What Other Bloggers are Saying

Stephen Dubner, one half of he Freakonomics team, recently posted about

"John Allen
Paulos
, who writes about
numbers
as well as anyone around, has just published another excellent
piece
in the Times Magazine, this one about the strengths
and limitations of relying on data to make decisions in the modern
world.

Paulos provides an excellent example of tricky statistics from the
medical realm."

That example is well worth considering.


Freakonomics               
Super_f

***

Preet Banerjee is giving away an iPad.  To enter, just leave a comment at his blog. Details: WhereDoesALLMyMoneyGo.com

In addition to the giveaway, Preet writes an excellent blog.  Take this opportunity to get acquainted.

***

For investors who have some of their money invested passively, Michael James on Money raises an important question:

"For investors who maintain constant portfolio allocations to different
asset classes, such as stocks and bonds, there is a debate about when to
rebalance. Most advice is to rebalance periodically, such as quarterly
or yearly. Others suggest a threshold approach where re-balancing is
based on when the allocation gets sufficiently far from the target
allocation. I am in this latter camp."

Me too.  Passive investing is already unsophisticated.  If you are going to play,don't allow a random event, such as the date, influence your investment decisions.

***

Mark Cuban lays it on the line when discussing: What Business is Wall Street in?

"Lets talk the real problem that regulators, public companies,
investor/shareholders and traders face.  The problem is that Wall Street
doesn’t know what business it is in. Regulators don’t know what the
business of Wall Street is. Investor/shareholders don’t know what
business Wall Street is in.

The only people who know what business Wall Street is in are the
traders. They know what business Wall Street is in better than everyone
else.  To traders, whether day traders or high frequency or somewhere in
between, Wall Street has nothing to do with creating capital for
businesses, its original goal. Wall Street is a platform. It’s a
platform to be exploited by every technological and intellectual means
possible."

If you agree, as I do, then it's truly foolish to be invested in the stock market.  It is a big gambling casino and the quants have a big edge.  That doesn't mean you shouldn't trade, but if investing for a retirement that's decades down the road, is the stock market where you want to be?  I don't have any alternatives to suggest.

***

Eric, in Falkenblog:

"A powerfully bad theory is like a lie–it has many inconsistencies
because it isn't true… One of the
many bad implications of having the delusion that risk begets a higher
expected return is that people invest in the stock market thinking they
then deserve a higher return
, a strategy that worked pretty well in the
US in the 20th century, as long as you implemented a low-cost strategy
that minimized trading and taxes… The idea that a
passive approach to equities implies higher-than-average returns puts
you at the mercy of brokers who … are selling hope."

Can you imagine trusting your financial future on the premise that you deserve a high return?  I recognize hat we all want to believe we are going to get that return, and passive investing adherents seem to believe it's the gospel truth, but why should the future resemble the past?

Knowing how to invest is very difficult.  During bull markets, we always believe that investing in stocks is good, but we reconsider during uncertain times.  Is that the problem right now?  The bull may be ending so some of us tend to pay attention to the doubters?  I don't know.  But I do know that each of us should seriously consider our alternatives, and not just blindly believe we deserve riches.

695


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19 Responses to What Other Bloggers are Saying

  1. Michael James 05/20/2010 at 7:21 AM #

    Thanks for the mention, Mark. It’s not often that I’m quoted right next to Mark Cuban 🙂

  2. Mark Wolfinger 05/20/2010 at 7:44 AM #

    Thanks for my morning chuckle

  3. John 05/20/2010 at 9:50 AM #

    Great compilation, Mark!
    I like Mark Cuban’s view. It resonates with mine. It’s such a shame that Wall street has come to what it is today: a game of deceit.
    By the way, how’s your RUT trading holding up?

  4. Mark Wolfinger 05/20/2010 at 9:56 AM #

    It’s a lack of integrity. Give someone the ability to cheat, and these days too many people succumb to the temptation.
    Wall St sucks. I loathe the ways banks may money – through high fees.
    It’s no fun.
    IC holding up well right now. I backed off, trade small size and feel less pressure. Able to handle the ups and downs easily. That’s a change. Small size helps.

  5. WhereDoesAllMyMoneyGo.com 05/20/2010 at 10:08 AM #

    Thanks for the mention Mark. +5 entries in the contest! 🙂

  6. John 05/20/2010 at 10:40 AM #

    Glad to hear that your IC is doing well.
    Mine is not bad either. I really learned a lot from the aftermath of flash crash. Hope another crash like that won’t happen again.

  7. Mark Wolfinger 05/20/2010 at 11:23 AM #

    John,
    I think the real lesson from the flash crash is that it’s not always a good idea to be watching the markets all day.
    Regards

  8. Jason 05/20/2010 at 2:01 PM #

    I apologize if this posted twice.
    Im holding may 630/640 RUTs. Currently trading at 651. Settlement is tomorrow. Settlement always scares me since getting sideswiped in March.
    Could it settle more than 25 points down from close?

