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Friday, January 25, 2013

The Invisible Hand of God

Posted by on Fri, Jan 25, 2013 at 9:16 AM

I lost a big chunk of my IRA account yesterday. Which is okay, I guess, because retirement is still a ways off, and the men in my family don't really live that long anyway. But when stock in a company like Apple plunges after reporting the second highest US quarterly profits ever, $13.1 billion—second only to Exxon's $14.8 billion profits when oil prices surged in 2008—it does kinda point out how irrational markets can be.

Yeah, I know, investors are mostly buying future growth not current profits, but by any traditional Wall Street metric AAPL remains a bargain, with a price to earnings ratio of just over 10. That's tiny. And even if you don't agree, nothing about Apple has really changed since its stock peaked at around $700 a share a few months ago. The same investors who harangued Apple to release a lower priced tablet to compete with Amazon's loss-leading Kindle, are now fleeing Apple's stock after the instant success of the iPad Mini inevitably squeezed Apple's margins. What did they think was gonna happen? Meanwhile, razor-thin margin Amazon, sporting an astronomical P/E ratio of 3,299, is up again today, pushing near a 52-week high.

Go figure.

The point is, markets are tough to figure out, even for the experts. And all those Republicans fighting to push Social Security and state-backed investments like GET into the market are really just pushing Americans to gamble their future financial security. One can make educated guesses about individual stocks, but how well you make out still often comes down to speculation and timing. Retire (or send your kids to college) in the middle of a market crash, and, well, fuck you.

I suppose that may be the American way. But there's no call for celebrating it.


Comments (43) RSS

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Theodore Gorath 1
I recommend buying stock in intermediate energy transportation companies in the midwest.

There is a glut in the production of Canadian-produced oil flowing south, and it is just sitting in the midwest with no one to buy it there, so the companies who can transport it are making money hand over fist. Constant supply, constant demand. Also, these companies love paying regular dividends just like big resource extraction companies.

Any steady growth in this economy is a boon, and I am seeing 5%-7% growth in these stocks regularly.

Posted by Theodore Gorath on January 25, 2013 at 9:28 AM · Report this
Joe Szilagyi 2
Realistically, the overwhelming majority of people in our current 30-50 demographic who do not have an extensive military career of 25+ years active duty will be unable to retire, let alone retire in anything even vaguely close to the income levels we enjoyed during our careers.

We came into the market both after the height of pensions, and before 401ks really and truly well took hold, and what 401k action we did enjoy has been de facto blown into smithereens. All of mine, for example, were in your standard issue advised upon to death combinations of high risk, moderate risk, low risk, and a balance of growth versus non-growth. Every single investment is basically trashed and worth less than the actual baseline dollar value I initially put in.

On the one hand, I'm almost fine with not being able to retire. I've seen too many people basically turn into unhappy vegetables in retirement, struggling to stay busy, relevant, and not poor. With no mental engagement or stimulation, or challenges, what's the point of life?

On the other hand, I know exactly how I can retire and keep the level of living I'm accustomed to. Figure out how to get rich before I'm 65 in a fashion that is immune to the nonsense of Wall Street. Good luck on that, too.
Posted by Joe Szilagyi on January 25, 2013 at 9:28 AM · Report this
Pope Peabrain 3
I once owned Apple at 35 a share. But adjusted for inflation, that's still quite a rise in value. I believe my IBM stock at the time was 60 a share.
Posted by Pope Peabrain on January 25, 2013 at 9:29 AM · Report this
Michael of the Green 4
I recommend buying stock in companies in which I own stock. By any traditional Wall Street metric, it's a bargain.
Posted by Michael of the Green on January 25, 2013 at 9:34 AM · Report this
Granny Smith 6
Go back and look at the history of Microsoft share prices. You can only double so many time before hitting a ceiling. Some people who do this for a living have suggested it is time to get out of apple for a while. A stock that trades at $70 can go up much more than one priced at $700.
Posted by Granny Smith on January 25, 2013 at 9:35 AM · Report this
Westlake, son! 7
Reminiscences of a Stock Operator

Yes, a book about stock speculating in the 1920s is entirely relevant to today's market. It explains very simply why Goldy should have been selling on the way down as the price broke support.

Or at least skim this article by Mark Cuban.
Posted by Westlake, son! on January 25, 2013 at 9:37 AM · Report this
spaceapple 8
Goldy, I bet it took all your willpower not to use the word "manipulation" in that post. Because that's what happened.
Posted by spaceapple on January 25, 2013 at 9:37 AM · Report this
Matt the Engineer 9
@3 I bought in at $13.06 but sadly only 10 shares, for fun. My wife still gives me a hard time (it was her pick). "They'll be killed by Microsoft" I said. Don't ever listen to me for investment advice.
Posted by Matt the Engineer on January 25, 2013 at 9:39 AM · Report this
Cato the Younger Younger 10
401K's are really the ponzi scheme of the past 40 years. I mean who is seriously going to be able to retire off those with any sort of comfort? Wages are historically low and that means you can't save as much for retirement. And the markets are unpredictable for the average person to make money off of them.

