Author Archives: JLTrader

A Look at Facebook’s Valuation

facebook_like_thumbThis week marks the six year anniversary of the bull market in US stocks and six months since Facebook passed $200 Billion in market capitalization. While the Nasdaq has increased in value a little bit over three times during these six years, Facebook capitalization has gone up some twenty times over the same time period. Although not publicly listed until May 2012, its value in Spring 2009 was unofficially set around $10 Billion when Digital Sky Technologies bought a 2% stake for $ 200 million. I remember the comments at that time questioning what seemed like such a high valuation and the comparisons being made with MySpace, a failed social network which had been all the rage a few years before.

Despite all the skepticism, Mark Zuckerberg’s company is currently worth more than much older tech giants like IBM or Intel Corporation as well as brand name icons like Coca-Cola or Visa. These companies that have been beaten out in capitalization terms generate much more cash than Facebook does and have a long history of doing so and yet they are not rewarded by investors, who seem to prefer exciting companies.
So where does the excitement come from lately in case of Facebook ? I guess it’s a combination of high earnings growth – mainly from the mobile market – and large acquisitions – like mobile messaging service WhatsApp, Instagram or virtual gaming headset maker Oculus VR – which are expected to pay off big.
If Facebook will continue to defy its skeptics as it has done for at least the past six years, it’s everybody’s guess. For the time being there are I believe three things worth remembering:
1. It is very inspiring that in just eleven years someone in his early twenties could create from scratch a company to rival the biggest listed companies in the USA.
2. You can’t predict the future, even if you think you have all the angles figured out – those who witnessed the failure of MySpace were very quick to point out that Facebook will be just a repetition, but on a grander scale. They have been proven wrong time and time again.
3. Don’t short something you don’t understand just because it seems too pricey. What today is considered ‘extremely’ expensive, might become ‘insanely’ expensive tomorrow. As famous British economist John Maynard Keynes is reputed to have said: ‘Markets can remain irrational longer than you can remain solvent’.

Six Years of Bull Market for US Stocks

bull-market-This past Friday marked the six year anniversary of the bottom in US stock market as represented by the popular S&P500 and DJIA indexes. It is surprising when we realize how far they’ve come since Friday March 6th 2009. That day, which just like yesterday, was a jobs report day (NFP), saw a low of 666 in S&P500 and 6470 in DJIA. These were the lowest points in those two indexes since September 1996 and April 1997 respectively. Compare that with yesterday’s closing levels of 2072 for S&P500 and 17856 for DJIA, a rise of more than 200% for the former and more than 170% for the latter.

Another gauge of how different things are six years later is the nonfarm jobs report. Employers cut 650k jobs in February 2009, after another cut of 655k in January. The unemployment rate rose to 8.1% in February from 7.6% in January. All these numbers painted indeed a bleak picture. Six years later, things are completely different though: 295k jobs were created in February 2015, coming on top of another gain of 252k in January. The unemployment rate is  5.5%, down from 5.7% in January.

The Lazy Trader And The Screen-Time Myth

This post was triggered by an article on Tradeciety: Why Being a Lazy Trader Will Make You Profitable. I wrote a reasoned comment at that time but here we are two months later and it still hasn’t been published. That makes me wonder why would you put a comment form in the first place if you’re not willing to engage with your readers. The article, if we manage to overlook that horrible metaphor ‘lazy trader’ makes sense more or less, with one glaring exception: ‘The Myth of Screen-Time’ paragraph.

The author starts the paragraph by bashing the 10k hour concept as applied to trading. For those who haven’t heard of this concept before, it originates from Malcolm Gladwell’s book Outliers: The Story of Success. Gladwell posits that one needs ten thousand hours of practicing a skill before getting very good at it. If that number is the correct one or not, it doesn’t really matter, the essence behind it has been known for a long time, hence the saying ‘practice makes perfect’. If we agree with the obvious fact that one needs experience before hoping to become proficient at something, how can we say that it isn’t so with regard to trading ? It doesn’t make any sense.

The paragraph continues with the inept comparison between someone who watches TV series and movies for thousands of hours without becoming a Hollywood director and the trader who wastes time being glued to the screen. Over 99% of people watch TV and movies for various reasons: because they enjoy it, to pass the time, socialize and so on, which have nothing to do with them wanting to become a Hollywood director. What does that have to do with a trader studying charts, reports, news as part of a working process with a definite target: to become a better trader.

The type of trader your are, short term or longer term oriented, will  influence the daily screen time required. But before you can really call yourself a trader, there’s no getting around putting thousands of hours in front of the screen.

tc

Unpublished comment

Debunking the Consistent Profitability in Trading Myth

MythBustedThis post was inspired by an email exchange I had over the weekend with a reader of my site who, in his own words, is ‘an absolute beginner’. He was surprised when I told him that even experienced traders can have negative years. So it lead me to think about this common misconception that most people who are new to trading have: that after a learning period, who the most naive among them think it’s not longer than two months, they will reach the stage of ‘consistent profitability’ – a sort of trader’s nirvana – in which they will very rarely experience monthly losses and never have negative years.

I believe this myth is perpetuated mainly by a good percentage of those who sell trading systems and educational services, for reasons too obvious to elaborate here. So what anyone interested in this subject should do is look at those who actually trade – and have been doing it transparently for years, as opposed to those who are just selling trading related stuff. A good place to start is Altegris Manager Rankings. We can find here some famous names, like William Eckhardt, who together with Richard Dennis started the ‘Turtles’ experiment in the 1980s and was also featured in Jack Schwager’s New Market Wizards; Jerry Parker, an original Turtle; Salem Abraham, featured in Michael Covel’s The Complete Turtle Trader, and others.