  9. Jason 05/20/2010 at 2:04 PM #

    Correction …I’m holding 620/630 not 630/640 … not sure why I put that

  10. Mark Wolfinger 05/20/2010 at 2:10 PM #

    Jason,
    Yes, it can open 25 points lower.
    Is that likely? No.
    Look at the current cost and decide whether it’s worth holding out for those last few dines.
    I would never hold out under these market conditions. Nor can I believe you still have this trade in your portfolio.
    I’d get a bid out there now, and raise it as necessary until you reach the maximum you are willing to bid. Me? I’m a coward. I’d pay 50 cents and be happy to get them. You? I have no idea what works for you.
    Good trading

  11. Jason 05/20/2010 at 2:25 PM #

    Most of these services out there promote condors that bring in about .50 per spread for a total of 1.00 or 10%. “Supposed” to be low stress because of the “wide” profit zones. Im assuming you are not a fan of this approach and rather take in a higher credit at closer strikes to the money. Correct? Lower win/loss ratio, more adjustments, more hands on, but more credit to work with. Is about right?

  12. Mark Wolfinger 05/20/2010 at 2:35 PM #

    1) I am NOT a fan of collecting small credits
    2) They are ‘low stress’ more frequently than positions with higher cash premium. But when they go bad – and they do go bad – traders hate to do anything becasue ti means taking a loss.
    3) If anyone always holds to the end, he/she is going to take some big losses. That’s just reality.
    4) I prefer to collect $3 for a 3-month IC. Right now, with IV high, I can easily do that with strikes I am willing to trade.
    5)I prefer to exit early – but confess I don’t always get out as soon as I want to get out. I’ve been out of May for about 3 weeks – and that’s ideal.
    6)I’ve already exited some of my June spreads at $0.25 cents or less (obviously that’s only one side, not the whole IC).
    7) I am more comfortable with less negative gamma – and that means no short-term options.
    I would never tell you that that’s better for you. It’s a personal choice.
    Yes. More adjustments, more losses, but overall it suits me.
    To be truthful, your overall P/L is NOT as dependent on which iron condors you trade as it may appear. I’d say that 90% of how well you do over an extended period of time is based solely on risk management skills (and of course, a little bit of good/bad luck).

  13. Joe 05/21/2010 at 1:57 AM #

    Mark,
    A few posts back I commented on how different kites could be used in different market conditions. I am still working on some basic rules as to how to best implement these. I thought I’d share an update with you and your readers with the very minimal data I have at this stage.
    I have since placed a few during this voltile period to help protect my ICs, it so happens they have come in quite handy and without them I would be down somewhat instead of up.
    I put on a K3 when the RUT IV was in the high 20s and then another one to protect another IC when the RUT IV was in the low 30s, a few days later I put on another IC and followed up a day later with a K4 to protect it when the RUT IV hit high 30s.
    By placing different kites along the way as IV kept elevating I was able to continue opening ICs and protect them with different kites.
    Will post more when I have more data to work with.
    Cheers,

  14. Mark Wolfinger 05/21/2010 at 9:06 AM #

    Joe,
    Thanks for sharing.
    As long as IV moves higher, the kites will look better and better.
    One idea – you may already be aware of this: When the move is large, such as yesterday (35 RUT points), you may want to remove some cash by moving your long option down one strike. If you can collect $600 or $650 (or whatever number suits you) to move a put down one strike, I find that to be a good idea.
    Lose a bit of downside protection but gain almost twice as much on a rally.
    Regards

  15. Joe 05/21/2010 at 3:25 PM #

    Thanks Mark. I am aware and like this idea, use it whenever I can. There is so much to kites and adjusting them that it can become an art into itself. Keep up the informative posts, your doing a good service to all your rookie readers.

  16. Jason 05/21/2010 at 6:48 PM #

    At the risk of a scolding. I held my 620/30’s open. Rut bounced up and I had to take care of something so didn’t take the time to close (Never again). Came home to closing of 640. Lesson learned. Sleepless night ensued.
    Rls settlement came out finally at 629.95. Bullet avoided.
    Question: I know there is $100 debit for every point settled under the short but how does it calculate out for partial like .05?
    Thanks

  17. Mark Wolfinger 05/21/2010 at 7:17 PM #

    Jason,
    It will cost you $5 per contract, so you did great.
    It’s not my place to scold.
    Your sleepless night is enough to tell you this this was outside your comfort zone.
    I thought RLS would be much lower than the final price. Am happy you got got away unscathed. Thanks for the report.

  18. Jason 05/21/2010 at 7:54 PM #

    Thanks Mark. I thought it was going to be around 625 so counting my blessings.
    Sometimes even stupid gets lucky!

  19. Mark Wolfinger 05/23/2010 at 8:57 AM #

    I think holding was a poor decision. But stupid is a harsh word. You took a big chance and got lucky this time.
    As you said, lesson learned.