What We're Reading

It’s hard to predict when a stock market crash will occur, so the best defense is to be prepared.

Today’s infographic comes to us from StocksToTrade.com, and it explains what happens when a large enough drop in the market triggers a “circuit breaker”, or a temporary halt in trading.

These temporary halts in trading, or “circuit breakers”, are measures approved by the SEC to calm down markets in the event of extreme volatility. The rules apply to NYSE, Nasdaq, and OTC markets, and were put in place following the events of Black Monday in 1987.

Circuit Breaker Rules

Previously, the Dow Jones Industrial Average (DJIA) was the bellwether for such market interventions.

However, the most recent rules apply to the whole market when a precipitous drop in the S&P 500 occurs:

Upon reaching each of the two first thresholds, a 15-minute ha

The graphic above shows a timeline of some of the biggest data breaches on record. Each bubble represents the number of records lost in any given breach, with the most sensitive data clustered toward the right side.

This data visualization comes to us from Information is Beautiful. Go to their site to see the highly-recommended interactive format that visualizes the same data, while providing additional details on each specific hack.

Before 2009, the majority of data breaches were the fault of human errors like misplaced hard drives and stolen laptops, or the efforts of “inside men” looking to make a profit by selling data to the highest bidder. Since then, the volume of malicious hacking (shown in purple) has exploded relative to other forms of data loss.

From Millions to Billions

Increasingly sophisticated hacking has altered the scale of data loss by orders of magnitude. For example, an “inside job” breach at data broker Court Ventures was once one o

You will find more statistics at Statista

With Inauguration Day here, politics and government policy will continue to be a focus area for the markets. Over the past few months, President Trump has outlined a number of areas for potential changes in government policy.

During each corporate earnings season, it is not unusual for companies to comment on subjects that had an impact on their earnings and revenues for a given quarter or may have an impact on earnings and revenues for future quarters. While the majority of S&P 500 companies will report earnings results for Q4 2016 over the next few weeks, approximately 8% of the companies in the index (42 companies) have already reported earnings results for the fourth quarter (through Wednesday). Have companies in the S&P 500 been commenting on government policies that may change under the Trump administration during their earnings conference calls for the fourth quarter?

To answer this question, FactSet searched for the terms “Trump” and “administration” in the conference call tran

Previous studies about the relationship between managers' upbringing and their performance have focused on educational differences, including whether the managers attended elite universities or had access to education-related networks of influential people who could later help boost their careers. Such studies tend to find that managers with a stronger educational background tend to deliver better performance.

So the year begins and with it a new presidency. Everyone has ideas how best to invest your money. Simple indexing is the least expensive way to manage capital; no, smart beta is superior; this year we are told (once again) will be when active stock-picking makes its triumphant return.

Regardless of how you choose to allocate your assets, there is another way; a much better way; a method that cannot fail in its brilliance and simplicity. Go with the POTUS indexes.

Direct your attention to the relentless tweeting of the man who soon will be president. There is valuable information in those 140 characters that can move markets and alter perceptions of corporate fundamentals. This has real alpha-generating possibilities. Whoever is managing your favorite 401(k), hedge fund or trading account should take note.

To help you make sense of this, we have created two indexes based on Donald Trump's tweet and other pre-presidential utterances.

Before we get to the specific stocks, I want to o

Before I present the insight on expected earnings ahead, there is one point I wish to make; that being Trump.  If you're not following our President elect on Twitter, you should get with it now.  Some may say it's not "Presidential" to be on TWTR but our commander and chief does what he wishes, and he wishes to scare whomever he can.  At the very least, throw him up as a column on TweetDeck and watch the charts fly when he mentions a name. 

Now while AMZN and GM were formerly expecting good growth in 2017, you will notice that both are now on Trumps radar for taxation and import/export fees which explains their recent trading action.  There seems to be no love lost between AMZN owner Jeff Bezos.  Even Trumps comments on taxation such as “If @amazon ever had to pay fair taxes, its stock would crash and it would crumble like a paper bag." should leave investors more than a tad concerned.  At this point, I feel we'll see quite a bit of this concern over China/Mexico/taxation/tariffs in th

The U.S. and global economy has reacted in mixed fashion since the election of Donald Trump as 45th President of the United States. One of the most significant potential fallouts though, is a trade war with China. Trump has spoken out against the current situation with China on a great number of occasions. Now he is in a position to potentially see through his pledges, some fear the emergence of a tit-for-tat trade war between the two countries. As the infographic below shows, the industries most endangered by any such war would be transportation and tech.

This chart shows the leading export categories of the United States to China in 2015.

You will find more statistics at Statista

Election Day in the United States is, at last, almost here. Similar to any other major event, investors will be looking to what effect the presidential election will have on the stock market for the rest of the year and beyond. One way we can predict this movement is to analyze the historical price performance of the S&P 500 and the Dow Jones Industrial Average during past election cycles. Here we'll examine:

• How does the stock market perform in the final two months of presidential election years?
• What effect does the elected political party have on stock market performance in the years following the election?
• Which sectors are the top performers during election years and post-election?

S&P 500 and Dow Jones Industrial Average Underperform during Election Years

During presidential election years going back to 1928, the S&P 500 index has been in the positive 73% of the time (16 out of 22 years). The average price gain of the S&P 500 during election years was 7%, which trailed the 7.

