Online Stock Trading

I once took a statistics course taught by an Iranian. Whether it was due to the teaching style, the subject matter or even both, I turned out to both be very successful in the course and to love it. Truly, a really passionate attitude toward it. But statistics? That revelation should pretty much seal my fate in any of your eyes as to the degree to which I am a complete nerd. Nevertheless here’s what I did:

I’ve always been fascinated with datasets. The prospect of being able to take a large field of statistics and to use that to try to measure various things in an effort to make some sense out of the glop of data, has always held great appeal. Being interested in the stock market, I then set out to locate datasets about the stock market so that I could “play around” with them. As any of you who may have looked already know, there aren’t any out there. You can get some, like historical prices for instance, but that’s about it. What other datasets you can get are very narrow in scope. You might find, for instance, historical aggregate earnings for the Dow companies, but that’s just earnings, and just the Dow. I wanted so much more.

Also, to use historical prices alone, seemed to violate a major principle I’ve always believed in: past price behavior cannot cause future price behavior. It’s a major fundamental premise behind statistics. In other words, it’s not the price of a stock that impacts the price of a stock. It’s other stuff. Any instance where past price movement seems to correspond to a future price movement is coincidence. There are some notable pseudo-exceptions. Stocks do generally move in cycles. When stocks’ prices move in cycles (which are measured by their prices), trying to determine which causes which can become rather muddy. The price is the measure of the cycle. That’s almost like trying to distinguish between annual rainfall and ruler.

Contrary to what some of you might be thinking at the moment, I am not at all opposed to technical analysis. To the contrary. What gives even more importance to technical analysis is that because so many people use it in one fashion or another, any causal behavior as noticed by the technical analyst is reinforced by the fact that other people are noticing the same things. Resistance price points are a perfect example. People really do use them to determine buying and selling points.

Another thing I always wanted was a good (read easy) way to backtest different kinds of screens and other events. I have found a couple of backtesting websites but found them to be rather limiting. Certain stocks only, beginning-of-year entry points, etc. Fortunately, I have a little programming bug and I set out to create a web query that could poll a large dataset of stocks, and then use that data to measure as many different things as possible. I chose as my dataset, all AMEX, NASDAQ, and NYSE tickers. I’ve been steadily accumulating financial statistics (weekly) and housing them in a database. It goes back to the end of May and is large enough now that I can start getting more meaningful results.

This post then, serves as an initiation into different things I plan on learning from studying this dataset. Also, I am always looking for ways to expand valuable offerings to my readers. I think it’s safe to say that at least some of the things I say are taken negatively at best or even just indifferently. Perhaps too niche. Hopefully, starting this little project will give some others good reason to enjoy this site too.

That’s the day you know you’ve finally made it to investorhood. Not that money ever really becomes unspendable, literally. However, money, as often viewed, is an output of some function. It is the end result, the hoped for turnout of some function or action. It’s something you end up wanting to spend. The remarkable day that that stops, the day when perceiving it as the end to which you aspire, the conclusion of your animations, the fruit of your labor, that is the day when you cross the invisibly thin line in the sand from being a consumer over to our side. Beast becomes Man.

The same can be said of art. The object of painting is the creation of a picture. Decoration making. All the creativity, talent, energy and inspiration get mixed and exercised and in the end we have something we can hang, or generally admire. In other words, now we can finally use it. But the moment that hanging fiction, that material object, inspires you, that is the moment when artistry makes both art and artist. That is the moment when output comes full circle; output becomes interim input.

Now this lends clarity to money. When the weight of the possibilities that making money from money becomes heavy enough, when they become more than rumor or false pretense (i.e., become more than, “you bet, I save money”), when they significantly reflect the world around you through a prism of calculation and “new” judgment, then truly, you are now more master. Isn’t that great? Now, given your new view of art, money becomes input, steroidal. Given every opportunity to spend, now, you can reverse that, and decide what you could make, were you to wait instead.

Now you can delay gratification. And when gratification does come, it will be more art than mere art. Welcome to investorhood, my friends.

I will start, nobly, with a defense. Why should I defend myself? Simply. Because most sensible people will take offense to what I am about to say. In other words, by saying what I have on my mind, and have had on my mind since I started this project, people will invent one idea in particular that I don’t even so much as plan on talking about. But the human nature is there, so by starting off by exposing that, perhaps I can dampen the hostility. And for anyone who is unsusceptible to this kind of reaction (which would be very few), accept my apologies for the lengthy preface.