This is why everyone one in the 30-50 age bracket needs to push the White House and Congress not to do anything to cut Social Security BUT TO INCREASE IT. That's right...we need to make SS LARGER, not smaller. It's the only way any of us Gen Xers or younger will ever have any chance of surviving in our retirement years.
Posted by Cato the Younger Younger on January 25, 2013 at 9:39 AM · Report this
sperifera 11
I'm sure it's Obama's fault.
Posted by sperifera on January 25, 2013 at 9:41 AM · Report this
Looking For a Better Read 12
Goldy, a little thought experiment for you. If you could get Barney Frank and Elizabeth Warren* to structure and implement an overarching framework for market regulation in exchange for a partial (say, 50%) privatization of social security, would you agree to it?
Posted by Looking For a Better Read on January 25, 2013 at 9:44 AM · Report this
heywhatsit!? 13
I guess I'll work until I die. But I kind of already knew that.
Posted by heywhatsit!? on January 25, 2013 at 9:48 AM · Report this
Urgutha Forka 14
Republicans want to put social security on the stock market because they have nothing to lose. They're already wealthy, and due to their jobs, they engage in insider trading routinely.

The stock market works great for republicans because they get to pre-emptively sell when they know a crash is coming. They don't give a shit about anyone else in the country.
Posted by Urgutha Forka on January 25, 2013 at 9:49 AM · Report this
Having to rely on investment decisions for retirement is one of the most absurd aspects of American life today. We don't need to, but we need to. Here's a great piece from last year on that:
So it’s not surprising that denial dominates my dinner conversations, but it is irresponsible for Congress to deny that regardless of how much you throw 401(k) advertising, pension cuts, financial education and tax breaks at Americans, the retirement system simply defies human behavior. Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs.…
Posted by gloomy gus on January 25, 2013 at 9:52 AM · Report this
Goldy 16
@12 No. Why should we have to trade something reasonable for something destructive? That's not compromise.
Posted by Goldy on January 25, 2013 at 9:54 AM · Report this
treacle 18
Ha! ..and they say unfettered capitalism will benefit everyone. Looks like unfettered capitalism will benefit the rich and everyone else can work as a wage-slave until they die. Thanks Capitalism!

I'm going to start a complementary currency to mitigate the bullshit positive-interest currencies dump on us little people.
Posted by treacle on January 25, 2013 at 10:03 AM · Report this
Westlake, son! 19
@14 "The stock market works great for republicans because they get to pre-emptively sell when they know a crash is coming."

I'm not a Republican, yet I know how to check the price of the stocks I'm invested in. Don't you?

From Sept 21st - Nov 16th AAPL fell from $701.86 to $505.75. We'll call that $200.

Why is anyone surprised it slipped another $50 on the day after earnings? Surely you'd think yourself a master investor if it surged $50. But lose $50? Hand of God / Republicans.
Posted by Westlake, son! on January 25, 2013 at 10:03 AM · Report this
Diversify the portfolio; buty both stocks AND bonds. And rather than trade in individual stocks, trade in mutual funds that track a broad index.

Not a fail-safe plan, but still much safer than putting a majority of any retirement account in a single stock. Just ask all the people who invested in Enron.
Posted by Clayton on January 25, 2013 at 10:04 AM · Report this
Doctor Memory 21
@10: "401K's are really the ponzi scheme of the past 40 years. I mean who is seriously going to be able to retire off those with any sort of comfort?"

Managers of 401ks and the institutional investment vehicles they invest in have done pretty damn well out of the deal.
Posted by Doctor Memory on January 25, 2013 at 10:15 AM · Report this
Urgutha Forka 22
Until very recently, it was legal for congress to engage in insider trading:

Yes, I check stock prices. But no, I'm not friends with a dozen CEOs who give me privileged information which I then use to trade stock ahead of company disclosure... only congress gets to do that.
Posted by Urgutha Forka on January 25, 2013 at 10:20 AM · Report this
I have had 70 percent of my 401k in cash fund for a few years now. Almost everything is oversold especially Big Tech.

Apple and most of them basically sell pocket calculators. You know what happened to pocket calculator prices right?

I'm hoping Facebook will be the next Apple. (Lying. I just hope it ends up more than what I paid for it. That only happened just this week!) I also invested in fuel cells, hydrogen and all the other stuff I spout about because I should put my money where my mouth is.
Posted by Supreme Ruler Of The Universe http://_ on January 25, 2013 at 10:22 AM · Report this
fletc3her 24
I've been contemplating this as well. Not only did Apple tank yesterday, but Netflix has been surging. An investment I made in Netflix a year or two ago which has been consistently below water has suddenly blossomed.

