Archives of “Fiction” tag

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European shares end higher but the full story for the day is not so rosy

  
Analysis, Global Indices
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German Dax was up 9% at the high. Closes up 0.2%.

Well…the European shares are ending the day higher. However that is only half the story.  The other half of the story is that the major indices give up a big chunk of their gains from the highs.
The provisional numbers are showing:
  • German DAX, +0.2%. The high for the day was up 9%
  • France’s CAC, +1.4%. The high for the day was up 9.75%
  • UK FTSE 100, +1.7%. The high for the day was up 8.76%
  • Spain’s Ibex, +4.7%. The high price was up 11.73%
  • Italy’s FTSE MIB rose 6.3% but retrace from a 17.8% gain

For the week, the major indices got creamed.

  • German DAX, -20.01%
  • France’s CAC, -20.3%
  • UK’s FTSE 100, -17.6%. Worse since 2008.
  • Spain’s Ibex, -21%
  • Italy’s FTSE MIB -24%
How are the major European indices fairing for the year?
  • German DAX, -30.32%
  • France’s CAC, -31.42%
  • UK’s FTSE 100, -29.4%
  • Spain’s Ibex, -31.1%
  • Italy’s FTSE MIB, -32.7%

Eurostoxx futures +0.5% in early European trading

  
Analysis, Global Indices
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Positive vibes seen in early trades in Europe

  • German DAX futures +0.5%
  • French CAC 40 futures +0.8%
  • UK FTSE futures +0.3%
Just be wary that a large part of the gains seen here can be attributed to catch-up play to the performance of US equities overnight. European equities closed in a mixed mood before the late surge in US stocks – led by tech – so that is helping to fuel some of the gains.
Other than that, Facebook beating forecast revenues in Q2 is also helping to lift sentiment further but it’s all about the ECB later on. Expectation that the central bank will ease today has heightened (OIS market sees odds of a 10 bps rate cut at ~51% now) and that should tells you how markets are feeling about the decision later on today.

A Common Misconception

  
  Education
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We’ve all heard it before: You just need more winning trades than losing trades in order to be profitable….

Wrong.

There’s a common misconception out there that more winners than losers automatically results in a profitable account. I personally don’t think that’s the case at all. In fact, the more important thing to worry about is how big those losers are relative to your winners. You can have more winners than losers but have your losers result in massive drawdowns that your winners can’t make up for. I can’t begin to tell you how many horror stories I’ve heard about just 1 or 2 trades completely ruining a portfolio filled with all these other winners. So to me, I believe that as long as you keep your losers small, you can have plenty of them and still keep an extremely profitable account.

And this really just plays into the importance of risk management. I know I harp on this a lot, but it’s so true. The only thing that matters is managing your risk. I don’t care how you come to your conclusions. It’s irrelevant. And I get nasty emails sometimes from people disagreeing with my methodology. But the truth is, who cares how we come to our conclusions? Balance sheets, income statements or lunar cycles – it doesn’t matter to me. I just want to know where we’re wrong. At what price is the original thesis incorrect? And therefore, how much are we risking to put on this position? (more…)

The Narrative as Valuation

  
  Education
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Aswath Damodaran writes:

If one extreme of the numbers/narrative spectrum is inhabited by those who are slaves to the numbers, at the other extreme are those who not only don’t trust numbers but don’t use them. Instead, they rely entirely on narrative to justify investments and valuations. Their motivations for doing so are simple.

1. Story telling is a powerful attention getter/keeper: Research in both psychology and business point to an undeniable fact. Human beings respond better to stories than to abstractions or numbers, and remember them for longer. After all, the Harvard Business School has taken story telling almost to an art form with its cases, tightly wound narratives that are supposed to convey larger lessons.

2. Unrestrained creativity: “Creative” people through the ages have always fought back against any restraints on their creativity, especially those imposed by those that they view as less imaginative than they are.

3. The Creative Superiority Complex: Just as numbers people intimidate with mounds of numbers, good narrators can browbeat “bean counters” with superior story telling, especially if they can back their stories up with personal experience.

Don’t trade off storytelling. Just don’t do it.

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