*****

Bob’s at work one day, and Ted, a coworker, asks Bob what he thought of that funny Geico commercial. When Bob tells Ted that he’s not familiar with the commercial, because he doesn’t watch television, Ted, at first, thinks Bob is lying. Ted interprets what Bob says as “I don’t watch much television.” Ted admits (hastily) that he too doesn’t watch much, but just happened to catch that one commercial while he was doing crunches. Bob insists that Ted has misunderstood him, saying that no really, he watches no television at all. Ever. That he rarely, once every month or two or less, watches a movie that he rents, but that’s it. The one television that he has hides in a bedroom, always off. Ted, offended, asks various questions about what Bob could possibly do with his time, and defends his own use of the television: it relaxes him, he only watches educational stuff, etc. Both Bob and Ted however, know the truth. Ted is both lying, and has a bad habit, and Bob exposed them both. But Ted, being so often among people who all watch television, was caught off guard. Bob and Ted both know that Ted goes home plops down in front of the tube and let’s the television engage his mind. Ted is a sloth. The problem is, Bob doesn’t care that Ted is a sloth. Bob recognizes that he is surrounded by them, but is happy enough simply by trying to not be one himself. Ted, the exposed sloth, instinctively, subconsciously, reacts defensively because somewhere deep down, he knows he could do more productive things with his time, if he really had a reason to.

Facts:

1) Most people watch television

2) Someone who does not will be seen as unusual by those who do

3) For those who choose to watch no television, watching no television is just another choice, like what kind of clothes they choose to wear

Values:

1) Watching television is bad for you

2) People who watch no television think people who do watch television behave badly

Ted, in line with his expectations of the validity of the correctness of crowd mentality, assumes that the things most people do, because most people do them, are good things to do. Ted is the one who really cares, and from Ted’s view it seems to Ted that Bob, by telling Ted how Bob behaves, is actually telling Ted how he should behave. Ted thinks Bob is really expressing an opinion, but the opinion turns out to be Ted’s.

*****

Why do I hope to never sell a stock at a loss? Mostly because I think it is something that will work for me, personally. Here’s why. If I buy a stock and it falls, my first instinct would be to assess whether or not, were I to sell it, I could take those proceeds and invest them somewhere that will make gains. However, what’s the guarantee that I could do this? None. I just bought one that lost; I could do that again just as easily. Also, my comprehension of sunk cost is salted to the depth of my very bones. If I bought a stock of a great company, and it fell, I might be thinking that I would have liked to have really bought it at the newer, lower price. It’s the whole hindsight=perfect clarity problem. The good thing is, that by having such an overwhelmingly unusual admiration for the concept of a sunk cost, I can buy the stock at every newer, lower price. In fact, every time a stock does fall, that’s exactly what I’ve done. I cannot roll back the clock. If the company is truly solid, then I just bought a truly solid company at a lower cost or for a lower price.

The only time I could foresee changing my mind would be the potential insolvency of a company. Fortunately, this has not happened yet, and by choosing to admire the kind of stocks that I do, the likelihood of this happening in the future is low. Combine that with my preference for minimal time exposure and the risk becomes even lower.

As strange as this might seem to some, I’m so united with this perspective, that when a stock I buy does fall, I actually get a little excited. I sometimes buy more. I am perfectly comfortable with a falling stock.

Here’s another major reason: I think that taking losses can be addictive. This is just a personal belief. I also think that taking gains can be. The latter feels much better. I always assume that any typical trade can yield results on a continuum: on one end heavy losses all the way to the other end with heavy gains. Any time a loss is taken, is offsets an equal gain. By eliminating the losses, the continuum is much more favorable: minimal gains on one end all the way to significant ones, but no losses to offset any of them. The only way this could be disadvantageous would be in the case where taking a loss would guarantee you a gain, but if they were close, they would offset each other. Gains offsetting other gains is the constant offset I hope to experience.

I better go for now, I’ve got more thinking to do. And after all, you know, people who don’t watch television must find something to do…

Provocative title, no? I’ve been trying to access The Best Stock Trading in the World for several hours now. The servers are timing out. Everything on the domain side seems ok, so it looks like a Google issue. I’ve tried pinging the ghs.google.com site every half hour or so, but it’s timing out too. Reversion to legacy blogspot url fails also. It appears that I can post, because I can access the dashboard. This post will serve as a test. I am also curious as to whether or not this post will get burned through FeedBurner. If anyone receives this post as a feed item, and has time to try to access the site itself, e-mail me your findings: admin@thebeststocktradingintheworld.com

Update: 9:31pm EST. Seems to be up and running again.

During these dismal dreary days when the stock market recedes some from a recent crest and people everywhere slosh their feet around and put hands in pockets and take them back out and fidget while they stare at the floor, some of us go shopping. Some see sun where others see rain.

It was with this gaiety from which I took solace on an otherwise droopy day. Besides a soft and saggy market, my neck of the woods had moping, grey-cotton clouds, and rain, and still struck am I with a cold.

But I try hard to always remember this: I cannot always buy and I cannot always sell. I will necessarily either run out of money or run out of stocks. Running out of stocks can be fun. But it is at that moment when buying them again is most unappetizing. We need them to fall again, from time to time, on some days. So, days like today are days like those days.

Days where all the fun comes later. Some sunny day from now when I sell what I bought on days like today, that then shining sun will shine because no sun shone today. What a perfect day for stocks.

There has been some degree of interest in, besides my showing completed stock trades, my showing open positions as well. For instance here. And here (this one was the tipping point —“difficulty”?— more like “impossibility” — wow, I felt bad; hope this remedies the labor lost looking WintrOn). Also (as though I should be surprised) I’ve seen some strict skepticism. For instance here. To address these issues, I’ve added open positions to the scrollable table on the right. To make things even easier, I’ve added a link from where you can download an Excel spreadsheet that contains the same exact data. Soon, to further address the skepticism, I plan on offering screen shots from my trading platform (less quantities and personal information).

