago: a body in motion tends to stay in motion.” Price momentum reinforces herding and blinds speculators to any trend change.

Recently, “many of the new day traders are people who recently lost jobs and can’t find work…They’ve got a severance package or a nest egg that they want to invest themselves.” We are reminded of the lithograph ‘The Way to Grow Poor and The Way to Grow Rich’ included in our 2007 Report, “China and the Crash of ‘29.”

While that particular comparison was deemed extreme at the time, the Shanghai index fell roughly 70% during the 2007-9 crisis. China has since traded a stock market bubble for a real estate mania.

The Chinese Boom Goes South
                       
***More For Clients and Subscribers***

What’s Next
While our forecast for a U.S. dollar rally proved correct, financial losses in Europe have yet to affect U.S. equities. But it is only a matter of time. As we mentioned two months ago:

“While we prefer the Q ratio, the cyclically adjusted price to earning ratio from Robert Shiller (shown below) accurately reflects the full cycle of stock market expectations. If the market “took investors to the clouds” in 1929, stockholders back in 2000 entered the ionosphere. It should be of no surprise that since that time investors have been continually disappointed.”

As Societe General's Dylan Grice points out: “According to Robert Shiller’s latest data, the S&P500 is back in its highest valuation quintile. The risk is there - as it always is - but the returns aren’t. So what do you do? Go take a holiday if you can.”
 
The chart below shows the P/E ratio in its highest quintile, which according to Grice implies a 1.7% annual return over the next 10 years.

At these valuations, the stock market reminds us of the 30 yr-Treasury Bond back in December of 2009. At that time, the Treasury was offering investors a mere 2.5% annual return on your money for 30 years. Ninety-nine percent of day traders surveyed thought this was a good deal then. Of course, they were wrong. Bond prices went down 20% and the government now offers a 4.7% yield for 30 yrs.  In our view, buying the S&P500 for a 1.7% return over the next 10 years is a similarly bad deal. But the day traders are loving it once again.

‘A Dream That is Not Going To Come True For Any But the Tiniest Fraction’ 
Warren Buffett once argued against gambling in Nebraska. His points are applicable to Wall Street. As we wait for the stock market to deflate, we offer this quote from John Rothchild:

“By December 30, 1929, the stock market was happily on its way to regaining a third of its losses. Enough confidence was restored that the so-called Crash was knocked off the front page of Barron’s by a crisis in South American Bonds. That the Dow Jones Averages didn’t reach a low point until 1932, three years after the supposedly disastrous date, should be very reassuring to us all. There was plenty of time for the investing public to sell its stock and suffer a normal setback - a 50 percent loss at the most.” A Fool And His Money: The Odyssey of an Average Investor. John Rothchild, 1988.

Unfortunately, few did. Most sold in the Panic of 1932, when the market was down 85%.

By Paul Lamont
www.LTAdvisors.net

At Lamont Trading Advisors, we provide wealth preservation strategies for our clients. For more information, contact us . Our monthly Investment Analysis Report requires a subscription fee of $40 a month. Current subscribers are allowed to freely distribute this report with proper attribution.

***No graph, chart, formula or other device offered can in and of itself be used to make trading decisions.

Copyright © 2010 Lamont Trading Advisors, Inc. Paul J. Lamont is President of Lamont Trading Advisors, Inc., a registered investment advisor in the State of Alabama . Persons in states outside of Alabama should be aware that we are relying on de minimis contact rules within their respective home state. For more information about our firm, or to receive a copy of our disclosure form ADV, please email us at advrequest@ltadvisors.net, or call (256) 850-4161.

Paul Lamont Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in