Company vs. Stock?
Recently, I reconnected with a chap that I worked with on the floor some years back.We reminisced about how the market has changed over the years, and how we shared the struggle. The struggle? Separating our fundamental opinions about a company, from the realities of its stock. We agreed, there’s a very clear difference between the two thought tracks, two different creatures.
Beginning in high school and all throughout college, my only training was in the fundamentals. This mindset continued through my years as a broker, market maker, investment banker, principal and advisor. Through the years, I was taught how to sift through and tear apart balance sheets, and go one on one with companies’ management (seeking a private placement, IPO or secondary) during “due-dillies” before an IPO or secondary commitment. Those experiences helped me through my financial and management careers, however they did nothing to help my trading career (yet). Back then; every time I used a Bloomberg terminal to look at charts, I was scolded. Why? My experience was, the top brass of most of the firms I knew, did not want anyone paying attention to anything else than what they told you, the information (good, bad or indifferent) via their research reports. Verify my background on FINRA.ORG. Yep, a representative "Kevin Mahon" executed trades on my clients' behalf without my or their knowledge.
When the rumors of “cooking the books”, “accounting games” and “putting lipstick on a pig” began to flow through the markets after companies reported out earnings, the bigger money became more guarded. This became the beginning of a “tectonic shift” in how the more knowledgeable investors looked at the markets and equities. I was a part of at least a dozen IPOs, and it became increasingly harder for me to find “tangible” value or make a quantitative analysis in those companies, “pre market”.
I was thankful to shift over from managing my book and tending to my clients as a direct retail supervisor position as a Series 24, to making markets for the firm. I yielded my ~300 clients $15AUM (relatively speaking, I was a piker) to other brokers. I gave up my book. That was truly “baptism by fire for me”. At this point as a market maker, the fundamentals meant nothing to me. I connected to the ‘squawk box” everyday (WAY, WAY before CNBC’s cute (profitable) show “SQWUAK BOX”) at 8:30am to get a feel for what the “heavies” were doing. I filled orders clients’ orders. I treaded the balance of putting the client’s order first, by them filling immediately ((priority (fill as principal)) and trading against it immediately after, in hopes the stock would drop intraday, or trade (short) against the box. Certainly, the most lucrative situation would be trading against inventory (as principal) in the deep end, or arbitrage as an agent between open market in Level Two, Selectnet and Instinet.
It wasn’t until the walloping of Arthur Andersen, and the collapse of Enron that market participants truly understood that fundamentals were “open for interpretation”. The numbers were subjective, and could have been spun in many different ways, “what tangled webs they weaved (wove?)”. I watched eBay, Amazon, Priceline and the likes go public. I warned all of my traders to stay away from “trading” those stocks back then, and did so through example. Those stocks traded at PEs that equaled infinity, and they would have 5-point swings in just a few minutes!!!! INSANE!!! In retrospect, to help maintain integrity, the “talking heads” slowly morphed PE discussions into “forward looking” PE rap. I was trading my personal account, and I was one of the few prop traders in 1996, and we were cautious. As an example, we watched AMZN go public. Our day traders were frantic back then, some would carry a ½ point loss on a day trade long into an over night hold (succumbing to Reg. T) hoping the stock would open flat or gap up the next day. In some and “most” unfortunate cases, they’d walk into a ~20 point gap down before the markets open. They stayed in with the hope that yesterday and today’s news was true. Many of those traders were “gone” the next day. Sad! In the end, I testified to the US Senate a government witness and industry expert, most day traders knew and signed off on the “non J.D. language” ofthe agreements and lost money because they allowed their emotions to get in the way, while a minority of them made extraordinary amounts of money. The majority of such traders were new to the markets, and received exactly the same training as everyone else. If there was something wrong with the training, “all of them” would have failed, contact Susan Collins to confirm. At the end of the investigation, The US Senate agreed. They agreed that there was nothing wrong with day trading, and the electronic trading revolution ensued.
So folks, I share my history and links to show that nothing has changed since 1996.There are far too many folks that get hung up on the fundamentals and the “spin” of a company and stock, and don’t know the difference.
For me, the charts and other technical data don’t lie! This information is not “subjective”, it’s “objective”. With that said, I find myself many times swimming through and analyzing the “muck and mire” of the fundamentals, in an effort to, and or substantiate the impending losses of my overall analysis from the technical end to avoid losses. I’m proud to say that over the years, I’ve become more disciplined and “true” to my overall analysis. Result? Tightened R/R/R pre trade, and fine-tuning or “course correcting” to the very end.
My personal and “professional analysis” has been, and will always be largely based on factual information. Certainly, always “course correct”; my EST is not just based on factual information, but the “subjective” data as well. Yes, I’m challenged to manage that as well.
Conclusion:
IMHO:
Investors are (should be, theoretically) looking at the longer term ((or larger time frames, charts)), as they should (initially), and if they look at the day-to-day, hour-to-hour and perhaps minute-to-minute, they will act prematurely. Investors should stay focused on the larger time frames, and may pay more attention to fundamentals, and use the intraday indicators to course correct.
Traders, look at the smaller time frames, and ingest the longer-term gibberish with caution. They should be weary of getting sucked into the investor’s world as the primary focus, when they don’t comply with their stops. Instead use the longer-term picture as a guide in their scanning. Why? Jumping on a longer-term trend and day/swing trading inside of the daily/weekly candles always presents great opportunities.
Bottom line?
-Investor or trader. Know, plan and execute your EST before entering.
-Treat every period (hour, day, week) depending on your timeframe as a new trade. Reevaluate and course correct.
-Adjust entries and stops
Who's Jai?
