CLASHES OF TWO CULTURES. TECHNICIANS VS. FUNDAMENTALS

In other words I can say speculators versus investors. Both schools believe their own rules and totally ignore the other school ideas. I would say I am more fundamental, but sometimes I use technical analysis too and I have serious concerns about the daytrading and scalping because in this trading strategy only the bookmaker/your broker makes significant size of money.

Why am I not technician? I have some arguments below and I hope this list help you understand better my approach:

1. Show me any billionaire in this business who is solely technician. All the great legendary investors are more fundamentals like Soros, Buffett, Paul Johnson, Peter Lynch, Jesse Livermore. 
2. Before the computerisation age of ’70s there were many thousands of profitable traders and they used only their pencil and a piece of paper.
3. The worst technicians are the daytraders and scalpers. They pay a huge amount of money for commission and as the old rule says „Nobody can serve two masters” You want to pay high commission or you want to make nice performance? Both doesn’t work at the same time.
4. The fast get in get out technician approach says we can predict the future, but it is a crap. Nobody knows what holds the future, we all are just guessing. Financial markets are far more complex than we could imagine. 
5. I met with thousands of technical traders and what I saw they are fully convinced by their system and if it goes wrong they start to blame the market not the system. 
6. The short term speculation, the basic part of technicians couldn’t work. It is impossible to forecast the short term market fluctuations.
7. Investing not a science so I guess the computer doesn’t help at all in this process. 
8. Long-term investors must be more philosophers rather than technicians.

All in all the Wall Street is only a gambling area for many traders, as they use enormous size of computers, different algorithms. But it is still just a financial gambling. For most technicians the stock market is not far from Las Vegas.

The BFM Assets Team.

LET’S HEAR SOME BUBBLE TALK

After all that US indices are in negative territory YTD. Most analysts are insane and still talking about some kinds of bubbles. I have seen some bubbles in my carrier, but it doesn’t look like a bubble at all. Within few days we close the Q1 2014 and I am sure that all indices will finish this period with losses, no gain so far at all on YTD. The market in March doesn’t move at all. In terms of SP500 the range is pretty broad this year 1840-1880.

Yesterday during the Europaen session and very beginning of US session everybody went to the candy shop and just buying and buying, but later in the US session the stocks started the fall like flies again. The US opening session doesn’t like the bulls, the gains soon evaporated.

- SP500 1,852.56, -13.06, -0.70%
- Nasdaq 4,173.58, -60.69, -1.43%

The Nasdaq -1.43% finished the day 60.69 points. The tech-heavy index turned negative for the year and is now underperforming the benchmark S&P 500.

The interesting that some arbitrage occurs now, the US market leads by Nasdaq are on the ground and Europeans are excluding FTSE performing well and tonight the Nikkei made a nice rally too. In bigger perspective seems this year won’t be the best for US markets but might be much better for Europeans.

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The BFM Assets Team.

GO-GO YEAR OR STOP & GO YEAR 2014?

We are the anniversary of five years bull market. Fiesta. It means anything? Really not, it only means if we look at the rear mirror we have seen nice performances year by year. All five years were go-go years, meaning with smaller or bigger corrections the market came up steadily and closed in December on higher price than in January. That was the past. Look at now into the future and forget the rare mirror approach. 

There are many arguments why the market shows lower strength in Q1 2014 than was for instance last year. The market is not performing well in recently. Doing up and down movements with high volatility. So in our view we are expecting stop & go year which means close to zero performance on major US indices.



I wouldn’t say the market is pricey, I only say fair pricey and at this level the downside is getting more risky. The SP500 is currently trading at 16.7 times forward earnings estimates. In other words, investors are ready to pay 16.70$ for every dollar of corporate profit. That’s more expensive than the average price over the past century. In the .com bubble in 1999, at the end of bull market, the S&P 500 traded at an expensive 27 times forward earnings. So I wouldn’t say it is a bubble, just note it is in the middle, not cheap and not terrible expensive.

We put bigger stake on European markets because they have 10-20% discount on P/E ratio and the emerging markets has at least 30% discount comparing the Wall Street. We are bargain hunters and don’t like to see above 20 P/L ratios and now that is the amount in US. We do prefer good bargain and undervalued markets which now seems to us the Europeans and Brasil or Turkish markets. There are many good set up points now around us.

The BFM Assets Team.

STOCKS DROP LIKE FLIES

On Monday it was a great sell off in all sectors again. The leading sectors are performing horrible and some defensive are doing better. The rotation just got started, which is not a good sign. The big picture doesn’t look good. The Nasdaq which usually needs to be the flagship did the worst performance yesterday with -1,20%. Biotech and internet stocks were the biggest losers. Out of the last 10 days the Nasdaq dropped 6 days. It is not a bullish market anymore.