The problem with a company like Apple is that the $700 valuation prices in the idea of torrid growth. When they have merely good growth the stock is bound to drop to a more realistic level. The trick of course is knowing what the market has priced into the stock and not discounting simple herd mentality.
Posted by fletc3her on January 25, 2013 at 10:43 AM · Report this
seandr 25
markets are tough to figure out

True, although I have to say, the fact that Apple wouldn't meet expectations this quarter was about as obvious as things get on Wall Street.

The iPhone and iPad are pretty much finished products (like MS Office) with little room to add "must-have" new innovations and features. They can milk that cow for years to come, but Apple's stock price was predicated on growth, not maintenance, and it's hard to see where that growth will come from in the near future. Doesn't help that Jobs is dead.

I would have shorted Apple, but so many others were doing the same thing that short positions were very expensive.

The only tech position I own is Google, and they continue to do well, and will see further growth as more and more businesses migrate their billions of $ from MSFT to Google business apps given its fundamental superiority. Otherwise, I own General Mills and a small energy company, both chosen because they pay large dividends on top of solid growth.

Apple may have another surge or two left, though. If the stock goes back up, you should definitely sell it.
Posted by seandr on January 25, 2013 at 10:43 AM · Report this
Never buy individual stocks. They have an unfavorable risk/reward. Al it takes in one accounting scandal or bad product to send them in a tail spin. It impossible for any investor to know everything that could become newsworthy about a multi-national. I only invest in index funds and ETFs. The more you spread your money out the better.
Posted by DJSauvage on January 25, 2013 at 10:49 AM · Report this
Why did you have a big chunk of your retirement savings bet on one company?
Posted by shabadoo on January 25, 2013 at 10:51 AM · Report this
Will in Seattle 28
I was fine, because we're in a period where buying a broad SP500 index fund with low costs is the best idea.

That and paying off debt.

While I have owned energy sector funds and specific energy companies (stocks, bonds, and options) and been a market maker (not joking) for some, I do not recommend any at this time.

While energy is a growth area and finance and military supply is a declining area, I have no specific information that would do better than just a broad SP500 index fund. Sometimes there is too much noise in the system.
Posted by Will in Seattle on January 25, 2013 at 10:52 AM · Report this
Will in Seattle 29
@26 conversely, buying distressed bonds or stocks in a firm AFTER a scandal, when the source problem is identified as a one off and the board has taken action, fired some people involved, and cleared the decks is a GOOD time to buy individual stocks and bonds.

Never invest more than you can lose.
Posted by Will in Seattle on January 25, 2013 at 10:54 AM · Report this
I realize Goldy's heart is usually in the right place (otherwise he'd be in even more freaking trouble), but sometimes he makes the most absurdly stupid statements:

The point is, markets are tough to figure out, even for the experts.

The so-called "experts" -- in case you've been living in the Cave of Goldy -- are the very same ones who've been committing endless financial fraud, dood, and rigging the markets, when they aren't involved in rigged proprietary trading and HFT.

Remember John Paulson/Goldman Sachs' Abacus CDOs (and all the other ones)???

Remember Magnetar Capital? Ambac? MBIA?

Remember the reasons behind the "necessary bailout" of AIG????

Sweet jaysus on a harley, dood!

And all those Republicans fighting to push Social Security and state-backed investments like GET into the market are really just pushing Americans to gamble their future financial security.

It's called thievery, sonny, clear and simple, it ain't about any of that douchey crap you keep repeating (ya know, those USCoC and Wall St. talking points: about casinos, and gambling, etc.?).

The banksters founded ELX Futures around the time they began their restart on heavy lobbying for the theft of Social Security:….

"The founding partners include Bank of America-Merrill Lynch, Breakwater, Citigroup, JP Morgan Chase,BCG Partners Inc., Deutsche Bank A.G., Barclays PLC, Credit Suisse Group, Getco, Peak6, Royal Bank of Scotland PLC.[27] and Goldman Sachs.."

It's about the value of the Social Security Fund, both it's total valuation and the fact it has all those Treasuries in it as the pols have used it to pay off the interest on the nat'l debt, etc., and those Treasuries have the same value on the banksters' books as cash, and can be used as such on their exchanges for speculation, etc.