Let’s now see how ‘consistently profitable’ some of these traders have been during the last ten years (2004 – 2014): Salem Abraham had 4 negative years, William Eckhardt two, Jerry Parker three, William Dunn three and we can go on and on like this. What we can see is that it’s very hard to find a trader who doesn’t have a negative year once in a while. If we look deeper, at the monthly results, we can see streaks of five or more consecutive losing months. How’s that for ‘consistent profitability’ ? :)

In conclusion, the real trading, as it can be observed by looking at professionals with decades of experience, is often very different to what new traders imagine or are lead to believe by unscrupulous salesmen. The sooner one deals in facts, rather than fantasy, the better it will be for him.

Being Successful in Trading by Not Trading

“My philosophy has always been to stay out of the market as much as possible. The less time I am in the market, the less risk I am taking. If dictated by market conditions, I’d rather make X percent having significant market exposure in only three months of the year than make the same amount while being in the market all the time.” – Mark Minervini in Stock Market Wizards by Jack Schwager – Continues here

Timothy Sykes Exposed

Even if, like me, you’re not into penny stocks, chances are that you’ve heard of Timothy Sykes. He’s the guy who, while in college, turned $12k into more than $1million trading penny stocks during the dot-com bubble in `99-2000. He then tried to run a short biased hedge-fund, didn’t quite make it and since 2007 has transformed himself into a guru selling various DVDs purporting to teach you how to become a millionaire trading penny stocks.

His signature pitch in attracting customers is to present himself like a care-free trading millionaire: driving a Lamborghini, making videos in exotic locations surrounded by scantily clad women, trading by the pool side and so on. Unlike most if not all the other people charging money to show you their trading secrets, Timothy Sykes boasts his transparency and the fact that he allegedly already has two students who made over $1million.

I normally would not have written about him – I’m not interested at all in penny stocks, and he’s so over the top in all his marketing (he says that he does it on purpose, to motivate his students) that trying to debunk all his claims would be a case of stating the obvious over and over again.

But it so happened that I saw a link yesterday to an article on his blog bashing the Wolf of Wall Street, Jordan Belfort. If you manage to get past all the hard selling on Sykes’s blog, you’ll notice that he’s written three pieces over time bashing Belfort. Now, I know that Jordan Belfort is a controversial figure and I’d be the last person trying to defend him. But I found it funny how someone like Tim Sykes, who has his fair share of skeletons in the closet,  has the gall to call Belfort a scumbag so openly. And not once, but three times. So I left a comment to his article and thought nothing more of it.

timc

Unapproved comment

Today I noticed that the comment still hadn’t been approved (although some other comment had been), so I sent a couple of tweets to Tim, along the lines of : ‘Hey, Mr Transparency, cut the censorship, publish my comment ‘. So what did he decide to do ? He banned me on twitter too. :)

Banned on Twitter

Banned on Twitter

So much for all his alleged transparency. As the article that I linked to in the censored comment shows, Timothy Sykes refused to present brokerage statements and related documents to validate his claims. That just says it all about how real the alleged percentages and millions in profits made by his students are. Just as real as his transparency.

Cutting Through the Bull – Forex Price Action

keep-calm-and-cut-the-bullshitI’ve never held the guys selling Forex price action courses in high regard for one basic reason: not one of them can show that what they teach and charge for is profitable. As far as I’m concerned, in trading money talks and bullshit walks. You can have the best designed website and hundreds or thousands of subscribers but if you can’t produce at the very least a year’s worth of verified track-record then you’re at best dishonest and at worst a complete fraud.

What prompted me to write this article was reading the latest post on ForexExposed. What I hope to achieve is to get any person who considers spending money on forex price action sites to think twice about it. They should realize that: 1. they’d be buying very expensive trading education and 2. that it is of a dubious quality from a dubious, potentially fraudulent seller. Some of you will point out that at an average of $300, these courses are very cheap compared for example to the $2500 Andrew Mitchem charges. But what if I tell you that you can get the twenty or so best trading books on Amazon for around $200 ? Yes, I know, a book is not like an interactive website where you get daily or weekly updates and get to ask questions. But let’s see who the guys that answer your questions are. If you search ‘forex price action’ on google, you’ll get the following sellers on the first two pages:

– Dale Woods at theforexguy.com

– Nial Fuller at learntotradethemarket.com

– Justin Bennett at dailypriceaction.com

– Chris Capre at 2ndskiesforex.com

– Johnathon Fox at forexschoolonline.com

You will notice that the websites look pretty much alike and use the same approach to attract members: trade setups for a forex pair or two, with the invitation to register in order to view setups for other pairs. Testimonials so over the top that they are funny: supposedly, traders who have been losing for years, bought their services and now are consistently profitable, doubled accounts and so on. :)

Regarding the trade setups and commentaries, the internet is full of them, from the ones you can find on trading forums to the ones on various sites like ForexLive. Their quality varies considerably, but it’s mostly poor. Just because you start paying $300 doesn’t automatically make them top-notch. Particularly when they come from sources which make unsubstantiated claims of profitability and success to entice aspiring traders in parting with their money.

Regarding the quality of the courses as reflected in testimonials, as I said in the beginning of this article, not one of these guys, although they’ve been in business for 4 years or more, will offer a verified performance record of the strategies they teach. That should tell you all you need about their real value.

To conclude: I see no valid reason for anyone to spend money on forex price action websites. You would be paying for something – trade setups, chat room, emails – that you can find on the internet for free anyway. There’s hardly anything to indicate that these guys are qualified to be trading mentors to other people. If you’re still deluded in thinking you’re paying for access to ‘forex professionals‘, as they call themselves, ask them for a verified track-record. And then come back here and leave a comment with their excuses for not producing one.