Bottom just fell out of Nikkei
e.nikkei.com
e.nikkei.com
The assumption is that the market will turn around, and anybody who buys into Japanese companies stands to make a lot of money. If this is the case, then why are the prices going down at all? Are other investors really that ignorant?
Both buying and selling may be the correct play depending on your current position.
These aren't rhetorical questions, this is just my line of thought based on my relative ignorance of investing.
So there we have perfect information about the stocks' long-term performance, but two situations in which both buying and selling the same stock is wise, or at least understandable.
Contrast that to hedge funds, investment banks, and other investment groups that have investors to please and targets to hit in the immediate/short term. For them, their time horizon is shorter and 1) they need to free up cash and 2) they cannot take the risk of holding on because the economy is definitely impacted in the short term.
Let's put this in perspective. The Nikkei is down 80% over the past 21 years. At an optimistic rate of increase of 6% from now, it will be another 25+ years before it hits 38957 again. All up, over 45 years.
Have a look at Shiller's house price graph. From 1890 to 1955 there was zero real increase - and large falls in the meantime. This is 65 years. Again long term is very long term. Same in Australia by the way. The USA and Australia of the most prosperous and successful economies in the C20. Others did far worse.
This "in the long run all will be well" argument just doesn't hold water. Not if you have a human life span.
See for more on this "The Big Investment Lie: What Your Financial Advisor Doesn't Want You to Know" by Michael Edesess. Everything a financial planner tells you may be a self-serving lie.
Aha - there's our problem!
When Steve Jobs announced his medical leave just under two months ago, the Apple (AAPL) price opened the next day (Tuesday) down 5.44% on Friday's close price. The low point on Tuesday was 6.45% lower than Friday's close price.
While the price did go back up a bit that same day (the Tuesday close was only 2.25% lower than Friday's close price), it kept dropping for a few days. By the time the markets closed on Friday, AAPL's price was 326.72, down 6.24% in a week (compare that Friday close price to AAPL's lowest price on Tuesday, which was 326.00).
For some reason, investors were selling Apple stock because of fears over Jobs. This seemed ridiculous to me, and sure enough, in the (nearly) two months since then, the market has shown that I'm not alone in that view.
If you bought AAPL stock at that Friday closing price and sold right now, you'd be selling 8.21% higher than you bought. Even if you didn't time the buying quite as well, so didn't get it at such a low price, if you bought it at the opening price on Tuesday (the day after the Jobs announcement) you'd have made 7.30% profit, or if you bought it at the closing price on that same day and sold now, you would have made 3.79% profit.
So even with pretty shit timing on when to buy, just by having faith that Apple stock would bounce back, that's a very healthy rise in value over just two months.
The cause (I think) of the problem is two-fold. For starters, people are afraid that, if they buy back in too early, they will be too far ahead of the market and prices will continue to drop - obviously, they're hoping to be just a tiny bit quicker than the market, buying just before prices start going back up again quickly.
The second reason is basically the same, but with a different approach. Rather than wanting to avoid having your shares devalue immediately after buying them, it's a case of not wanting to buy back in too soon because, the lower the price you pay, the bigger the return once they have bounced back.
There is a legitimate concern, that without Jobs to supervise things, in a year or two, the "magic" of getting the right product out at Apple would be gone.
Sure, Apple would still be making money, because Tim Cook is a great COO, but the "vision" would slowly fade.
Remember, when you are buying Apple stock you are paying a premium on the expected growth. in a year or two
So yes, the market was pricing that possibility, but it was obvious that in no time at all it would forget about it and go mad over the Apple's short-term future. Sure enough, it did.
Many people who are levered don't have the capital to withstand this type of drop and get washed out causing further selling.
It's a chain reaction that eventually cools off. Let's hope their fuel rods do the same!
This can be true, but remember that you don't know where the sell orders are placed. We could have already seen the trigger and the corrpesponding drop-off.
Also, remember that many investors believe this, so they put buy triggers below where they think sell triggers are. Also, there are value investors who place buy triggers without regard to the existence of sell triggers.
I'm not saying that the phenomenon you describe does not exist here, and I acknowledge it has happened in the past. But you need to qualify axioms like that to see if they apply to new situations.
Full disclosure: I made a small-but-quick profit on the Nikkei today.
