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Briefly Speaking, by Victor Niederhoffer
A Dow January Barometer
The five Dow stocks that performed best in January 2006 were: General Motors, +24%, Caterpillar, +18%, Exxon, +12%, Pfizer, +10%, Hewlett Packard, +9%. Is there any statistical reason for thinking that they will perform better during the rest of the year than the other 25 Dow companies? I computed, with the aid of my hard-working associate Vince Fulco, the rank correlation between the performance of the 30 Dow companies in the first month of the year versus the last 11 months of the year, for each of the last six years. I found negative correlation coefficients in each year, insignificant ones on the order of -0.05. Thus, I conclude that there is no tendency for the January barometer to work for the 30 individual Dow stocks.
James Taggart and Mysticism in our Field
I heard a nice analysis of Atlas Shrugged by Edward Hudgins of the Objectivist Centertoday in which he concluded that not only did Taggart eschew the use of reason, but that this necessarily led him to a death wish for himself and all others. I couldn't help but think that the blind abuses of reason in our own field of market analysis must also lead to that end. After all, what reason is there to think that by drawing a straight line between two points (which you can see clearly from across the room according to a great exponent), will lead to movements in the future in the same direction. For sure, there are transactions costs involved. And for sure, there are fees taken out for the experience. Also, there are people on the other side who are flexible and would have a tendency to trigger exacerbated movements in the entry and exit. Finally, there is the query as to whether there is any amount of evidence that will convince a proponent of same that no predictivity will occur in the future sufficient to offset the frictions and vigs mentioned above. Where can it all lead, but to a situation and condition similar to James Taggart at the end of Atlas. I would like to acknowledge that the sportswriter of a recent article in the sports pages of a Boston newspaper seems to have a feel for this ultimate resolution of faith in the market trading world.
A Mere 24 Hours
What a difference a mere one day of trading can make. At 1:20 PM on Feb. 1, crude oil trades at $69.00 a barrel, at a four-month high. In the last hour, it moves down $2.50 a barrel and then on Feb. 2, fell another $1.90 a barrel. A decline of 6.3% in 24 hours is enough to bring it back to the levels of the beginning of the year. There was a comparable move from $1.85 a gallon to $1.66 a gallon in gasoline prices. Both moves seem to have occurred out of the clear blue sky with no news of any kind to account for them, they are reminiscent of the squalls of the 19th century talked about in Ed Spec, and in 50 Years In Wall Street by Henry Clews. The moves were also a harbinger of Thursday's swoon in the US stock markets, typified by the 15-point swoon in the S&P. Such moves dashing the hopes of those that enthuse over great expectations for a market at the beginning of the year, with January Barometer type of hopes, and more importantly putting the fear of the Market Goddess in those that are weak holders, seem to me to occur with inordinate frequency in the first part of a year. But this must be tested.
A New Kind of Conference
There are conferences on every conceivable aspect of the investment business. And my good buddy the expert spoke at more than 50 of them last year. It seems to me that the time has come for a conference devoted to losing strategies, fast operators, deceptive practices, gilding the lily, how to be led astray by past results, excessive fees, mistakes investors have made, hubristic practices among the stars, conflicts of interest, past present or future actions contemplated against the guilty, and recovery strategies. The idea for this is not mine. It came from a good friend, a former investor, who recently withdrew from my fund with a nice profit, but told me that I should be thankful for his withdrawal because he always withdraws at the wrong time, and that means that I am due for a great windfall. He was kidding. But when I volunteered to be one of the keynote speakers at such a conference, with an enumeration of lessons and 20 errors from my 1997 debacle, his demurrals were none too great.