• Dow16,277 -26 0.16% 
• Nasdaq 4,226 -51 1.19% 
• S&P 500 1,857 -10 0.51%

Last Friday US markets made a bearish reversal day as prices opened higher and made a new high, then reversed to close lower. That was only a bull trap. Finally, it made a double top pattern which makes me Hmmmmm... Normally a day like that has some follow-through on the sell side and it happened yesterday. The outlook isn’t rosy.

The huge intraday volatility has occurred in the last couple of weeks, which means the market is pretty nervous, there is great fight between the bulls and bears. Plus the yo-yo up and down movements proves clearly the long side momentum has weakened pretty much in 2014. This year it is impossible to make more than 10% yield on SP500.

Now our expectation is that we will continue to the downside and anticipating some larger correction down to 1,700 territory.

The BFM Assets Team.

WHO ARE YOU? FOX OR HEDGEHOG?

The fox and the hedgehog is an ancient fable. Originally by Aesop was fox and cat, but in the anglo saxon’s heritage is more common as the fox and the hedgehog. The story is that how many tricks they have if the hunter comes with their dogs. The fox is so proud of the its many tricks and the hedgehog has only one simple trick. Finally, the hunter and the dogs appear and only the hedgehog survive with his simple trick and the fox dies because he is not able to use any of his tricks. The moral that in time of danger one trick proves more efficient than many options. The fox knows many things the hedgehog only knows one great thing and beats the fox.

In the investment business there are many super intelligent, well skilled, Harvard Business School educated doctors and MBA fund managers. They have thousands of skills with brilliant ideas how the market works, they understand the charts, the inflation waves, unemployment cycles, etc. They know everything. They are the fox. And, there are the hedgehogs like Warren Buffett, John Bogel, Martin Zweig, Peter Lynch, Jesse Livermore, etc. They only know one thing, but perfectly. You have to have a position in trend and hold it forever. They are the hedgehogs.

I am absolutely sure about they will survive and foxes won’t. Why? Because their system is simple and one dimensional and understand the infinity of market’s structure.

I am much less intelligent than any great guys at Morgan Stanley or Deutsche Bank, they know far more than I could ever imagine. They have huge analysis department, huge marketing budget and department and many wiles. But, and here comes the big but I know one thing - “OWN THE MARKET IN THE TREND”. I am sure about only one thing as the great heroes. Namely the good trader’s best friend is the time and if occurs the trend don’t trade both side of the market. If you want to be a hedgehog and beat the market in each year, you have to understand the simplicity the market and don’t create super complicated trading systems because it won’t work. There is no doubt.

Be hedgehog and you will win. The poor fox is the yesterday and the hedgehog is the tomorrow.

The BFM Assets Team.

STUPIDITY OF THE MASS

We are human being with hundreds of weaknesses. We are fully irrational, but we love to believe in the opposite, but most of the decisions in our life we make emotionally. That is the harsh reality. We are not rational at all. Think about when you choose a party at the election or a soccer team. Doesn’t matter how they perform we love them and get stuck at them in irrational ways.

In our investment decisions probably we are worse. If we deal with money our greediness and fearful feelings dominate our decisions big time. Look at this cartoon below, it is familiar isn’t it? How many times we sold the bottom and bought the top. But the rule is well known by everyone Buy low, sell high – but we do always the opposite. Why? It is the cause of our emotions, which drive us.

We are fully emotional individually, but if we are in the mass we are acting like a total idiot. This is the best cartoon ever made about the stupidity of the crowd. This is my favourite carton at all.

The first time was printed in 1989 in Baltimore Sun by Kevin Kallaugher. In one report he said „It was so funny because it was so true.”

This picture describes better the psychological factor of trading than thousand words. Most of the guys only follow the mass, the gossips and tips. Shows precisely how one sentiment runs through the market. We tend to overreact the good and bad news in the market too.

This cartoon made 25 years ago, which confirms again the great rules of the market never change as Jesse Livermore said once "There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."

So buy the low and sell the high that’s it. Sounds easy, but hard to do that.

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Invest into our fully regulated Swiss Managed Account Fund: http://www.bfmassets.com/managed-accounts

The BFM Assets Team.

AROUND SIX MONTHS!

That was the only thing what market heard yesterday from Yellen’s speech. Which means probably start to increase the interest rate sooner than earlier had been expected by analysts. Not in 2100 just in 2050. Ho-ho-ho. Market’s answer was selling on that FED’s update.

On this Yellen’s speech the market couldn’t make the third day rally in row and finally close in negative territory. Tonight Asia turned into red too. The risk off mood stopped for a while maybe for one or two days. This is a now the new fear not the Russian invasion on the market. The market couldn’t exist without fear at all investors are always looking for new scary things and news. The up and down movement is continuing further. And the volatility stays with us for few months.

The BFM Assets Team.