Have you ever believed a trend is about to change but your basic, every day indicators don't quite support your theory so you insert different studies, looking for one or two which could support your thesis? Yes, soldier and scout mindsets affect your decision making when investing but remember, that's your theory.  Does the rest of the crowd believe what you do?

The computers have won.

Institutional Investor just released its annual list of the top-earning hedge fund managers, and six of the top eight are quants, or managers who rely on computer programs to guide their investing.

The list includes Ken Griffin of Citadel, Jim Simons of Renaissance Technology, and John Overdeck and David Siegel of Two Sigma.

In 2002, by contrast, just two computer-driven investors were included in the ranking, according to Institutional Investor.

The list highlights just how hedge fund investing has changed over the past 15 years.

It is not that the brash, characterful traders of old are a dying breed. There are still plenty of alpha-male risk-takers in a company gilet wandering around New York and Greenwich, Connecticut.

It's just that they're losing ground to tech specialists who program robots to play air hockey in their spare time.

The rise of quant-driven hedge funds is really just a part of the evolutionary shift that is taking place on Wall Street that en

While there's been so much 'worrying' over the slowdown in China, the Fed possibly raising rates and energy defaults with the weight on banks, it's still a good idea to remember a stock markets structure; or the steps it takes before a bear market takes place.  The basic strategy is to pay close attention during the accumulation and distribution phases as the market shifts from buyers to sellers, or vice versa. Then, by recognizing the markup and decline phases, an investor can be appropriately long or short to make solid returns.  Click image to enlarge.

Courtesy of the good folks at VisualCapitalist

The numbers are astounding, and hopefully help to create perspective on the scale of technology and business.  In just 10 seconds, close to 225,000 GB of data is transferred, with over 500,000 posts on Facebook, 57,000 tweets, 46,000 searches on Google, and 2 million messages sent on WhatsApp. 

There is no question that the most profound factor affecting modern life is the ability to replicate and store data at almost no cost. This revolution in information has provided us with a wealth of benefits and possibilities for an incredibly low marginal price.

At zero cost, we can connect to a global store of all human knowledge. New apps with impressive features can cost less than a dollar, and our monthly Netflix subscriptions hardly register on our credit card statements. Meanwhile, we share our thoughts about the world with our friends and family at no cost through social networks, email, or other means of communications. This hasn’t been possible throughout human existence, and it is onl

This week, the SEC gave us a belated Christmas present.  But what does it actually portend?

The present in question is an 88-page "Research Note" from the SEC's Division of Trading and Markets titled "Equity Market Volatility on August 24, 2015." It's an innocuous-enough title, but for us market-structure wonks, it's kind of a big deal.

The conclusions of the piece are purely factual, and include dozens of pages of juicy charts and tables (be still my nerdy heart!). There's little or no conjecture, and there's absolutely no policy recommendations.

It outlines the facts of that fateful trading day, discussing what went wrong, and which classes of securities were affected. It's a gold mine for folks who want to dig in and understand what happens when things break, and, for any investor, it's worth reading at least the first six pages.

Key Findings

Here are the most interesting findings—not just because they're objectively interesting—but because they give you some insight into where the

A reader asked the other day, "How much time do you need before you can separate skill versus luck in investing?" 

My answer was "probably 20-30 years," which he found astounding. He thought I'd say five years. But here's my reasoning. 

If a doctor performed one successful surgery, you can be pretty sure he's an expert. If he does one successful surgery every day for a year, he clearly knows what he's doing.

Investing is different. There are thousands of stocks, and at any given time, a fair number of them will be exploding higher. With millions of investors, some will be holding disproportionate amounts of those winners at any given moment. It can take five or 10 years of successful returns for an investor to make a case that results aren't entirely due to chance.

But even then -- with, say a 10-year track record of success -- an investor can't claim expertise. Or at least reliable expertise you'd expect from a doctor or an engineer. That's because the world is always changing, and th

I'm continually saving charts and data points which I find interesting but generally don't post enough to share the data.  That being said, I thought "wth" and decided to share some of my most recent.  Perhaps you can find a few of interest or maybe you can translate one into a trade.  It certainly can't hurt.  Your comments would be of interest and will be answered.  Happy trading.

Online shoppers by income group.  It certainly seems Amazon benefits by middle income buyers.  Possibly they just don't have the 'time' to shop in a store, working 60+ hours a week and balancing soccer games, football, cheerleading practice, dinner, laundry, etc.

Jet[dot]com is now selling some items at a loss to gain marketshare from Amazon

We've had numerous talks in Chat over coal usage (is clean coal an oxymoron or what?) and this certainly backs up the belief that natural gas continues to be embraced.

Then we have a look at Bear markets of 20% or more.The average # of months caught my eye. 

Intellectually I knew there were two forms of market participants already: price-sensitive “investors” and price-insensitive “traders”.  The former buys low and sells high, and has a process for determining why they are doing so.  The latter sells low and covers lower, or buys high and sells higher.  Both are entirely legitimate ways to make returns in any market, but it’s important to distinguish between them; who you listen to and surround yourself with will inform your market view and trading positions.  When the stock market opened for its “Black Monday” on August 24th, those selling were “traders”, whether they want to admit it or not.  They didn’t care what level prices were at, just that they were going down. “Get me out, NOW!!!”  Those who were in buying blue chip, mega-cap, high quality secular growth stories at 10 or 20% discounts to that day’s close? They were investors.  More on this below, but when you’re in a crash, make sure that you’re not trying to inform investing dec