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Teacherman1 (50.16)

A Thought in Progress

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9

November 09, 2012 – Comments (8) | RELATED TICKERS: SD , DCIX

I haven't completely thought this through, so everything I say is subject to change.

I have been trying to understand the reason for these wild swings in the market "post election', and to some extent, for a period of time before.

Prior to the election, I assumed the "swings" were due to the uncertainty of the outcome, but since the markets "crashed" the day after, I started to look for something else.

Since I tend to invest mostly in "Small Cap" companies, it may have seemed more exagerated to me then it actually has been, but there doesn't seem to be any coorelation between the companies Q3 results, and their movements up or down in the market.

Then I "hit" on the idea that maybe this is really about the large hedge funds trying to get the stocks they want on their year end list, at prices that will look much better than they did at the end of Q3.

Since there have been so many ETFs, Spyders, and various other index funds coming into play in a relatively short time frame, perhaps they have hit upon the idea that they could use the "Bear"funds to drive the prices of shares down, buy the stocks, then use the "Bull" funds to drive them back up.

Of course, the investment banks and other large institutional investors could use these to "exagerate" the moves, make a "gillion" trades in a day, and scoop up the profits.

Once they get the market moving in a certain direction, they could easily move the prices without actually investing a lot of money. 

As I said, this is an "incomplete" thought, but thought I would throw it out for anyone who may want to , to add their two cents, tell me I'm crazy, or say yeah, that's it.

JMO and worth exactly what I am charging for it.

In the meantime, I am using the "dips" to continue to add for the longer term, and hoping I don't make too many mistakes along the way.

Will add comments as I think this through more completely, and see if it continues.

Good luck to all.

8 Comments – Post Your Own

#1) On November 09, 2012 at 2:37 PM, edwjm (99.83) wrote:

People are responding to the election according to their political ideologies rather than rationally.  The outcome of the election was clearly and accurately predicted by all of the responsible polls, but those who wanted a different outcome refused to believe them and continued to expect different results.  Now that they have been surprised by reality they are confused and don't know what to do and react irrationally.

Please folks, get a grip! It's time to get back to business as usual.

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#2) On November 09, 2012 at 4:30 PM, ChrisGraley (31.86) wrote:

It's perfectly rational and would have happened no matter who got elected. It might have happened a little later if Romney got elected though.

 

Google "fiscal cliff" 

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#3) On November 10, 2012 at 6:13 PM, HarryCarysGhost (99.78) wrote:

Hi Teacherman.

I have to echo what Chris said.

Fiscal Cliff makes people nervous-

Tax hikes for the rich make people nervous-

Eurozone makes people nervous-

Corporate guidance is screaming that they're nervous.

Things could get really bad in a hurry or the can get's kicked.

That's why I embrace a dollar cost averging strategy.

Cheers.

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#4) On November 10, 2012 at 8:43 PM, HarryCarysGhost (99.78) wrote:

http://www.businessinsider.com/actually-there-is-post-election-clarity-in-the-markets-but-investors-are-ignoring-it-2012-11

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#5) On November 11, 2012 at 7:24 AM, blesto (31.05) wrote:

Imagine if you will, walking up to the edge of the "fiscal cliff"

No fear, you have your trusty diversified dividend hang-glider.

Go ahead and leap into the future. Maybe it's more of a slope than a steep drop off, but no matter what, even if a few tears appear in your dividend canopy you glide safely down to the bottom.

And start your next climb all over again.

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#6) On November 11, 2012 at 1:22 PM, Teacherman1 (50.16) wrote:

Thanks to each one who responded.

In my haste (between taking my wife to Dr's appointments, and driving her to and from work), perhaps I did not make myself as clear as I should have.

I can easily understand why the market "tanks" from the fear and uncertainty of the "fiscal cliff" and concern over possible changes it the "capital gains" rates, what I am having trouble with (in this very short term sample period since the election), is why it has had some significant short term run ups.

It almost looks like a "day trading" market; especially in the smaller cap stocks.

There have been numberous, very short term swings that seem to have no basis, other then "trading bears"  and "trading bulls", having a "tug of war".

I have noticed this especially with the ETFs.

I may be missing the "forest for the trees", and focusing on too narrow a picture, or maybe it is just a nostalgic wish for a time when stocks moved on positive and negative events taking place with the companies, and not "dueling computers".

Thanks for the link Harry, as I am still a net buyer on dips, I tend to agree, (if I understand his thoughts correctly), that over time equities will increase at a more favorable pace then bonds.

Blesto, I have about a third of my portfolio invested in dividend paying stocks, but since I am also looking for share appreciation, they are not "blue chips".:)

edwjm, I sense that you too are seeking a return to "rational" investing, but I may be wrong.

Chris, like you, the majority of my assests consist of gold, but in the physical form, and purchased a long time ago. I still want to be able to invest in a sane, rational market, that is not controlled by people whose idea of long term, is a day or two.

I will continue to watch the markets over the next couple of weeks or so to see if there is any change that I can discern that will let me invest instead of "speculate", and may add additional thoughts to this blog.

Have to stop and take my wife to work, so all for now.

Good luck to all.

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#7) On November 11, 2012 at 4:46 PM, MegaShort (99.95) wrote:

I may be missing the "forest for the trees", and focusing on too narrow a picture, or maybe it is just a nostalgic wish for a time when stocks moved on positive and negative events taking place with the companies, and not "dueling computers".

That time never existed. Stocks have always risen and fallen for no particular reason other than "animal spirits".

The volatility right now is not even that high compared to past periods.

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#8) On November 14, 2012 at 8:58 PM, Teacherman1 (50.16) wrote:

MegaShort

Maybe you are just not old enough to remember when there was a more rational movement in stock prices, or maybe I am now so old, I just think there was.:)

Yes, there were exceptions, when rampant speculation controlled movements, but that was mostly :mislead individuals", whose brokers gave them "hot tips" on stocks their firm was trying to unload, but it wasn't a bunch of "machines" doing it like today.

I understand there have been other periods of high volatility, but I still submit that in the days since the election, their has been extreme "intra-day" volatility, especially in the "small cap" sector.

It is hard for me not to try and scoop up all of the "low hanging" fruit that this produces, but I think for my own sanity, I am going to mostly sit on the sidelines for now, and watch this play out.

Good luck to you and the others, and I hope you don't get caught with your "shorts down" on a sudden "irrational upswing".

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