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« What's Wrong with the November Employment Numbers | Main | The Dumbing Down of News »

December 08, 2009

Comments

Adam

Great stuff as always. In options you can really have both sides win (or lose), even in the same time frame. One guy buys long gamma from the other and the stock chops and he flips well. The short gamma guy holds tight and if the stock ultimately ends near where it started, they both win.

oldprof

Mike -- I am trying to focus on an individual stock, partly to get away from the idea of a market opinion. So many people believe (usually unwisely) that they have a "feel for the market." It makes it difficult to help.

Many investors need to find some good choices so that they can participate, and that is my current focus.

Perhaps I'll get around to index investors, but not right now.

Thanks,

Jeff

oldprof

Studio -- There are many applications, as you note. I agree that Goldman is another good case, and regular readers know that we are long GS.

The trading gaps to the upside are sometimes not as dramatic as in Apple, but the concept is similar.

Thanks for the good point.

Jeff

Mike C

I would add that the price performance of gold over the last 10 years, and then carved out by year by year and even month by month would provide a field day for this type of breakdown where depending on what your time frame and strategy was there were many price points where both a buy and sell was the right decision.

Mike C

Excellent note on a topic that seems to present conceptual difficulty for many. My experience is the typical novice or amateur individual investor finds it very difficult to grasp that both a buy or sell decision can be the "right" decision depending on the strategy and the anticipated holding time frame for the investment or "trade". This was a great nuts and bolts explain that I'll probably borrow at some point.

That said, in the aggregate, for the overall market, the stock-market can be a zero-sum game if the time frame isn't long enough. Over the very long-term, let's say 20-30+ year time frames the overall total market capitalization of the U.S. stock market persistently trends up so the stock market creates wealth and is a positive sum game for buy and holders. Over shorter time frames, even 5-10 years (look at the last 5-10 years) there has been little to no net increase in market capitalization. One person's cumulative dollar gains had to come at the expense of someone else's cumulative dollar losses (the bagholders on Enron, Worldcom, Bear Stearns, Lehman, Countrywide, etc.)

You hit the nail on the head with the definite losing strategy and unfortunately that seems to be the strategy we humans are psychologically hardwired to follow.

Studiophototrope

Good read, thanks.
Just curious, do you see the "how to trade" similarity in both the fundamental/technical view between Goldman and Apple?
Best,
Louis

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