Online Stock Trading

While I’m not about to instruct you to maneuver your way miraculously throughout your office in evasion of agents Smith, Jones and Brown, I am going to elaborate on how to have a more sober view of that with which we have our daily dance. Almost everywhere where I read about the stock market, I read analyses. I know that doesn’t sound too bad (as if I just led you on), but if such analyses were as useful as their prevalence would seem to indicate, why aren’t more people right? Granted, thus far, I’ve seen some pretty damned good ones. Bob’s stock picks is one I found recently. The guy is a bad ass. Smart and dedicated. Then too, I’ve seen some stinkers (I hope I don’t disappoint you but I won’t name them). Many analyses, or stock market perspectives generally, all seem to be solving the same math problem. But differently and sometimes badly.

But stocks aren’t math problems. Or if they are, they are incomprehensible ones. Attempts at analyses outright, in my view, will yield little. Do I analyze stocks I buy? Of course; I’m not that stupid. But I don’t agonize over them. Whether this product or that one is going to be the one that gives them that decisive competitive edge, or examining the history of the executives’ experiences, or figuring and forehead massaging my way through years of quarterly reports in search of what everyone else missed, are all things that I personally think will earn me little for my efforts. I’d be better off flossing my teeth.

A stock’s future price cannot be anything like 3 + 3 = 6. That future price is in the short term dictated almost entirely by investors’ expectations, then later by the actual performance of the company (and by that time, short term expectations are renewed). Those expectations are really the defining force. If you have a company, today, that is only doing so-so, but people suddenly expect it to do well in a month, its price will move accordingly today. But in a month, were it to have actually done well, but people suddenly at that time expect it to do poorly right after, its price would fall again. In a situation like this, the price is the inverse of its actual performance: high when it was performing poorly, low once it began doing well. 3 + 3 is sometimes 2, sometimes 9.

Naturally, this is not the only possible outcome. Many companies are expected to do well, do do well, then are expected to do well again. But even after relatively short periods of this cycle, you’re buying all expectation. These are the companies with 40+ price-to-earnings ratios. You know you’re not buying earnings. On the other end of the spectrum, you have pure, bone crushing speculation. The risk is so high here, that you could lose everything you gain, then gain everything you lose. That isn’t reliable enough for me. That could be cliff diving.

So where the stock market diverts from reality as we understand reality is that we can’t grab it, hold it still and examine it. We can’t study it to the degree to so fully understand it that we can then use that understanding to predict it reliably. We have to keep a distance. We have to, as much as we try to understand what the company is going to do, try to understand what people will think the company will do. It is when these two are incompatible that opportunities are most abundant. A company doing well, with neutral or lackluster investor expectations, which then either does well or is expected to do well is what we want. Any scenario yields a yield. Then we’ll go find another.

Now it’s all more like chess. There are indisputable good and bad moves. But this math problem moves back. Future moves are dependent on your opponent’s moves. To predict the board later is as much to predict the good moves as it is to predict your opponent’s moves which are directly intertwined with his or her anticipation of your moves. Valuing a company using the absolute values derived from financial statements (the reality of a company) is only part of what any analysis should be. Anticipating what everyone else is going to think before they even think it, is the much, much harder part. I’m going to go get my floss.

(Speaking of chess here, years ago, I used a site called Its Your Turn.com. If anyone is interested in playing me, I would be willing to start a game—only one or two at a time. When you move, the site tells the other player that you moved, and vice-versa. This way you can play without having to both be there at the same time. Of course, games can take much longer. I will post a current board layout somewhere on the main page for other readers to follow along. If you’re interested, place a comment to this post, or sign up at their website and invite user ‘dacoatne’)