Jai out…
Recently, I reconnected with a chap that I worked with on the floor some years back.We reminisced about how the market has changed over the years, and how we shared the struggle. The struggle? Separating our fundamental opinions about a company, from the realities of its stock. We agreed, there’s a very clear difference between the two thought tracks, two different creatures.
Beginning in high school and all throughout college, my only training was in the fundamentals. This mindset continued through my years as a broker, market maker, investment banker, principal and advisor. Through the years, I was taught how to sift through and tear apart balance sheets, and go one on one with companies’ management (seeking a private placement, IPO or secondary) during “due-dillies” before an IPO or secondary commitment. Those experiences helped me through my financial and management careers, however they did nothing to help my trading career (yet). Back then; every time I used a Bloomberg terminal to look at charts, I was scolded. Why? My experience was, the top brass of most of the firms I knew, did not want anyone paying attention to anything else than what they told you, the information (good, bad or indifferent) via their research reports. Verify my background on FINRA.ORG. Yep, a representative "Kevin Mahon" executed trades on my clients' behalf without my or their knowledge.
When the rumors of “cooking the books”, “accounting games” and “putting lipstick on a pig” began to flow through the markets after companies reported out earnings, the bigger money became more guarded. This became the beginning of a “tectonic shift” in how the more knowledgeable investors looked at the markets and equities. I was a part of at least a dozen IPOs, and it became increasingly harder for me to find “tangible” value or make a quantitative analysis in those companies, “pre market”.
I was thankful to shift over from managing my book and tending to my clients as a direct retail supervisor position as a Series 24, to making markets for the firm. I yielded my ~300 clients $15AUM (relatively speaking, I was a piker) to other brokers. I gave up my book. That was truly “baptism by fire for me”. At this point as a market maker, the fundamentals meant nothing to me. I connected to the ‘squawk box” everyday (WAY, WAY before CNBC’s cute (profitable) show “SQWUAK BOX”) at 8:30am to get a feel for what the “heavies” were doing. I filled orders clients’ orders. I treaded the balance of putting the client’s order first, by them filling immediately ((priority (fill as principal)) and trading against it immediately after, in hopes the stock would drop intraday, or trade (short) against the box. Certainly, the most lucrative situation would be trading against inventory (as principal) in the deep end, or arbitrage as an agent between open market in Level Two, Selectnet and Instinet.
It wasn’t until the walloping of Arthur Andersen, and the collapse of Enron that market participants truly understood that fundamentals were “open for interpretation”. The numbers were subjective, and could have been spun in many different ways, “what tangled webs they weaved (wove?)”. I watched eBay, Amazon, Priceline and the likes go public. I warned all of my traders to stay away from “trading” those stocks back then, and did so through example. Those stocks traded at PEs that equaled infinity, and they would have 5-point swings in just a few minutes!!!! INSANE!!! In retrospect, to help maintain integrity, the “talking heads” slowly morphed PE discussions into “forward looking” PE rap. I was trading my personal account, and I was one of the few prop traders in 1996, and we were cautious. As an example, we watched AMZN go public. Our day traders were frantic back then, some would carry a ½ point loss on a day trade long into an over night hold (succumbing to Reg. T) hoping the stock would open flat or gap up the next day. In some and “most” unfortunate cases, they’d walk into a ~20 point gap down before the markets open. They stayed in with the hope that yesterday and today’s news was true. Many of those traders were “gone” the next day. Sad! In the end, I testified to the US Senate a government witness and industry expert, most day traders knew and signed off on the “non J.D. language” ofthe agreements and lost money because they allowed their emotions to get in the way, while a minority of them made extraordinary amounts of money. The majority of such traders were new to the markets, and received exactly the same training as everyone else. If there was something wrong with the training, “all of them” would have failed, contact Susan Collins to confirm. At the end of the investigation, The US Senate agreed. They agreed that there was nothing wrong with day trading, and the electronic trading revolution ensued.
So folks, I share my history and links to show that nothing has changed since 1996.There are far too many folks that get hung up on the fundamentals and the “spin” of a company and stock, and don’t know the difference.
For me, the charts and other technical data don’t lie! This information is not “subjective”, it’s “objective”. With that said, I find myself many times swimming through and analyzing the “muck and mire” of the fundamentals, in an effort to, and or substantiate the impending losses of my overall analysis from the technical end to avoid losses. I’m proud to say that over the years, I’ve become more disciplined and “true” to my overall analysis. Result? Tightened R/R/R pre trade, and fine-tuning or “course correcting” to the very end.
My personal and “professional analysis” has been, and will always be largely based on factual information. Certainly, always “course correct”; my EST is not just based on factual information, but the “subjective” data as well. Yes, I’m challenged to manage that as well.
Conclusion:
IMHO:
Investors are (should be, theoretically) looking at the longer term ((or larger time frames, charts)), as they should (initially), and if they look at the day-to-day, hour-to-hour and perhaps minute-to-minute, they will act prematurely. Investors should stay focused on the larger time frames, and may pay more attention to fundamentals, and use the intraday indicators to course correct.
Traders, look at the smaller time frames, and ingest the longer-term gibberish with caution. They should be weary of getting sucked into the investor’s world as the primary focus, when they don’t comply with their stops. Instead use the longer-term picture as a guide in their scanning. Why? Jumping on a longer-term trend and day/swing trading inside of the daily/weekly candles always presents great opportunities.
Bottom line?
-Investor or trader. Know, plan and execute your EST before entering.
-Treat every period (hour, day, week) depending on your timeframe as a new trade. Reevaluate and course correct.
-Adjust entries and stops
Who's Jai?
Jai out…
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