I’ve hesitated offering my open positions for two reasons:

1) I’ve wanted to avoid encouraging too much dialogue that resembles discussion about particular companies. I’m not wholly opposed to that kind of thing, but I’m also not terribly interested in it either. Plainly too, I’m afraid I’m not very good at that.

2) I wanted to say “nee-ner-nee-ner-nee-ner.” Ok, that’s not really true. There was just one reason.

Other suggestions? Tell me. Then tell me more. Feed me.

The Starbucks Card giveaway is now over. To read the post that introduced the idea, click here.

Deborah, from Indianapolis, Indiana won by courageously attempting to drag her friends over to this site. She has yet to determine whether or not she would like to hijack my blog for a single post. If she decides to, I will hand over the reigns (gulp).

While I’m still on the topic, I would like anyone’s feedback (even those who didn’t participate). I’d like to know what you thought of the idea, and any ways that it could be improved. In truth, it was more fun developing the idea and toying with the technical obstacles than it was actually successful were I to define that by the amount of traffic it brought.

Let me know what you think.

I have always been interested in the long term implications of short term modifications to the inputs into exponential growth formulas. To examine some examples of these implications, I have made several models that are graphed to illustrate the solid conclusion that if at all possible, you should never pay yourself. At least not too early. Let’s use the following scenario:

You invest $1,000 in the stock market and earn a 17% return every other month (which is a little worse than I’m averaging as of this post), for 5 years. If you never touch it, you would end up with $111,064.00:

Now let’s say you just never felt very good about never rewarding yourself along the way. You could either a) pay yourself a fixed reward, or b) pay yourself a percentage reward. By taking even a meager $30 out every other month (perhaps for the latte fund), your new growth history would look like this:

You would have, during the course of those 5 years (or 31 periods) withdrawn $930, but you would end up with only $89,339.54. Ouch. You would have robbed yourself of $22,724.46. Instead, by taking out a constant percentage, say 10% of your gains, your results would be as follows:

You would have been able to reward yourself much more (by matching the reward with the gain), but still the end result is similar. You would have, by pulling out $7,408.66 as a wage, robbed yourself of $35,977.45 in the end. It turns out that waiting as long as possible is better in two ways: 1) you can let these incremental rewards make money for you, and 2) when you do finally earn a payoff, you can give yourself much more:

Here, by waiting until the beginning of the fifth year, you can haul out a full $10,000, and during the course of the rest of the year your investments will completely recover. You get paid significantly more and you end up with more in the end.

Now I have to go figure out how else I’m going to pay for lattes.

If patience were a substance of which I could somehow hoard, I would selfishly acquire, at almost any cost, as much as I possibly could. The kind of take no prisoners kind of free for all kind of hoarding. The kind of ransack rob at gunpoint violent kind of sacking we could only imagine should the same thing be sought as if it were a stack of tickets to a distant space station on the eve of an earthly cataclysm kind of no holds barred grab all. But amidst all this man-eat-man frenzied imagination of pure beastly “the stronger will survive” mentality and fiction, I have good cause to sit back, patiently, and relax.

Patience, gladly, is no such substance. It is something I can hoard as much of as I can create myself. It is a product of my own will. Ironically, this non-substance is the one substance that can lend a greater satisfaction to the acquisition of all other substances. Like stock market gains. Personally, being patient with the stock market can actually be agonizingly painful. Look, I’ve got things to do, places to go. Does anyone else feel this way?

Forcing myself to wait through the grind of a losing stock, then trying to prohibit myself from selling it the moment it turns good, or even holding a slow but steadily gaining one all the while really wanting it to pick up the pace a little; these can be rather aggravating. Keeping a cool head, maintaining moderation, and remembering that too much too fast is doom through and through, are all obstacles that good traders simply must overcome. Patience, in abundance, is the tool with which to do it. If I had enough to bathe in, a soak indeed I would take. Twice daily. My big complaint is that the stock market just isn’t as industrious as I am or try to be. Mostly, I’m always on the go. The stock market idles too much, is boring, twiddles thumbs when I would be producing, creating or learning. If the stock market was a person, I would accuse him or her of being lazy, wasteful. Pathetic.

It’s just that that helps bring me patience. Far from being a person, it’s just a natural element in our midst. Being impatient with it is ultimately as useful as tapping one’s foot with the rising tide. Complain all you want. Bitch like hell too. Nothing I or anyone does will make it do anything other than what it’s going to do. That changes everything. I should have left my boat farther out. Or I should have timed things better. These are my responsibilities. These are things I control.

Far from being impatient, now I am forced to be more thoughtful, or at least to recognize the limitations of the system with which I participate. I can stop some of that foot tapping, watch glancing, and portfolio checking. I can go stretch my legs, read a book, or go out for a coffee. I can be a little patient. In fact, I can hoard as much of it as I want.

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’)