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Peter F. Way, CFA

 
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  • Why Buy-And-Hold Doesn't Work For Investor Wealth Builders [View article]
    5968921,

    thank you for your comment.

    you take a more realistic, less dogmatic attitude toward investing than bh2012 above.

    your sell justification is sound, as long as the investor has the discipline to keep informed about the effectiveness of the business model's competitive economics. Unfortunately many in the B&H camp are there because they prefer to put their mental and physical efforts to other purposes than the continuing job of investment surveillance.

    What you cite as a good sell discipline is but one of several sound reasons for selling the stock of what has been a strong company. The reason found by most active investors is that the present holding's price has put it at a risk~return disadvantage to other, safer, more appealing investment opportunities.

    There may be no real threat to the company's survival or even the maintenance of its competitive position in its field. But the field's growth may be being supplanted by alternatives, or even simply by changing consumer fancies. Again, here is the need to keep up to date on what else is out there to make your invested capital more productive.

    Part of keeping up to date may be reflected in the notion of transaction cost impacts. Today the combination of advances in information technology and competitive exchange and market practices make transaction costs a tiny fraction of 1% of the capital committed to most investment holding changes.

    At the same time, market price swings have increased in the scope of their ordinary volatility, so that the price "noise" during a year is usually multiples of a stock's long-term trend growth. The transaction cost of capturing those intermittent value opportunities is usually pretty trivial, compared to the size and frequency of the improvement prospects.

    The combination of invreased price volatility and reduced transaction costs is one of the evolutions of equity investing that urges more and more investors to now adopt an active stance rather than the passive hammock posture often associated with Buy&Hold.

    Thanks again for sharing your views.

    best regards,

    Peter
    Dec 9, 2014. 07:52 PM | 3 Likes Like |Link to Comment
  • Why Buy-And-Hold Doesn't Work For Investor Wealth Builders [View article]
    Buyandhold 2012,

    please read the article's entire title.

    and then read the article.

    if you do you will find that it is not aimed at you, or at anyone who is in the envious position of having sufficient capital -- enough to last out a lifetime, no matter how long that may be.

    but many investors are not that well fixed. They have needs either soon ahead of them, or imminently upon them. They are in a race with time if they are to accomplish their desired objectives.

    Indeed, a young person who is not careless now with his time investments may build his wealth to the comfortable position that you claim to enjoy. If that suits him/her as well as it seems to suit you, then they may choose to keep you company in the investing strategies you follow. Given adequate resources those practices can be quite comfortable.

    You have been at it for some 40 years (since 1974), repeatedly in a position to commit otherwise idle capital when markets offered timely opportunities. Many are not so fortunate, with neither the years nor the loose capital to pile in. Yet that is your advice.

    Just as what I advocate is not suitable for everyone, neither is your style. So do not be so close-minded that your way is the only proper way to invest, or is even the best way under all circumstances.

    For some it is not even a possible way. What you endorse is for them the equivalent of telling them to give up, forget planting, and eat their seed corn.
    Dec 9, 2014. 07:06 PM | 9 Likes Like |Link to Comment
  • Apple: Market Maker Price Range Forecast Update [View article]
    Michael,

    Thanks for the observation. It gives me the chance to encourage reflection on how our information may be more useful to some investors than to others.

    Your point is correct that MMs reduced the low end of their forecast range from $112.21 (at its highest on 11/28) to $106.50 on 12/5, a -5% reduction in a week. Its market price also fell from $118.93 to $114.98, a -3.3% drop. That relationship alone would cause the stock to be more expensive since the downside prospect fell more than the price did.

    Adding to that, the upside on those two days fell from $135.85 to $127.11, a
    nearly 6.5% reduction. That's more than the price fell, so in terms of expectations, AAPL's "cost" rose from a Range Index of 28 to a RI of 41.

    I can only tell what has happened to each stock in the past, following forecasts like those we see now. For AAPL, when the forecasts have had RIs of around 28 (it has happened 940 times out of over 2100) the stock's price gained in 70% of those cases, averaging 4.9% profits, net of the 30% of the times (in the 940) that there were losses.

    But where there were RIs around 41 (1360 of 'em) 76% turned out to be profitable in 3 months or less, with gains averaging 6.0%. Because the price gains occurred in shorter time periods (aveage 47 market days instead of 53 for the RI 28 set) the annual rates of gain widened from +26% to +36%.

    For an existing holder of AAPL, these distinctions may be swamped by other portfolio influences. But for the investor deciding to put new money into GMCR for a payoff potential of +14% or into Visa for an +8% gain prospect, or a 10 1/2% profit target on AAPL, they become critical as to the capital commitment choices made.

