Tag Archives: Mr. Market

February 12, 2012 · 10:00 am

Stocks & media hype

Last Friday after US stock markets closed I went to check the performance of the portfolio and meanwhile saw some headlines for business and general online papers: “Worst day of 2012“.

I didn’t feel that the day had been especially bad regarding stock markets. Both the Dow Jones and S&P 500 fell -0.69%, which indeed had been the worst day so far in 2012, but so far both indices had returned over 7.5% and 5.5% in the first 5 weeks of the year. So, I guess that what wasn’t the norm was the positive trend with only about 3-4 bad days so far.

S&P 500 in 2012 through February 10.

I went further and compared the -0.69% to 2011 numbers, in this case only with S&P 500.

How many days did the index go below -0.69% in 2011?

64 days out of 252 trading days, that is 25% of the time. The index went up more than +0.69% for other 67 days (27% of the time). It went down but less than -0.69%, 51 days and up but less than +0.69%, 70 days. Quite an even distribution.

So, compared to 2011, a market move of 0.69%, up or down, was rather the average. During the whole year the S&P 500 returned barely 0%, so it’s true that 2011 wasn’t a particular good year, and it was as well especially volatile, indeed the average move along the year was ~1.04% and the median was 0.74%, either positive or negative.

S&P 500 in 2011.

This is just to point something not new: Mr. Market’s moves coupled with media hype aren’t good companions for taking investing decisions.

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November 2, 2011 · 8:00 am

With the Market’s swings, you lose

Stock markets have been very volatile recently. Mr. Market’s got a very fragile mood. One day is up, the next is down.

In this post, I just wanted to make an obvious remark for most of you but a small insight for those who are not very acquainted with numbers.

Whenever the market moves up and down in consecutive moves of the same percentage, no matter which move comes first, you lose.

Imagine you have 100$ in the stock market. One day your stock moves up 2%, so you end having 102$. If the following day your stock goes down again by the same 2%, you’ll end up with 99.96$. Less than what you had before day one.

Then take the reverse case. If your stock went down 2% in the first place, you’d have 98$. If the following day it went up again 2%, you’d end up with the same 99.96$ (nothing more than the commutative property of the product).

Anyway, with those consecutive moves you would end losing some cash. You may believe that 4 cents are not worth the comment.

Think then about your savings (e.g. 10,000$) and about possible yearly performances (e.g. +/- 20%)… now you will see that at the end of the second year instead of 10,000$, you would have 9,600$, down 4% from the beginning (about -2% per year).

I just wanted to leave this small note here in the blog, obvious for some and not so for others, as I will come to it at a later point in time.

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February 26, 2011 · 11:00 am

Resist the bias to act

Some days ago I tweeted about the swings of Mr. Market lately. The consideration of the stock market as Mr. Market is a metaphor that we owe it to Benjamin Graham.

Since a picture is worth a thousand words, I wanted to share a snapshot of the swings of our “J&L” ( 😉 ) portfolio in the past few weeks. One could read the picture as “you have lost 114$ in the past weeks”. That same person on January 28th would have said “you’ve lost 2,000$ in the last 10 days”.

"Resist the human bias to act", Charlie T. Munger

In fact we have not lost a nickel in these weeks, since we haven’t sold any stock. I love a quote from Charlie T. Munger, Berkshire Hathaway vice chairman, which goes: “Resist the natural human bias to act”.

You actually don’t need to buy or sell stock when the market is in the mood. It is as easy as not doing it. You may buy only when you see a margin of safety and sell only when the stock has reached what you considered it to be at its intrinsic value.

You can see that in these 5 weeks we could have lost up to 2,000$ twice; we didn’t. The only tools we counted with: patience and not “listening to Mr. Market”.

Precisely today, it is published the letter of Warren Buffett to Berkshire shareholders. Whether you are planning to invest in stocks or only want to have a fun read, take a look at it.

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