I think the LessWrong post Markets are Anti-Inductive explains it well: http://lesswrong.com/lw/yv/markets_are_antiinductive/
Only half of them are selling; you can't sell unless you can find someone who'll buy at the price you want ;)
Right now a lot of the losses are due to uncertainty, people are factoring in risks of the unknown, potential worst case scenarios etc. If you buy in expecting the market to go back up, you are essentially betting the situation won't end up as bad as feared right now.
Another sad fact of this disaster is that it disproportionately affected the retired -- this too may well have consequences economically.
Economics is in part about people having productive stuff to do. If there was a work shortage in Japan before, I doubt there is now.
The market as a whole may be rational, but individuals in the middle of a tense situation probably won't be.
That said, the "efficient market hypothesis" of which you speak; that is, the idea that any and all future price rises and falls have already been factored in - is false.
Many investors _are_ ignorant. Many are stupid. Many are prone to panic. They are prone to everything that all other humans are prone to. Many are in fact big funds that have preset automated buying and selling positions and would happily buy and sell regardless of what else is going on.
As evidence, I point to every bubble and crash there has ever been.
More importantly, outside events or circumstances could mean there isn't money in the right place to be able correct market price mistakes.
By buying the panic, in effect you are selling out "of the money put options" to the rest of the market. In effect you are selling insurance policies saying things are not worse than they look. The performance characteristic of selling OOTM options is that most of the time you make money. But...
Once in a while you lose your shirt. Ask Victor Niederhoffer. What is there is a catastrophic meltdown and Tokyo has to be evacuated? What will the Nikkei be worth then? What about all the people who bought dot.com stocks after they fell 50% because they were "cheap".
When considering the merits of investment, it is worth asking:
1. Am I selling insurance to someone without realizing it?
2. Does my strategy amount to nothing more than leverage? Leverage works well in rising markets and works very badly in falling markets.
3. Are there hidden risks I am not aware of but someone else is? Or as Buffett puts it, have you been playing poker for an hour and still haven't worked out who the patsy is? (It's probably you).
4. Are you taking uncompensated risks like putting 1/3 of your net worth into one company when you could be diversified for no cost?
On the other hand out of the money put options have a limited upside.
Japan has had a crap economy for a generation, and this disaster may result on them being on a whole new course with massive upside.
-- Warren Buffett
also, as others have pointed out, your circumstances may differ from others'.
It depends on how bad the news really is, e.g. how damaged Japan's infrastructure actually is, as a whole. You need to judge this with facts, not on what other investors do, efficient market hypothesis notwithstanding.
FWIW, I don't know enough of the facts to make a decision. I do have a feeling that the Japanese people will rebound vigorously, as they did after WWII.
So faced with the prospect of fiscal apocalypse or (I had friends pulling money out of banks) the buying opportunity of the century, I bought a bunch of equities that were punished by the collapse, and made a bunch of money.
This is assuming that we have hit bottom on the catastrophe over there now and that we can contain the Daiichi plant.
It would be very interesting though, if things turn south and some massive takeovers occur in the next 12 months.
Imagine companies like Fujitsu, Hitachi or others (my mind is blank) being bought up by the IBMs Apples or even Google or GASP facebooks (those who have a lot of cash to buy tech houses in Japan and picot into HW?)
Pure fantasy sure - but so was the SCIFI scenario we are now looking at today, just last week.
$150b seems very low.
It's almost certain that Buffet would be actually analyzing these stocks rather than just jumping in because people may be being fearful.
Can you explain why this is time to start buying?
If you can explain why people are selling so much so fast right now, that might help your argument.
My comment was not meant to start a conversation about the meaning of efficient markets, but to get wheaties to explain his reasoning.
In principle, the two do not necessarily have to move in lockstep. However, because of the massive size, prominence, and stability of Toyota, one would ordinarily expect them to correlate extraordinarily heavily as anything else is an exploitable arbitrage opportunity.
and of course you can also do regular pairs trading (if they drift farther apart).
Sony, Toyota, Honda, Nintendo, etc. Japanese companies like these that were a great investment a week ago are still a great investment. Only now the stock is less expensive because of a temporary panic. Smart money is buying up all the stock possible for these companies before they can rebound.
http://www.fool.com/investing/international/2010/07/22/john-...
He is talking about long term deleveraging in many different countries. His outlook for the US is just as grim.
http://adb.nikkei.co.jp/ad/logo/2008b/NikkeiWeekly080722-NNI...
This is what they call a Black Swan event and nobody's sure that we've seen the bottom yet.