    Our information usually is far more helpful to new-commitment decisions than to holdings from past decisions. Especially where the investor is dedicated to long-term holdings as a style of investment management.

    But our approach is critical for active investors who understand that they need to carefully husband the time they invest alongside their capital. It Is the parsimonious use of that time that affords rapid compounding of seemingly small gains into staggeringly good annual rates of wealth-building.

    The reductions in near-term future price range expectations for AAPL do seem to be an outward sign of declining investment profit potential. But the actual history of what has been happening tells otherwise.

    There's no guarantee that what has happened over a thousand times in the past is certain to do it again, but it is more appealing than to simply speculate what may happen next week, based on last week. That typically has had a poor record.

    best regards,

    Peter
    Dec 6, 2014. 09:38 PM | 2 Likes Like |Link to Comment
  • Apple: Market Maker Price Range Forecast Update [View article]
    KenC,

    Thanks for your interest. It is explained on http://www.blockdesk.com, in the "Get Started" section. Service products are available in $25 and $50 bites, and subscribers are free to use as little or as much of them as suits their investment styles.

    best regards,

    Peter
    Dec 6, 2014. 06:52 AM | 1 Like Like |Link to Comment
  • Apple: Market Maker Price Range Forecast Update [View article]
    Ken,

    you only have to buy as much as you want, in service pieces that cost $25 or $50 at a time, and may last for a few weeks or a few months, depending on how you want to invest. Check out http://www.blockdesk.com. Thanks for your interest.

    regards,

    Peter
    Dec 5, 2014. 07:07 PM | 2 Likes Like |Link to Comment
  • Quick Heads Up From Market Makers Turning Scrooge [View article]
    gelstretch,

    they may be, but since the options are part of the sources of MM implied forecasts I choose to refrain from any kind of investing guidance on them, to avoid unwanted feedback.

    Thanks for your insight, and the question.

    regards,

    Peter
    Dec 3, 2014. 09:52 PM | Likes Like |Link to Comment
  • Quick Heads Up From Market Makers Turning Scrooge [View article]
    MachineGhost,

    FXH may be a relative of yours, a ComputerGhost. No, it really is an ETF, the First Trust Alphadex Healthcare ETF, (FXH).

    But it doesn't belong in this set of ETFs, since it is not a leveraged one. I suspect its presence is due to a typo, for which I apologize.

    Since you asked, FXH has only about one year of implied forecasts, several of which are of a questionable nature. The implication is that this ETF is not
    well-traded by the big-money funds that actively employ market-makers in volume trades.

    Its 12/1/2014 forecast showed a Range Index of 96 (a high price relative to the forecast range). That leaves it with virtually no upside price change potential, and lots of downside in the forecast. The difficulty is that the Risk~Reward Tradeoff map compares upside forecast with actual experienced price drawdowns at this level of Range Index. But since there is only one prior forecast at the 96 RI level, it shows no drawdown exposure historically.

    So the R~R map provides virtually no information for a stock or ETF in this kind of situation. Subscribers to blockdesk.com have access to Block Trader Forecast (btf) charts that provide more detail, allowing them to sort out issues like FXH from those that have credible information.

    A look at the introductory page at http://www.blockdesk.com can provide more information.

    thanks for your inquiry.

    Peter
    Dec 3, 2014. 05:10 PM | Likes Like |Link to Comment
  • Quick Heads Up From Market Makers Turning Scrooge [View article]
    redrocker7,

    good question, because it helps me explain the difference between the reward~risk maps on blockdesk.com and the volatility maps. It also encourages me to think in a broader way about the reasoning involved.

    The possible 13% loss you observe on UDOW comes visually from the vertical price range line on its btf (block trader forecast) picture, plus a quick calculation of the specific prices spelled out there, of a market price at $140.82 and a low forecast price of $121.76.

    Yet on the R~R map in this article the vertical Risk co-ordinate at [13] for UDOW looks like only -2%. This is because this map, for that dimension, uses not the forecasts, but the actual prior worst-case experiences of what a TERMD-exercised strategy would have produced, on average, for all prior forecasts that had similar upside-to-downside balances like the ones on 12/1/2014 in the R~R map.

    That condition for UDOW is spelled out in the data line below the btf picture, where a -1.7% price drawdown exposure is shown for the current Range Index of 93. That 93 Range Index means that only 7% of the full forecast range (of from 142.21 to 121.76) is above the then present market price. The data line in its Sample Size section indicates that there have been 10 such experiences brought to completion (under TERMD) in the 1190-day lifetime (about 4 1/2 years) of UDOW.

