I guess I’m writing this as justification of my annual domain costs…. Or maybe just an excuse to play with the blackberry wordpress app. I love my crackberry….

Being a trader for an investment bank has never been a stress free job. Besides the usual demands to generate profit, you are either looking ahead at your next opportunity, or over your shoulder to see if an axe is heading your way. It is not uncommon for some firms to over-hire in the good times, then conduct mass layoffs when things eventually turn sour. This time around, everyone is a little more tense and still waiting for someone to sound a horn signalling all clear.

There have been two rounds of layoffs at the firm where I work, both were very frightening experiences. Investment banks are run a littke bit differently compared to a typical business, so here’s a rundown of what a layoff day is like in my world:

7:15am: Arrive at work as usual, begin preparations for the day.

7:45am: Quick team meeting announced. In the boardroom we learn that “things will go down today” and to keep your head down and focus on your work.

9:20am: The trader to your left gets a phone call asking them to go upstairs. You don’t notice him leave. He is never seen again.

9:35am: You notice the trader to your left is missing. Shit.

10:15am: You take a moment to stand up and look around the trading room. You see empty chairs and wonder if people are on vacation or cut.

10:30am: People start talking about the day’s casualties, everyone wonders if it’s over yet.

11:10am: Your Managing Director walks around announcing who is no longer with the firm.

11:11am: The responsibilities of the departed are spread around the desk, on a temporary basis.

2:40pm: Discussions begin on who will permanently cover now vacant jobs. This is your only opportunity to be proactive and try to increase your value (and hopefully save your job down the line).

4:00pm: Trading day winds down. Training begins on any new roles you’ve added to your job.

6:00pm: Go home and have a stiff drink.

Repeat this time-table for every round of layoffs. Obviously, for those who are left, priorities become very different. Very few people are looking ahead to new opportunities. Very few people are that concerned what their bonus will look like. Everyone is happy to still be employed. They are, however, conscious that as a survivor, their stock has gone up. The time will come, eventually, when traders again will look ahead to the next opportunity and realize they are in a better position than before.

Many individual investors are completely unaware that some of the industry’s most powerful and meaningful tools are available free online. One of those tools is bank written economic reports.

While most financial research written is intended for client use only, economic reports tend to be public. One of the major driving factors behind this is media exposure. Business journalists need access to economic reports to write stories and quote authors. The more an economist is quoted in the media, the more credible they become.

The payoff is that the bank can then bring their oft quoted on tv/radio/print economist to client meetings and leverage them one of the benefits of doing business with the bank.

While individual investors won’t get any face time with economists, they can still read the reports that are published online regularly. The information contained, while somewhat bland, often yields nuggets of perspective that can be beneficial on analyzing future expectations.

Below are links to the economic publications of Canada’s big 5 banks. If you have time this weekend, take a few minutes to go over the weekly reviews published every Friday. It’s time well spent.

Econ Reports:

• Bank of Montreal
• Scotiabank
  
• Canadian Imperial Bank of Commerce
• Royal Bank of Canada
• Toronto Dominion Bank

Just found an interesting article on foreclosures and the Condo market.

A couple of years ago I remember seeing a documentary on people waiting in line for days to buy Condos in Florida. It was absolute madness. It was the top of the market.

This article has me thinking that if I had the capital, maybe it would be a good idea to buy some prime real estate in a sunshine state. I could rent it out to vacationers and stay for free when I need a break from the cold. If only….

“[Citigroup] is so deep in a black hole that even renown physicist Stephen Hawking could not help the ailing company” – Banking analyst Meredith Whitney (via NY Post)

Ouch!

The first curious observation is that retail sales were up, even with the recent drop in consumer confidence numbers. This can partly be explained by strong sales in defensive retailers like Wal-Mart and Costco that were reported for the same period.

