Hidden Pulse

Risk and Opportunity; When To Buy & When To Run

Risk and Opportunity; When To Buy & When To Run

Risk and Opportunity; Investing is analogous to war

One needs to understand the difference between a battle and a war. You can lose several battles but still win the war, or win many battles and still end up losing the war. It comes down to how much damage you incur as opposed to losing or winning the battle. If you minimise the damage, you can lose several battles in a row, retreat and regroup and come back and win the war.

Bullish and Bearish cycles are akin to battles fought in a War

Each cycle should be considered a war, and as long as you win the war, the individual battles are meaningless. The mass mindset focuses on each battle, students of mass psychology focus on the war.

When it comes to investing one can experience extended periods of success, where the markets do exactly what they are supposed to do, but the equation must balance and sooner or later the market will go through a phase of turbulence. In these turbulent times, like the current one, we will experience more losses, but when the turbulence vanishes, the win ratio and the percentage in gains will be far higher than experienced during the phase of turbulence. Until October we had a remarkably long winning streak.

Every bull market goes through one shakeout (strong pullback phase)

One never know when that will occur exactly. A shakeout is not the same as a market putting in a long-term top.  This is done to get the masses to alter their perception. The big players need someone to sell these stocks to before they cash out.  The masses eventually buy this strategy, and when they do, the top is usually close at hand. Once again, look at Bitcoin, everyone was happy when it traded past 10K, they turned ecstatic when it broke past 15K and then they assumed that nothing would hold it back.

During this shakeout stage, it is essential to have stops in place and deploy one’s money at different intervals. Nobody can change this order. No one can tell with certainty when the markets will experience a stronger than normal pullback because this market is as manipulated as they come; after 2008, free market forces ceased to exist.  However, if the trend is positive, then those pullbacks have to be viewed through a bullish lens.

The following inferences are therefore possible:

In times of risk, the masses seek to take on more risk as opposed to taking on less risk. The masses beg for the opportunity to buy low and sell high, but when the moment finally arrives (and the risk factor is much lower) they baulk, and their argument is always the same “it is different this time, the market is going to crash, and we need to bail out”. However, they never put forth the same argument when the markets are racing upwards, and analysts all over the place are issuing insane targets such as $1 million, and they now assume the next stop is the sun or another galaxy. Instead, the next stop is usually “hell”.

Run when the Masses Turn Euphoric

When the masses believe they have found the next best thing to white bread, its time to head for the hills. Case and point Bitcoin. Throughout its fall, the masses remained bullish, and despite the heavy beating it has already taken experts are still issuing insane targets even now when Bitcoin is trading below 5K, which means that Bitcoin the odds of it hitting 3K are far higher than 15K.

Imran Wasim, a financial analyst at AMSYS Group, told News BTC he was far from downbeat, predicting cryptocurrency will become “more mainstream” in 2018https://bit.ly/2DZs7fo

Bitcoin Price Forecast: Tim Draper Predicts Bitcoin Will Be Worth More Than $100,000.

Llew Claasen who is the executive director of Bitcoin foundation recently stated that he expected Bitcoin to hit $ 40,000 by the end of this very year. He further added that 90% of the cryptocurrencies will actually fallhttps://bit.ly/2FHTVX0

Tom Lee, co-founder of Fundstrat Global Advisors, lowered his year-end target to $15,000 from $25,000 — still well above where the cryptocurrency was trading on Friday.

A key driver was bitcoin’s “break-even” point, the level at which mining costs match the trading price. That level is down to $7,000 from an earlier estimate of $8,000 for the S9 mining machine by Bitmain, according to Fundstrat’s data science team. Based on that, Lee estimates that fair value for bitcoin would be roughly 2.2 times the new $7,000 break-even pricehttps://cnb.cx/2BhvnQD

Alexander V. van Dijl, Financial expert:

At the beginning of this year I predicted a bitcoin value of 150.000. While that seems like a lot today, I believe some firm price movements will take place in the (very) near future. Something big will happen, perhaps a large retailer will accept bitcoin, perhaps adult advertising will accept bitcoin as payment. Something big will happen that will cause the price to skyrocket again. 150.000 is my prediction for January 1st

Eric Brown, Founder and CEO of Aliant Payment Systems:

My Bitcoin price prediction for 1 January 2019 is $23,000.We were practically at this price once, and we know what it takes to get it back there. We are very much in the infancy of this type of currency, and as technology grows, so does the value of the currency. The future is technology and Bitcoin is the currency of that technology.

Sam Russell, Co-Founder / EVP Strategy and Innovation at WORBLI:

If the fundamentals on Bitcoin positively change in September with the upcoming proposals for an ETF approval by the SEC, we can expect buying pressure to increase pushing price up to previous market structure highs of $11,400 testing resistance in that area. Should that happen, Bitcoin would effectively change in trend. My guess — 17,000 USD https://bit.ly/2wJoUu8

The sensible thing to do is to implement a strategy that works both in good times and turbulent times, and that is what we are doing.

