Options Markets

Options offer an investor the right but not the obligation to buy or sell a security at a set price. Options also, protect shares from under-performing. And to make money when market conditions are extreme.    

          

To invest in options, you must take time to learn about them. Know the difference between a call and a put, strike price and all option arcane terms.

                     

There is no quick course, Take your time because of the complex nature of this aspect of the securities business.

                     

Do not attempt to get involved unless you learn about options both academically and in practice. Therefore, run through fantasy dry-runs with no real funds, just to see how you would have done with real money. Then use your own real capital.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Error-Prone Securities Trading Models

              

There has been human error in the use of securities trading models, other than with mathematical calculations. Often that error is enforced by government in the form of strict regulation, amidst a reaction with the very panic that such regulation supposedly has been developed to suppress.

                     

The formulae employed probably would have worked over the longer term. These are never successful for short-term markets that regulation certainly overlooks.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Failures of Securities Models

                

Mathematical models have at times done poorly in preventing financial meltdowns.

I refer to two examples, the LTCM (1998) and the subprime mortgage (2008) disasters.

                     

Why did the math models behind them fail? They were made up by top researchers, mathematicians, and celebrated “quants,” who figured they had anticipated all cyclic contingencies.

                                        

Still, bond markets eventually fell apart despite their calculations. Afterward, the ones responsible found they should have looked at contingencies even further back than they had.

                     

I see a bottom line weakness in math models, no matter how much research is done. It happened with the LTCM breakdown. It very definitely is what I feel was a factor in the subprime crisis, which still haunts America and the world.

                     

There is a common thread between the two breakdowns which has to do with the fact that we react to problems with panic. That is because our “experts” who come to the rescue are unfortunately from the financial community, attuned only to the short term. They cannot see how caution and avoiding over- zealous, impulsive action can overcome the danger. So they act in haste.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Small Bank Loan Availability

                 

Many smaller banks don’t have sound loans on their books. They are, therefore, under constant pressure to clean up their financials and/or add to basic capital.

                     

But politicians in their area, at times, put pressure on  bank examiners to allow these banks with questionable standing to make loans which ordinarily should not be made.

                     

Unfortunately, banks are not making sufficient loans to small business even if they have the ability to do so, The truth is, they make more money  by borrowing cheaply from the Federal Reserve and investing in government bonds.

                     

This unhealthy environment is perfect for the likes of meddling politicians in Washington, whose influence is being made in the wrong place, in the wrong manner.

                     

Solution: Supervise banks gingerly but independently of politics. Secondly, permit banks to make riskier small business loans and restrict their tendency to borrow cheaply and invest in government bonds.

                     

It is also time to raise the cost of Fed money to banks, so the latter do what they are in business to do.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Question Analyst Advice

                                      

Little independent thought comes from analytical securities’ sectors. What goes for research on Wall Street is primarily in the form of corporate reports. Little is done on all-important strategy. Most analysts have no time for careful, insightful thought. Moreover, the investment community is incestuous, feeding on itself in a way which foments herd-like and impulsive instincts.

                     

Yet, we constantly hear about expert securities-pickers and newly-found, can’t-miss strategies. You may hear or read of it as if they have just found gold. I have heard of comparable new-strategies for decades and I have investigated them. There are no panaceas. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Fund Style Changes

            

Some advisers say that mutual fund investors should not buy a fund that clings to a particular “style” of investment, such as small cap or large cap. But to pick and choose what is just right at the time.

                     

That advice will tip you off that the adviser has no specific strategy; he or she is willing to change strategy to suit whatever style may be temporarily popular. That’s a form of market timing that doesn’t work and besides, it indicates a lack of required discipline.

                     

My experience has shown that such undisciplined investments with no set strategy tend to not do well. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

TIPS Investments

            

Gurus recommend TIPS with the first vestige of increasing interest rates. They’re bonds issued by the federal government through a bank, broker, or the Treasury, for five, ten and twenty year maturities. They also can be bought in the form of mutual funds and Exchange Traded Funds (ETFs).

TIPS’ values grow to the extent of inflation.

They’re not the investment tools I recommend, for several reasons.

Their function can be accomplished better with the use of proper duration principles and implementation. Furthermore, they often sell at a premium to value and their inflation advantages are taxable. ( See the Earl J. Weinreb NewsHole® comments.)