The second curious observation is not that car sales dropped, as that has to be a no brainer given gas prices and the auto industry’s snail pace at responding to changing market conditions.  It is that sales at filling stations also dropped. One would think that it would be very difficult to produce lower sales when your product is in-elastic and at record prices. This has to be the most compelling evidence that people are changing their driving habits. Specifically, they are driving less. Car companies should take note, as less driving will undoubtedly lead to even lower sales.

I was fooled by this cunning, seductive mistress. Technical analysis is the fools gold of finance. It is an illusion that is as real as Michael Jackson’s face. But to quote Levar Burton’s Reading Rainbow: “You don’t have to take my word for it”.

The most eye opening book I’ve ever read on finance is hands down Benoit Mandelbrot & Richard Hudson’s The (Mis)behavior of Markets. Who is Benoit Mandelbrot? He is the father of fractal geometry. A mathematician who looks at the markets as a form of organic randomness. But the markets can’t be random, can they? No. Markets are not random. However, understanding randomness is essential when judging technical analysis.

Technical analysis attempts to predict future price movements based on movements in the past. This is done through averages, equations and charts. This data is then used to determine when to buy/sell a stock.

There are a couple of problems with this philosophy.

Firstly, there are a large number of individuals who believe that the past does not reflect the future. Lets say you were thinking of buying 100 shares of Coca-Cola. What is important to you, what the stock did yesterday, last month, or last year? Or is it what the stock will do tomorrow? You probably care about the next earnings report, the next news article, the next executive decision. What happened in the past is done with and already built into the share price. The market is forward looking and all about future expectations.

The second problem with technical analysis has to do with human deficiencies in perception and randomness. It is human nature to look for patterns, even when patterns aren’t really there. In experiments conducted by Mr. Benoit, he created random charts using his fractal geometry and gave them to technical analysts with real charts using market data. The analysts were blind to the fact that some of the charts were computer generated, as they all had no identification, time, or price scales on the axis. The result? The analysts found trends in the random charts. How can randomness have trends?

They don’t. But we think they do.

Another example:

Our parent company runs a website called ConquerClub, an online game of world domination that involves “virtual dice”. When programming the dice they wanted to ensure complete randomness so the programmer turned to random.org as source for the data. Study after study has concluded that the dice rolls on ConquerClub are random. However, the largest complaint from users is that they are *positive* that the dice are in fact not random. They call them streaky.

Streaky dice & Stock trends.

It’s the same thing. An illution created by our brain in an attempt to understand randomness.

So now we know technical analysis is junk. Why is it still important?

It has become a self fulfilling prophecy. 

People are the ones making investment decisions. If many people believe that a stock will go up once it crosses a $35 dollar barrier, what happens? They buy the stock! When people buy the stock, it drives the price up and the system works! Another successful technical analysis prediction.

So go on looking for trends you crazy technical analysts, you control your own destiny.

Microsoft is turning into quite the hussy. Shortly after breaking up with Yahoo! before they even officially dated, Microsoft has been seen holding hands with Facebook…. and they might even kiss.

I never liked the proposed Yahoo merger. This one, however, might have legs.

Firstly, lets ignore the $15 billion valuation that Facebook claimed to have in October. That number is just silly. Facebook is still a new kid on the block, they’re still working on a business model that will work in the long run.

Although it is still growing like vile weed, I have noticed that fewer and fewer people on my Facebook account update their profiles in a regular basis. Facebook could just be an Internet trend. A flash in the pan. Not a $15 billion dollar company.

Microsoft could bring a lot of help to ensure that Facebook becomes a long term juggernaut on the Internet. They have the reach, the knowledge, the experience and most importantly, they are just as evil.

Facebook has built a reputation for having poor privacy controls and whoring out users to advertisers. Microsoft has a reputation for whoring out user’s rights to media lobbies. Together they can ruin your online experience and share it with the world.

Seriously though, these two firms would benefit from each other. Microsoft would gain a growing Internet database of consumer information, Facebook would get a grownup to steer it in the right direction.

I say go for it! 