Courtesy of Tactical Investor

Random Views on Risk and Opportunity

The First Risk and Opportunity in Active Investing

What is the most significant risk in quant (and all active) investing today?

The First Moment (the mean)

The Second Moment (under-estimating tracking error)

The Third Moment (skewness, left tails, crash risk)

Mis-specified risk model (hidden factor biases, factors ‘eating’ alphas)

Sub-optimal portfolio construction methodology (error maximization)

Higher than expected transaction costs

Individual stock risk

Quants typically chose 2, 3, 4, 5 and 6.

In my view, the most important risk in active investing is #1: The First Moment.

This is the no-alpha risk = strategy does not outperform the benchmark = the long-term mean <=0

The lack of alpha in the industry is not news, and many are trying their best, but I believe the reason more effort is not producing better results is because we are trying to solve the alpha risk as an engineering problem rather than an architectural one.

Today’s quants are already very well equipped to deal with risks 2 through 7. These risks have engineering-friendly convergent solutions. 50 years ago, some of these other risks might have been at the top of my list, but after decades of advances in these areas, these risks are much less problematic than the First Moment Risk (as a side: in total portfolio mandates from the asset owner’s viewpoint, Crash Risk #3 is still very much alive and real). Full Story

What Is Opportunity Cost?

Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. While financial reports do not show opportunity cost, business owners can use it to make educated decisions when they have multiple options before them.

Because by definition they are unseen, opportunity costs can be easily overlooked if one is not careful. Understanding the potential missed opportunities foregone by choosing one investment over another allows for better decision-making.
How to Calculate Opportunity Cost
The formula for calculating an opportunity cost is simply the difference between the expected returns of each option. Say that you have option A, to invest in the stock market hoping to generate capital gain returns. Option B is to reinvest your money back into a business expecting that newer equipment will increase production efficiency, leading to lower operational expenses and a higher profit margin.

Assume the expected return on investment in the stock market is 12 percent over the next year, and your company expects the equipment update to generate a 10 percent return over the same period. The opportunity cost of choosing the equipment over the stock market is (12% – 10%), which equals two percentage points. In other words, by investing in the business, you would forgo the opportunity to earn the higher return.

Opportunity cost analysis also plays a crucial role in determining a business’s capital structure. Full Story

Use The 50-Day Moving Average To Pinpoint Opportunity Or Risk

An ax can be either a useful tool or a dangerous weapon. In stock charts, the 50-day moving average has a similar dual nature.

The 50-day moving average takes a stock’s prior 50 daily price closes and averages them. Do this every day in an upward-trending stock, and you’ll get a line on a chart that runs below the stock’s price bars while smoothing out the jumps and buckles.

The line serves a startling number of uses. When a stock is basing, a cup base with more than half its bulk above rather than below the line is a sign of health. Another sign of a stock’s strength: a flat base that finds “support” at its 50-day line.

What is support? Institutional investors often use the 50-day or 10-week line as a reference point, stepping in to add shares to their positions when a stock pulls back to the moving average. This buying creates upward pressure — or price support — to help keep the stock’s prices above that moving average.

This is why rising stocks often rebound from their 50-day lines, turning brief pullbacks into follow-on buying opportunities. It is also why 50-day and 10-week moving averages tend to cradle advances that can run across many months.

On the dangerous side, a rallying stock that collapses below 50-day support in heavy volume is often sending a sell signal. Once below that line, institutional investors may use the 50-day line to mark a sell level. Full Story

Table press table 2

AAPL

TablePRess 2 with YahooF script
date#NAME?        AAPL
IBM230120C00170000
CONTINUE READING