Edit: If you want to see an example of how these drops can be deceiving and might not represent the true bottom, look at Citi's chart: http://finance.yahoo.com/echarts?s=C+Interactive#chart2:symb...
You don't want to be the guy who bought a large long position when the PPS was $20, thinking it would easily jump back up to 30 or 40.
If you don't know what you're doing, you can lose everything. When you talk with truly successful traders (I know one who makes a million a year or more), you learn to appreciate that doing it well is difficult and requires a discipline that few people have.
You win, you get commission. You lose, it's not your money.
http://blogmaverick.com/2008/11/13/the-hedge-fund-disconnect...
You get a wage either way. If the bank profits you get a bonus too even if you lost your customers money. If you screw the bank up the gov bails you out and you still get a bonus.
Also, are your 401k and IRA/Roth fully funded? Be sure to do that first. (Assuming USA resident here)
1.) Max out employer matching in 401k
2.) Max out roth IRA contribution (in most cases, sometimes you might want a normal IRA)
3.) Max out individual 401k contribution limit
4.) Invest in other things.
But that's in terms of general savings. For retirement more specifically, you should definitely start now if you can afford it, due to the effects of compound interest. Try playing around with an interest calculator[1] to see why. But perhaps the best reason is that once you're 40 and have had a few curve balls thrown at you, you'll appreciate that regardless of how things turned out, you'll have put yourself in a good place financially for the long-term.
For the record, I'm in my mid-20s myself, and across my Roth and my employer's SEP-IRA, around 20% of my income is going towards retirement (with other non-retirement savings on top of that). I've set up my direct deposit such that the Roth contributions are totally automatic. It just gets dumped into three index funds: US Stock, Intl Stock, and Bonds. I basically never need to think about the accounts except when rebalancing. It's nice.
[1] Here's one: http://www.dinkytown.net/java/WaitCost.html
If you are not making $100k+, you are not going to have fuck-you money by 40. All the Facebook stock in the world still requires a liquidity event, which is unrealistic at the current valuation.
I bought Atmel stock not too long ago, it has since doubled in price. I made my money and then some. I bought Jamba Juice when they were still below a dollar, they are now trading at around $2+.
I didn't put a whole lot in, means I can't lose a whole lot, and I definitely won't become a millionaire, but at least it gives me the security that I won't be screwed because I put my eggs in one basket without knowing what I was doing.
(by all means, trade stocks if you're serious, but if you're serious you wouldn't ask)
Advanced reading on a parallel concept: http://www.irows.ucr.edu/conferences/globgis/papers/Arrighi.... The quoted and cited David Harvey piece (2007, albeit the condensed article veresion and not the full-length book) would have been a better reference however is apparently no longer online. This, though, is amazing: http://www.youtube.com/watch?v=qOP2V_np2c0
I believe Naomi Klein made a good buck on dumbing down and re-orienting the above hypothesis.
Rinse, wash, repeat. We're all rich!
Rinse, repeat, very rich.
According to the IMF and CIA World Factbook, Qatar has the highest GDP (PPP) per capita. According to the World Bank, it's Luxembourg: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_...
Care to dig up those rates/expenditures per capita?
In very bad theories, yes.
[1] http://finance.yahoo.com/echarts?s=^N225+Interactive#chart2:...
The nikkei 300 index is "The Nikkei 300 is a market value-weighted index of the 300 major issues on the first section of the Tokyo Stock Exchange (TSE). The Nikkei 300 uses a weighted average based on market capitalizations of component firms to reflect movements in the overall value of first section stocks. This contrasts with the widely followed Nikkei Stock Average which is an average price and is suitable for monitoring the level of the market and its changes.(1)"
The Nikkei 225 index is "The Nikkei Stock Average is the average price of 225 stocks traded on the first section of the Tokyo Stock Exchange, but it is different from a simple average in that the divisor is adjusted to maintain continuity and reduce the effect of external factors not directly related to the market(2)"
Nikkei 300 on Google finance: http://www.google.com/finance?q=TYO:1319
Sorry for the confusion.
This _has_ been seen in prior US public market downturns - if a pension fund is allocating 90% to public market investments and 10% to private investments, and the public market drops 33%, their fund is now split 60/10 instead of 90/10. So to rebalance back to 90/10, they'll need to liquidate 33% of their private investment allocation and move it to public investments. (This is an oversimplification but you get the idea.)