Contrarians are not the ones shouting from atop desks, playing silly sounds and acting like crazed lunatics when discussing the stock of the day. In fact, one could argue that a contrarian is the exact opposite of Jim Cramer.

That shouldn’t really surprise anyone. After all, Jim Cramer is the most popular investment personality on the most popular investment television station. A contrarian prefers to act in the opposite from the conventional norm, and as weird as it sounds, Mr. Cramer is as norm as you get.

I myself have fallen victim to the same trap of ignoring the contrarian. A perfect example of this was my recent discovery of iTulp.com, a website dedicated to the contrarian view of investing. This website has been around since 1998, an eternity by web standards. It has been written up by very credible news agencies, varying from Barron’s to CNBC. Impressive. I am, however, not alone in my ignorance in knowledge of this website. Alexa ranks iTulip outside its top 100,000 sites. I have seen many sites in existence for less than a year easily crack the top 100k.  Therefore, many people appear to be ignoring the Contrarian, hence my post.

Perhaps the most famous, if not the simplest contrarian strategy is the Dogs of the Dow. It is also the first investing strategy that I read about, so I will always hold a special place for it. The premise couldn’t be simpler. At the end of the calendar year purchase equal dollar amounts of the 10 Dow Industrial Average stocks that have the highest dividend yield (the dogs). Hold for a full year and re-balance annually. The theory is that your returns will outperform the full 30 stock Dow Index. It didn’t work the year I tried (on paper).

Even though my first experience with contrarian strategy was a failure, I still believe in reading up on what contrairans are currently talking about. They are often very smart people who make astute arguments on where the market has been, currently is, and will be heading. I encourage you all to do a bit of research and study this methodology. You might not agree with their outcomes, but there are definitely some nuggets of knowledge that will benefit you in future investments.

For many people, navigating the world of investment products and services is a daunting task. A stock broker can be a great way of saving time and effort by having a professional do the research and look after your finances. The process of selecting this individual can become as stressful and daunting as choosing a house or planning that perfect trip. You’ve worked hard for your money and you want it treated right, so read on and enjoy the tips!

The Individual

Stock brokers are salesmen. I don’t care what kind of qualifications they have, if they’re a trained accountant or an ex-banker, their job is to make money for their firm; plain and simple. That’s not necessarily a bad thing, just keep it in the back of your mind as part of your bull sh*t filter.

A good broker will ask you questions, lots and lots of questions. Personal ones about your income, expectations, risk tolerance and current financial plans. Without this information, it would be impossible for the broker to create a proper plan for you.

You should be asking the broker lots of questions too. Some good ones include:

• What is your background in the industry?
• What qualifications do you have (education/industry courses)
• How long have you been in the industry?

Ask that the broker create a proposal for your business. Don’t expect them to list every stock/bond they’d buy for you, but they should be providing what percentage of assets will be allocated to what kind of product/industry. For example:

70% Equity / 30% Fixed Income

In Equity: 20% financial, 10% Tech , etc….

Pay special attention to the kinds of products your broker recommends. There are usually two types of brokers:

1. Those who are just salesmen and lazy
2. The good ones

The lazy ones will try to put your equity positions in Mutual Funds. Mutual Funds are great if you are a small investor, say anywhere from 0 – 150k to 250k. If you have over $250,000 then the only Mutual Funds you should have in your portfolio are for international exposure. This is just my opinion, but why are you paying a broker commission/fees just so that they pass the buck to a fund company to manage your assets?

Make sure your broker is up front on all fees and charges. The current trend is to replace transactional commissions with a percentage charged of total assets. While usually this will net out to cost you more, it gives you the piece of mind that every trade idea will be in your best interest. You don’t have to wonder if the broker is making the recommendation in order to make a buck on a trade. As your account increases in value, so does his cut. Win/Win.

Lastly, don’t forget to take your time. Try to visit a few brokers at different firms. Try to get a feel by asking your questions and trust your gut. Just because you might have a referral, doesn’t mean the broker will be a good fit for you.

Happy Investing!