Google Sheet Embeded

   Size: style="width:70%; height:100%; Embed via plugin
CONTINUE READING

Table press table

Market Update Stocks (Current price updated every 15 minutes)
SymbolEntry DateEntry PriceCurent PricePositionComments
HTLDJun 201917.1116.33Open1/3rd of a position 17.401/3rd at 18.90 and 1/3rd at 15.05
HAMar 202120.0513.62Open1/3rd of a position 24.90 and 1/3rd at 15.20.
CRSMar 202138.1741.87Open1/3rd at 38.34 and 1/3rd at 38.00.
FISVMay 2021106.73100.35Open1/3Rd of a position at 114.20 and 1/3rd at 99.27
BWXTMay 202158.4960.79Open1/3rd of a position 64.20, 1/3rd at 58.45 & 1/6th 47.10
AYXJul 202168.4240.44Open1/3rd 83.87, 1/3rd at 68.60 and 1/3rd at 52.80
LDOSAug 202190.33109.49Open1/3rd of a position at 96, and 1/3rd at 84.65. Sold half in may at 110.75 for a gain of 22%. Place a stop at 90.00
COUPAug 2021167.1361.15Open1/3rd at 249 and 1/3rd at 219.45, 1/3rd at 110.00 and 1/3rd at 90.10
TFSLOct 202116.8413.79Open1/3rd at 19.74, 1/3rd at 16.79 and 1/3rd 14.01
MGNIOct 202121.0310.68Open1/3rd of a position 26.04 1/3rd at 20.70 and 1/3rd at 16.35
KMBDec 2021131.2136.01Open1/3rd of a position
RGLDJan 202298.55110.67Open¼ of a position. Sold half at 144.30 in Mar for a gain of 46%.
KJan 20226273.07Open¼ at 63.10 and ¼ at 60.90. Place a stop at 60.00. Sold half at 73.50 in May for a gain of 18.5%
AMDFeb 2022107.6670.27Open¼ at 114, ¼ at 108 and ¼ at 101.
CPBFeb 20224352.99Open¼ of a position.
MSFTFeb 2022272.91245.12Open¼ at 300.60, ¼ at 281.05, ¼ at 257 and ¼ at 253
ASANFeb 20224513.51Open¼ at 57.00, ¼ at 43.20 & ¼ at 34.80
FIVNFeb 202289.164.43Open¼ at 96 and ¼ at 82.20
VALEApr 202214.3716.76Open¼ of a position at 15.84 and ¼ at 12.90
WMTMay 2022128.75149.89Open¼ at 133 & ¼ at 124.50
HALOJul 202244.0456.38Open¼ of a position
APDJul 2022237312.1Open¼ of a position
CFFNFeb 202111.68.29Open1/3rd at 12.40, 1/3rd at 11.22& 1/3rd at 11.19
BHEMar 202127.0228.09Open1/3rd at 28.98 and 1/3rd at 25.05.
TRIPMay 202136.9719.02Open1/3rd of a position 43.80, 1/3rd at 39.06 and 1/3rd at 28.05
MOMOAug 20217.95.74Open1/3rd of a position 12.80, 1/3rd, 9.60,1/3rd at 4.90 and 1/3rd at 4.40
CHPTDec 202116.3610.89Open1/3rd at 20.40, 1/3rd at 16.80, and 1/3rd at 11.90
GPNFeb 202212797.65Open¼ 136.90, ¼ at 126.00 & ¼ at119
HIMXFeb 202210.116.96Open¼ 10.27 and ¼ 9.96
GBTCMar 202223.18.76Open¼ 25.80 and ¼ 20.40
ETHEMar 202214.26.47Open¼ at 19.10 and ¼ 9.30
MJMar 202118.955.67Open1/3rd 20.55 and 1/3rd at 17.35.
TLTAug 2021130.85106.95Open1/3rd 145.80, 1/3rd at 131.20, 1/6th at 115 and 1/6th at 116.10
SAAAug 202126.5522.4Open1/3rd at 27.60 and 1/3rd at 25.50
TMFSep 202121.79.59Open1/3rd at 27.06, 1/6th at 17.10 and 1/6th at 15.60
ULOct 202153.151.17Open1/3rd of a position.
AFRMNov 202190.611.97Open1/3rd at 122.40, 1/3rd at 98.40 and 1/3rd at 51.00
WTWNov 2021224.16246.8Open1/3rd at 232.50, 1/3rd at 224 and 1/3rd at 216.00
XRTDec 202178.3264.93Open1/3rd at 91.50, 1/3rd at 83.25 and 1/3rd at 61.50
FINXJan 202226.819.45Open1/4th at 31.50, ¼ at 28.50 and ¼ at 20.40.
SGOLJan 202217.1116.97Open¼ of a position
TQQQFeb 202242.1520.82Open¼ at 56.10, ¼ at 45.00, ¼ at 41.50 and ¼ at 26.00
DEAFeb 202219.2515.24Open¼ at 20.20 and ¼ at 18
VZMar 202248.5736.89Open¼ at 51.55 and ¼ at 45.60
URAMar 202221.3719.49Open¼ position 23.30 and ¼ at 19.45
XBIJul 202273.580.59Open¼ position
BIBJul 20224859.35Open1/5th of a position
  Market Update Options (Current price updated on Mondays and Fridays)
SymbolEntry DateEntry PriceCurent PricePositionComments
IBM230120C00170000Mar 20212.80.19Open1/3rd of a position 4.50 and 1/3rd at 1.11. Sold half at 2.10 for a loss of 25%
KMB240119C00120000Jun 202217.721.63Open¼ of a position
VALE240119C00013000Jul 20222.93.45Open¼ of a position at 15.84 and ¼ at 12.90
QCOM240119C00125000Jul 202225.422.27Open¼ of a position
AAL230120P00010000Apr 20215.10.12Open1/3rd of a position
CONTINUE READING

Market Psychology: How the crowd always loses in the stock market?

Stock Market Psychology for Dummies: If you have common sense then Mass Psychology is easy to grasp If you understand how the mass mindset operates it provides you with an…
CONTINUE READING