Thursday, February 07, 2008

GOOG - Google with MSFT - YHOO - $NDX

That's right ladies and gentlemen, as pointed out to me by the "popular financial blog icon" BARRY RITHOLTZ, CEO and Director of Equity Research for FUSION IQ and humble scribe of THE BIG PICTURE blog: Over the past twelve (12) months once high flyer GOOG, traditional sideways trader MSFT, woefully underperforming until recently YHOO, and Large Cap Tech Index $NDX, are all trading basically even...

Three Thoughts:

(1) BUY and HOLD is dead a.k.a it’s often a flawed strategy and it appears that this is one of those moments in time where that’s true. Basically, we’ve been “range bound” ever since the 2000 highs. If you look at the super long tem charts, there is no guarantee, and it appears unlikely that you’ll have the types of run ups in equity prices that you did over the past fifty (50) years, or more specifically from the early 1980’s to the Tech Meltdown. Not to mention, even if you do get massive “nominal run-ups because of the heavy money creation etc., your still behind the eight ball in real terms / purchasing power terms… Therefore, TRADE!!! In some environments if you refuse to go SHORT your profits will never be LONG…Also use options strategies to get returns where BUY and HOLD are not working.

(2) Indexing is now officially caught on with Index Funds/ ETFs. The question becomes why buy individual stocks if often times sectors and groups trade in unison. Relating back to the BUY and HOLD issue, people sometimes equate the purchasing of Index Funds or ETFs with a strategy that’s akin to BUY and HOLD. What intrigues me is the strategy that uses these tools as simplified vehicles to use for *market timing* type trading strategies.

(3) MEAN REVERSION is REAL…Although often times you get blown out because “markets stay irrational longer than you can stay liquid”…Which is why if you see a good opportunity on the horizon, get in small at first and then when the reversion clearly gets underway add more heavily to the thesis, or, use some sort of options strategy to stay market neutral until things turn your way and the MEAN REVERSION begins.

*Of course, there is the philosophical debate as to whether you can “time the market”; I simply refer to the fact that it has been and is done all the time as proof that it is possible…Even fundamental value investing has aspects of timing a.k.a picking the right time to BUY something and then eventually SELL it for a profit. Technical analysis/trading has a MACRO perspective as well which relates to several fundamental factors...

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