    This may seem strange, but is consistent with the additional info of the data line which tells that 100% of the time (10 out of 10) where such a RI has existed, the worst-case -1.7% price drawdowns have recovered and gone on to be closed out (in an average 7 days later) at a profit of, coincidentally, +1.7% above the market price at the close of the day following the forecast (because the forecast sell targets had been reached).

    Your question is helpful, because it points out the visual differences seen between the R~R map and the Volatility map on blockdesk, where the downside risk scale does reflect the forecast, rather than the potential of prior average experiences in a disciplined portfolio management scheme.

    Now it is my turn to think carefully about whether there is a better way to handle the situation posed by Range Indexes out at either extreme, where a limited number of priors pose a sample size problem potential. This is not a new issue.

    At the other end of the array, the difficulty is not so much with the logic, as with handling the credibility of a small sample. We see a low RI and hope it indicates a favorable buy opportunity, as it may. But the risk of only one or a few observations reminds us that "records are made to be broken." To illustrate, look at a 6-month daily forecast btf of the ETF of AGQ.

    That consideration in its inverse with UDOW says "you might make near +2% in 7 days at a +83% annual rate of gain, with (almost) certainty." But those of us who remember the hot end of the matchstick know what (almost) means -- possibly -13% here.

    To try to assist with the sample size consideration we include in the btf pictures a thumbnail distribution of the past 5 years forecast Range Indexes. Hopefully, it adds some perspective.

    I wish I could promise something that always works, simply -- after I had made all I and my family needed. But our best treatment of the perplex at hand is to provide both dimensions of the situation (history vs. forecast), and encourage readers to exercise their own judgment within the limits of their own emotions.

    Hope that this explanation/exploration may be a help.

    best regards,

    Peter
    Dec 2, 2014. 02:02 PM | 4 Likes Like |Link to Comment
  • When The Tunnel Light Ahead Is A Bear Train... [View article]
    stormin,

    thanks for your comment and observations.

    If you take a look at a simple 6 months chart of SDOW prices on Yahoo, or any other chart provider, it does look like SDOW could easily pop from about 21 to 28 or so in any apparent market correction. It has seen 28 a couple of times in the past 6 months. Then you are right about the decision to take the profit and run.

    But any longer hold on SDOW is likely to be ill-fated. Just expand the time focus on your SDOW price chart from 6 months to 2 years and it can be seen what the inevitable trend has been. A further expansion of the history to 5 years provides clear perspective on how small its rallies have been and how quickly they disappear.

    Remember, SDOW is a short-postured instrument with a 3x operational leverage. That makes it a very tiny-time-holding ETF, with lots of volatility all along the path. Your brother in-law has identified a similar volatility in BAC, but from a long posture, and that makes a big difference.

    The long twin to SDOW is UDOW, when you take your $28 profit capture, if you want to play the upside similarly.

    Best of luck,

    Peter
    Nov 27, 2014. 01:21 PM | Likes Like |Link to Comment
  • OPEC - Whistling Past The Graveyard [View article]
    mrtechbarter,

    thanks for pointing out the date error on the Figure 2 header. The data is all from last night's close -- Thursday November 13, 2014.

    your reward for the assistance is when figure 2 is sorted out by the same kind of rankings we use for our subscriber topTen Lists of our whole universe, the top 5 of these stocks are: WNR, CXO, CLR, ATLS, and BCEI.

    Please note that the emphasis here is on a 3-4 month holding time horizon, conditioned by odds of profitability and size of potential price gain payoff in that time, rather than long-term share value achievement over a multi-year holding. None of these stocks are competitive with the wealth-building capabilities of other candidates on our broader topTen daily lists.

    thanks for your careful editing, and best wishes on your energy investing.

    regards,

    Peter
    Nov 14, 2014. 01:05 PM | Likes Like |Link to Comment
  • Strong Trouble Signal On DJIA By Market-Makers [View article]
    Hi Smee,

    good to her from you again. DIA and UDOW follow the same price track, at the same time, with UDOW's swings accentuated, of course. But the hyperactivity of UDOW's price compared to its average forecast range size makes it a much more sensitive indicator of the balance of upside and downside expectations.

    The two series have different scales, and the DIA has had over 12 years of forecast experiences including a wider range of market extremes than UDOW's mere 4 1/2 years. But even overlooking the more varied history of DIA, its forecast price ranges have averaged 7 1/2% from low to high daily, while UDOW's have measured only 14%, despite the index being geared to move 3 times as much as the DIA's move in a day.

    On top of that the DIA Range Index has had a standard deviation of under 10 during its longer life, while UDOW's stdev has been over 28. Their average RIs have been fairly similar, 41 for DIA and 47 for UDOW.

