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A Tale Of Two Markets

If you look at the performance of the broader Australian market since the GFC you see a market that has relative to other world markets been modest in its gains. The chart below looks at the performance of the S&P/ASX 200 against a variety of other markets. The lack of energy in the broader index is obvious.

Screen Shot 2015-04-21 at 9.10.20 am

However, markets nowadays are highly segmented into various indices, sectors and industry groups. This breaking down of markets for the most part simply generates useless data. However, it does on some occasions prove to be useful in that traders can drill down to see what is driving the performance of the market. Unfortunately, most market commentary particularly by the mainstream media doesn’t pick up on this segmentation and they merely quote what the broad index is doing. Taking a reductionist approach does tell you something about the quality and specify of a markets move. It tells you where the money is going.

Australian superannuation managers are awash with cash and it has to have been going somewhere. The chart below tells you where it has been going.

XTO

This is a chart of the ASX/S&P 20 which is much narrower index comprising the following companies. Its performance stands in marked contrast to the broader market.

AMP
ANZ
BHP
BXB
CBA
CSL
IAG
MQG
NAB
ORG
QBE
RIO
SCG
SUN
TLS
WBC
WES
WFD
WOW
WPL

From viewing this chart it is easy to see where the money has been going. Australia has up to this point had a two speed market. The S&P/ASX 20 has been roaring ahead whereas the broader market has been meandering. This can also be seen when we examine the number of 52 week highs being made by the broad index versus a narrower counterpart. Unfortunately, I wasn’t able to drill down to the S&P/ASX20 so I had to substitute the the S&P/ASX50. Despite this use of a slightly broader index what is being conveyed to the trader is still interesting in that it again highlights the two speed nature of the market.

52 week

True stock pickers would already be alerted to this dichotomy in the market since only those stocks that are making new highs would feature in their selections. The situation would be harder for the so called value investor since it is likely that they would be buying stocks that are not moving. One of the great issues with value investing is the belief that your narrative is the markets narrative. This goes back to something I said on Talking Trading last week and that is the need to follow the money. Trading is simply about following the money – it is not about believing in your story.

 

Information Overload

My question whilst watching this was how much of the new information being added to society is actually relevant to us?

 


 
 

Interesting Fact Of The Day

In the week ending 17/04/15 1,680,000 new A-share accounts were opened in China.

Screen Shot 2015-04-21 at 8.04.06 am

 

Charts Of Interest 17/04/2015

Screen Shot 2015-04-20 at 6.48.22 am Screen Shot 2015-04-20 at 6.48.33 am Screen Shot 2015-04-20 at 6.48.45 am Screen Shot 2015-04-20 at 6.48.55 am Screen Shot 2015-04-20 at 6.49.06 am Screen Shot 2015-04-20 at 6.49.21 am

The Long Marriage of Mindfulness and Money

Meditation, like yoga before it, has been fully assimilated into corporate America. Aetna, General Mills, and Goldman Sachs all offer their employees free in-office meditation training. In January, the Times reported on a packed panel at Davos where members of the global élite “professed that meditation gave them a competitive advantage.” Speaking to Bloomberg, a meditation instructor at Goldman Sachs recalled a trader she works with who “gets a twinge in his gut when he senses a move in the markets.” With meditation, the instructor said, he had found an edge “by tuning into that sensation more . 

The Bloomberg article (called “To Make a Killing on Wall Street, Start Meditating”) described how mindfulness meditation, which has roots in Theravada Buddhism, a predominant school in Southeast Asia, works for corporate types: “If a dog barks, you might register it before quickly refocusing on inhaling and exhaling. Mental intrusions are treated the same way: Thoughts such as ‘book NetJets’ or ‘offload bitcoins’ quickly pass like leaves floating on a stream.” The point, of course, isn’t that you will no longer care about your bitcoin returns but that, by developing greater calm and attention, you’ll ultimately get better ones.

More here – The New Yorker

 

The Transformative Effects of Reading

Reading a book is the closest we can come to sharing the mind of a great thinker. After all, what is a book but thoughts transcribed? Spend a lot of time with great people and we cannot help but be transformed by the experience.

If you want to become a more interesting person, with a broader base of knowledge, more enlightened opinions, a vocabulary that expresses the nuances in how you see and experience the world, then reading well is a wonderful shortcut.

Read widely. Wide readers are able to stitch together disparate ideas from varied fields in ways that seem new.

Slow down: read to absorb, not to finish quickly. If you’re looking for something to read, choose something that seems difficult. To read difficult books, you’re going to need to slow down, to pause, to highlight, to take notes.

Read fiction, too. Elon Musk has been deeply inspired by the works of science fiction visionaries like Isaac Asimov, Frank Herbert and Iian M. Banks. Reading fiction makes you better at imagining what doesn’t exist (yet). Reading literary fiction also improves empathy.

More here – Inside.Envato

Prediction

I have written often about how appalling the social sciences are at prediction and I include the financial markets within this soft science definition. The chart below shows that intriguingly this is not the case with other sciences – longer term weather forecasts are becoming more and more accurate. The interesting thing is that economists have access to exactly the same tools but their predictions are still crap.

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General Advice Warning

The Trading Game Pty Ltd (ACN: 099 576 253) is an AFSL holder (Licence no: 468163). This information is correct at the time of publishing and may not be reproduced without formal permission. It is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.