Dood, I appreciate your efforts, but you too often simply repeat those US Chamber of Commerce talking points and it becomes really, really irritating.....
Posted by sgt_doom on January 25, 2013 at 10:56 AM · Report this
hans millionaire 31
you obviously should have been buying AMZN all along!
Posted by hans millionaire on January 25, 2013 at 11:24 AM · Report this
Goldy 32
@27 It's not me who needs to diversify. It's Seattle. Should Amazon ever collapse, we're in deep shit.
Posted by Goldy on January 25, 2013 at 11:33 AM · Report this
Fnarf 33
Did you see where Warren Buffett is winning his bet? He bet some hedge fund dingleberries that a million bucks sitting in a low-fee indexed mutual fund would outoperform the same amount in their high-falutin hedge funds over ten years. Stock pickers and investment analysts are for the most part parasites, liars and cheats who rig the numbers to show gains in carefully gardened results, but in reality you can't beat the market. Not over the long term, anyways -- not if you pay the astronomical fees.
Posted by Fnarf on January 25, 2013 at 11:38 AM · Report this
seandr 34
@fnarf: There is truth to all that, but it fails as a blanket generalization.

There are hedge funds with sophisticated, heavily researched algorithms developed by math PhDs that are executed by networks of computers that receive real-time market data at the speed of the light that have turned their masters into billionaires. Luck? Hardly.

Beating the market is all about finding and exploiting inefficiencies and anomalies, whether it's getting better information, faster information, or more information than the average guy.
Posted by seandr on January 25, 2013 at 12:07 PM · Report this
@2: I don't mean to crow, but as an worker in my early 40's, and an investment coward, I always kept my 401k in bonds and some other safe/low-yeild fund and I've seen ~5% for years. Combined with the 4% matching from my employer, it's been super stable. Every time I think "Gosh, I'm still relatively young, maybe I should put it into those higher (potential) yield stock options in my 401k for a few years until I'm closer to retirement...", something like this happens, and I scuttle back under my just-holding-pace-barely with inflation "savings account" of my 401k.

But yes, my wife and I don't expect to ever be able to "retire" in the classic sense.
Posted by tiktok on January 25, 2013 at 12:17 PM · Report this
Boring Dad is Boring 36
@18: Calling the crony-capitalist system that's in control of the financial/insurance industry, Congress, and the executive regulatory apparatus "unfettered" made me laugh.

Until we the people regain control of the above, and reform Social Security & Medicare into "keep out of poverty" programs instead of "take from the poor young and give to the rich old" ones, we're going to stay on this path. Math, unfortunately, still applies over the long haul.
Posted by Boring Dad is Boring on January 25, 2013 at 12:20 PM · Report this
@30, I think Goldy was referring to himself as an expert.

Goldy, you are insane if you invest in individual stocks. You could buy them as a hobby, as gambling for fun, but that isn't the same as "investing".

Posted by ohthetrees on January 25, 2013 at 12:22 PM · Report this
Fnarf 38
@34, and yet, and yet -- one of those very genius billionaires is the guy betting against Buffett and getting his ass handed to him.

The billionaires get that way because their system is rigged to amass extremely large gains rapidly when they get it right. They're mostly exploiting technical loopholes in the information system -- insider trading, really. And for every billionaire there are ten cashed-out losers.

It's not random -- but it's mathematically indistinguishable from random. Hmm.
Posted by Fnarf on January 25, 2013 at 12:24 PM · Report this
Rotten666 39
Stocks and 401k's are a sucker bet. Invest in rental properties and live off the profit when you retire.
Posted by Rotten666 on January 25, 2013 at 12:24 PM · Report this
James McDaniel 41
Of course, the financial Masters of the Universe would never, ever engage in significant stock manipulation, right?

"Jimm Cramer Explains How The Stock Market Is Manipulated"…
Posted by James McDaniel on January 25, 2013 at 12:47 PM · Report this
That's why I just stay the fuck out of individual stocks. Bonds and index funds are good enough for me. I don't have the time nor desire to try and figure that nonsense out.
Posted by giffy on January 25, 2013 at 1:11 PM · Report this
@39 Tell that to someone in Detroit. Say what you want about stocks and bonds, but they aren't stuck in depressed geographical locations, and they don't call you on Sunday afternoon to say the toilet is broken.
Posted by Clayton on January 25, 2013 at 3:40 PM · Report this
Rotten666 45
@39 why the hell would I buy property in a city that has been circling the drain for 40 years? Also, management companies. I'm not fixing toilet bowls on the weekend.
Posted by Rotten666 on January 25, 2013 at 4:50 PM · Report this
watchout5 46
Watch what the big guys to and mimic to a point. Only gamble with the part of the money you're willing to gamble with, as what you're doing is nearly 100% gambling. Why do you have so much stock in a single company that it can change your overall balance by that much? That seems unwise.
Posted by watchout5 on January 25, 2013 at 9:11 PM · Report this
If you have a disproportionate share of your IRA in any one stock, you're doing it wrong. Your stock portfolio should be highly diverse. If you are a small investor you should never attempt to pick stocks. Buy the S&P 500 instead. There's a reason "beating the S&P 500" is the holy grail of Wall Street - because almost no one can do it consistently.
Posted by I have always been... east coaster on January 25, 2013 at 9:27 PM · Report this

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