Business Update

Business has really picked up. We had a mailer for several hundred trading-oriented prospective customers hit yesterday and the phones have been blowing up. To avoid confusion, recall that there are two aspects to what I do: 1) an over-the-counter market-making service in physical gold and 2) speculate on markets largely with futures. The mailer goes to potential clients on the physical based on a business list our US marketing department purchased from a data mining company.

Both have gone really well today with gold touching all time nominal highs around $1279 per troy ounce  (depending on where you get your trading info).Over the coming weeks I will begin cold-calling to follow up from those mailer prospects, but until then I get to wait on the inbound calls to slow down. That's going to require some serious caffeination (wish I had some of the espresso from Italy).

Basically my work day consists of being on and off the phone all day (for physical deals entered via our proprietary trading system), speculating on markets through a futures exchange platform and rocking out via the Grooveshark streaming music website (lots of Grateful Dead and Railroad Earth right now) with Bloomberg TV on in the background. Manic, but fun.

Seasonal Investing Articles are Crap

I always chuckle to myself a little when I see an article in the WSJ or a report on CNBC regarding how September is a bad month for stocks or some other mindless investing swill. This is about misunderstanding the fundamental difference between correlation and causality. Note that commodity markets have more legitimate seasonality because of supply and demand issues (think summer driving season and hurrican season for energy) Josh Brown at the Reformed Broker does a nice takedown of these pieces:

I see that the "September is the Cruelest Month" linkbaiting posts have already been arriving in droves.  I'll shred them to pieces real quick typing with one hand and only about a tenth of my common sense.

Let's start here with a bit from Minyanville:

The month of September gives equity investors a sinking feeling and for good reason: Historically, this has proven a bad month for the stock market.

Oy vey, when it starts like that, you already know you're reading filler.  Allow me to deconstruct the genre of "month/season/timeframe" articles and posts so that you never waste your time on another one again:

1.  Timing - designed to coincide within a few days of the beginning of the new time frame (September in this case, post date on this example is Aug 30th)

2.  Post Title - The title will mention the month and within a descriptor or two attempt to scare you into to clicking on it.  It will work, you will click, because we were all conditioned by the same commercials as kids when Duck Tales came on after school.  Cereal was purchased, let's keep it real.

3.  Data - They will steal all the data from either the Bespoke Investment Group or Ned Davis Research so just set your feedreader to grab both of those for the raw numbers minus the ex-banner ad salesman's "contextualization".

4.  But wait! - About halfway through the post which has just given you all the historical reasons you should just blow your brains out rather than be invested, a White Knight shall come galloping up over the crest of the hill, banners aflutter, with a reason to live, dammit!  The White Knight will be the Chief Investment whatever at an asset-gathering operation whose prima facie mission is to keep you invested, read his commentary accordingly.

5.  The non-conclusion - the last sentence will be exactly the evidence you need to tell you that you've just read something with almost zero value to anyone other than Scottrade, who have had the 1 minute-and-15 second opportunity to flash banner ads at you like a 42nd Street vagrant.

The point is this, it's all unprecedented.  What the markets did in September over the last 11 years or 6 years matters as much as the hair styles of this year's top ten American Idol competitors.  The variables are too large, too unknown and too unbound from historical calculation.  The context is always different also, especially now in our era of roadside attraction-sized superlatives.

Investors should try to incorporate historical quantitative stuff in their search for probable outcomes, but should never live and die by it.  Monthly market machinations make for good headlines but stupid fodder for helpful forward thought.

What Fat Ladies in Bikinis tells us about investing

Its the Friday before a long weekend here (its actually called Summer Bank Holiday), so here's great post at Weakonomics (via Ritholtz) about average investor rationale. My favorite:

Oh sure, she knows she’s big, but she’s refusing to admit how big she is.  Just like the investor knows they’ve lost money, but they won’t sell because they don’t want to admit it to themselves.  In her world, she isn’t really fat until she gives up and starts wearing the one-piece.  She hasn’t lost money until she sells the stock.

By wearing the bikini, she’s sending a message to herself that she could still slim down, or that she’s not as big as she is.  Exhibit 1B on the other hand knows she’s big, and just wants to have fun at the beach.  She knows she’s big, but doesn’t want to distract herself or others by jumping into the back-cleavage olympics.  She’s just as likely, if not more likely to actually make a turn around.  She’s the one who sold her stock at a loss and moved on with her life.  It’s the rational decision, and the best one for her bottom line (and perhaps her waistline.

Enjoy. This also reminded me of this bumper sticker:

Beware Leveraged ETF Slippage

There's an Article in Barron's regarding some of the dangers of leveraged ETFs. Since you have to have subscription access, here is the link to The Big Picture's write-up.

I've used these before for the short-term because of market concerns and while they can be effective, it is somewhat buyer beware as you do give-up some of the upside potential via their market mechanisms (i.e. futures and options instead of a pure short play). They can be valuable in small doses as a cheap and easy hedging solution as well.

Flash Crash Investigation

Long read out of the WSJ investigating the Flash Crash. I haven't fully read it yet, so I won't post any thoughts just yet:

Full Article Here