Why Do People Buy At A Top?

[pfranz]

Quote from tradingjournals:

You made excellent posts. I would like to add that the numbers could be worse as the analysis did not take into account the survivor bias in the dow.

I would not be surprised (in fact that is what I would expect) if the compounded return is negative if one includes all stocks that were ever listed in the markets.

Those who make the money in the markets are the IPO owners.

I didn't think about the survivor bias in indexes, but I think their quotes are still quite representative of the behaviour of all stocks. See for example NASDAQ100 and NASDAQ Composite (for many indexes around the world you find both the selection and the total).

I took the DJIA as a representative for all stocks because we have a lot of data.

I don't think we could have a negative return,but I don't know.
Actually, we should think about what happens to an index and to a real investor portfolio when a firm fails (for example,General Motors).

As I said,what is not representative at all is the dividend yield.

 

[Visaria]

Quote from pfranz:

Where do you find 3% a year?
Statistics say for example something like 2,3% for SP500 and 1,4% for NASDAQ, but we don't have the average for ALL stocks (I think the average could be less).
Then there is taxation, and this varies among countries.
Then it depends if you reinvest them or not.
In the end,we don't have enough data to say something.
Supposing about 1.5% reinvested, we have a total return of 5.5%-6% which is comparable to bonds as I said.

http://www.multpl.com/s-p-500-dividend-yield/

Says median yield has been over 4%pa

 

[pfranz]

Quote from Visaria:

http://www.multpl.com/s-p-500-dividend-yield/

Says median yield has been over 4%pa

Is it the net after taxes that goes into investors pockets?

 

[trader198]

people buy high is driven by greed.

most high price is already factored in, so it is non-sense to chase HIGH.

when NQ dropped to 10, and 7.5, I feelt it is cheap.

I made another killing from another side.

I am buying put on SPY this morning, I do notr expect another SPIKE after FOMC's minutes.

and buy NBG calls even some 2015/2016, it is cheap. people thinks backwards, they just see how bad it is, think it contraniraly, you will "wow, it is worth more lot"

I just waif forthose morons who buy myshares whenit hits 10~12.5


common sense, thehigh price already factored in before this announcement

if sudden spike, it is another good chance to buy more PUTs.

only fools buy sweet crude at $145+


that is why fading news always work

Quote from NoDoji:

You have an entertaining case of outcome bias

http://en.wikipedia.org/wiki/Outcome_bias

You pick a couple of stocks that fell sharply off highs after the outcome is known and call anyone who bought there a moron.

I remember back in spring of 2009 I and several of my trading friends thought the people buying ridiculous new highs in NFLX and GMCR were tulip-crazed idiots. And while we were scraping pennies off the floor trying to short them, the idiots who bought those "tops" had 500%+ upside moves to enjoy.

I've said it before and will say it again, my three most profitable trades came from buying new 52-week highs as they were happening.

 

[NoDoji]

Quote from trader198:

always work

:eek:

 

[Visaria]

Quote from pfranz:

Is it the net after taxes that goes into investors pockets?

Dunno, lets say it's not and the tax rate is 25%. Then the yield becomes 3%

 

[trader198]

fade the news, fade the government is a pretty productive strategy.

when the best news there, you will see the market drops

when the worst news there, you will see the market rallies

since before those news, market already factor in those things.

market always look far beyond current moment, not biaed facts/dead history!

Quote from NoDoji:

:eek:

 

[Ciao]

Quote from trader198:

people buy high is driven by greed.

most high price is already factored in, so it is non-sense to chase HIGH.

Interesting . what are you basing that? What type of trader are you?

I am a scalper and the high is what interest me, I am neither a greedy nor a “non-sense4” trader
At least I don’t think so lol

but if you talk to trade long swing etc..... then I might agree not to trade the top.....

the other day I posted this;

Quote from Ciao:
Where is the top?
So how can you buy it?
IMO first define yourself what trader you are…
as a scalper/day trader many time I buy what goes up more then what go down (unless I go short)
A HoD doesn’t mean that is the top… there could be much more to go up ….
Example: look at STXS on Thursday I got in at 5.30 (was at the top) , sold at 5.80… ecc
I did the same on Friday…. So IMO why not buy at the top?

(Today with OXBT at the top +/-$2 there was another 30 ticks to make)

IMO isn't how one trade but how many $$$$$ came out at the end

 

[tradingjournals]

SPY 177. The head fake.

 

[tradingjournals]

Quote from tradingjournals:

SPY 177. The head fake.

That was one a heck of a head-fake -- maybe a headbutt in the face of bulls. In 15 minutes it went down by 1.25 --- it looks like a vertical chute in the chart.