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
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
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

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