Tagged: rational investement

Who Owns My Shares

Why don’t trading and ownership match?

Sometimes you must change your point of view – put on the Magic Market Structure Spectacles – to see the truth. Say twenty-five institutions own 75% of your shares. From one month to the next there is little change in names or holdings. The remaining 25% of shares must be changing hands every few hours. Right?

In one of the better movies Nicolas Cage made before he became desperate to pay his back-taxes, his character Benjamin Franklin Gates in National Treasure found Ben Franklin’s spectacles and decoded a treasure map on the back of the United States Constitution.

That was in 2004. They were still using flip phones. In the stock market, Regulation National Market System hadn’t yet transformed trading. Yet eight years later with smart phones in most hands, IR teams and executive suites are still looking at ownership data to understand share-prices.

Grab your Magic Market Structure Spectacles. A midcap stock the past 20 trading days averaged 3.1% intraday volatility – the gab between highest and lowest price during the day. The spread in daily closing prices is half that, at 1.6%, and only if you apply absolute value. Net the ups and downs in closing prices and the cumulative price-difference in 20 days is 7%.

Now, add up intraday volatility. Anybody want to take a stab at it? Think of a number. Got it? Okay, the envelope, please. And the winner is…62%.

Yes, you read that right. Total intraday volatility is 62% in a single month when the apparent change in price is just 7%. What does that mean to “market neutral” money that hedges assets every day and trades for yield?

A treasure trove. Yet for that same stock we found Rational Prices (where active investors outraced everybody else to buy shares) on just 14.7% of trading days. (more…)

Look Around

It’s good to know what’s around you.

En route back from Austin to Denver we traversed the hinterlands including eight miles of dirt track to visit the evocative scene of the 1864 Sand Creek massacre of peaceful Cheyenne and Arapahoe north of Lamar, CO. There’s an eerie stillness yet.

A technology client in a five-day period showed a 14% increase in midpoint price on a 4% rise in Rational investment and a 3% uptick in Speculative trading. It’s not evocative, I agree. You see all those percent signs and you want to watch cartoons or have a cocktail hour. Or drive a deserted road. Any escape from dreaded math!

But it’s telling you as plainly as historical evidence what’s happening. It’s laden to dripping with news you can use. Rational investment occurred. Speculators picked up on it and moved the price. And look how important rational investment is – just a few percentage points can change everything. There’s no better or more immediate proof of the need for IR and sweating the small stuff. One call here, one meeting there, and the whole structure of your equity market transforms.

Think about what web advertisers do with data. Every click, visit, or search is a data point that paints a three-dimensional picture of you, the consumer, and which then lines the margins of your browser with things you might use. And cookies might send you emails offering travel deals, an Overstock auction, or affordable life insurance.

Another client gained 5% around Thanksgiving, on a 7% increase in Program trading – and we even know the brokers responsible for it, and how much they were up or down compared to the preceding period. We use an algorithm for that. We marked Rational and Speculative trading as shares of market this week versus last and both were down. Hedging was the measurable, mathematical price-setter. (more…)

I read this at an Occupy Wall Street site:

“Let me tell you a wonderful old joke from communist times. A guy was sent from East Germany to work in Siberia. He knew his mail would be read by censors. So he told his friends: Let’s establish a code. If the letter you get from me is written in blue ink, it is true what I said. If it is written in red ink, it is false. After a month his friends get a first letter. Everything is in blue. It says, this letter: everything is wonderful here. Stores are full of good food. Movie theaters show good films from the West. Apartments are large and luxurious. The only thing you cannot buy is red ink.”

Great joke. No doubt scrutinizing your trading data to make sense of it is like something written in red, the code for which is blue.

Speaking of which, chances are, your earnings date is approaching. Your intraday volatility (spreads between high and low prices) is perhaps 4%. Across our client base, it’s now over 4% on average. To help you make sense of your stock price, the exchanges and designated market makers and surveillance firms are giving you columns of data on trading by different brokers and sector or economic news. They tell you so-and-so upgraded the sector, causing a strong rally.

You’re not sure. In your gut you think the euro has got a lot to do with it. Maybe the dollar. It would be nice to know. And it would help if you could assess how money will react to the news you announce next week or the week after. (more…)