    The proper comparison of their RI variability statistically is the coefficient of variation, which for DIA is but 24, while for UDOW is 60, so UDOW's reward~risk balance measure is 2 1/2 to 3 times as sensitive as DIA's. It's no wonder that we see far more forecasting guidance from UDOW than what we get from DIA.

    Looking at the two series under TERMD portfolio management discipline, UDOW produces gains 90% of the time, regardless of Range Index level, capturing 5.5% gains in only 24 days for a 75% AROR. DIA instead produces gains only 74% of the time on the same basis, capturing but 1.3% gains and taking 40 market days to do it, for +9% AROR.

    This experience makes UDOW a very trustworthy leading indicator in its own price experience, and given its day by day linkage to the Dow Jones 30 index, the basis for the DIA, a good guide as to that ETF's coming price direction.

    The same kind of price sensitivity can be found in several other leveraged long ETFs, which make them as a class good market outlook indicators. That's important of the moment as I am becoming increasingly aware of a rising caution among them. I intend to post another SA article to that effect promptly.

    regards,

    Peter
    Nov 13, 2014. 12:32 AM | 2 Likes Like |Link to Comment
  • Strong Trouble Signal On DJIA By Market-Makers [View article]
    zydeco,

    we view our job as providing subscribers with expectations information that has proven useful in the past when following a standard discipline.

    from now on that is what I will hold my comments to, despite the fact that life and markets frequently provide the challenge of making judgments that call for temporary or single instance departure from the standard discipline. If a discipline is not maintained,it is an excuse, not a discipline.

    we are not acting as investment advisers nor being paid to be in that role. We hope that our information will be helpful and productive in your reaching satisfying investment decisions on your own. Go for it, as you decide, with our best wishes.

    Peter
    Nov 12, 2014. 03:27 PM | 2 Likes Like |Link to Comment
  • Strong Trouble Signal On DJIA By Market-Makers [View article]
    MWinMD,

    I think I may not have made it clear enough that the call for using SVXY would be at a time when UDOW's price had cycled through its expectations range and was then down near or at a point of probable recovery.

    Certainly now is not a time to enter a position in UDOW, and as my response to zydecosailuh above indicates, it may be appropriate to temporarily step out of an existing SVXY position to capture more recovery in it later.

    Hope this helps,

    Peter
    Nov 12, 2014. 01:44 PM | 1 Like Like |Link to Comment
  • Strong Trouble Signal On DJIA By Market-Makers [View article]
    RV,

    You do see correctly what is involved in active investing. What others may call this is not so important, if they are willing to recognize what it takes, and what it can produce.

    Please keep in mind the specific subject at hand is a volatile 3X leverage ETF, not for example, an information technology provider to state and municipal governments, a producer of popular consumer products, a diversified energy company, or a bank holding company, all of which are currently on our daily topTen recommended list.

    The securities names we usually see there as most worthy of shorter-term investment for wealth-building purposes typically have a gestation period of more like 2-3 months than UDOW's potential 2-3 weeks. That is because we emphasize the value of time in the investing process, and set specific price targets to be accomplished within time limits. We tend to keep to long-position ideas.

    As to semantics, we prefer to express the notion of shorter-term investing in preference to any style of "trading" since much of the public thinks immediately of what they have heard of the speculative hazards of "day trading" when they hear the word trading.

    What constitutes speculation, as opposed to investing, to us involves an emphasis on luck and accidental opportunism, just being in a right place at a good time. Instead, investing involves a planned set of actions designed to accomplish a clear generic objective, within a well-understood set of policies and disciplines.

    We do the latter by making careful choices between alternative investment candidates based on highly comparable expectations criteria derived by standardized procedures, and then carrying out ongoing actions based on an established discipline.

    There are undoubtedly individual artist-investors who accomplish the same things, all within their own heads and personal portfolios. More power to them; they deserve to put whatever labels on their style as they desire.

    We try to explain what we do to other investors by illustration and example, live as it is going on. Hopefully this response is a useful part of that effort.

    Thanks for raising the question.

    best regards,

    Peter
    Nov 12, 2014. 01:21 PM | 2 Likes Like |Link to Comment
  • Strong Trouble Signal On DJIA By Market-Makers [View article]
    Larry,

    No, we can't have it both ways. An active investor pursuing our SVXY buy recommendation on October 28 at 64.30 now at 73 (pre-market) might want to step aside until the dust settles. A distracted ostrich buy & holder with plenty of cash might never notice until the chance to put some of the cash to more productive use with SVXY again below $60 or so catches his attention.

    Too bad we don't know with certainty what next week will bring. Or is it? That would spoil some of the excitement that drives involvement in active investing. You're alert, that's good. Have fun.

    regards,

    Peter
    Nov 12, 2014. 09:24 AM | 4 Likes Like |Link to Comment
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