February 22nd, 2006

Observations at TradersExpo

I went to my first TradersExpo this past weekend and came away feeling both thrilled and envious. Thrilled because I learned about the many new tools available for the independent investor/trader; envious because I spent the last 40 years of my stock market experiences only dreaming about them. I know many market players today aren’t aware that it wasn’t long ago that:

  • it cost upwards of 1-2% of the value of trade in commissions,
  • you had to call a broker to place a trade,
  • you could find out how your stock(s) were doing by picking up the late or morning edition of the paper or, later, watching the tape of closing prices crawl across the bottom of your TV screen.
  • you had to either subscribe to or go to the public library for summary financial information from S&P or ValueLine or, perhaps if the company was large enough, the library’s collection of annual reports
  • charts were available from services like DailyCharts (an old service of Investors Business Daily) which came in the mail … a few days after the fact and covered only 4-6 months.

It’s no wonder that fundamental analysis was the norm since it took so long to collect, distill and analyze stock and company information. The typical investor could only look at few companies; analysts and funds, of necessity, were industry-centric. After investing so much time learning about as many companies as you could, you “bought-and-held” and hoped for the best.

But then an investment revolution began:

  • Discount brokers and online trading reduced transaction costs to an almost neglegible percentage of each trade’s value; real-time information became the norm.
  • Computers, charting software and financial databases enabled you, if you wanted and had the luxury of time, to researching the performance of hundreds, if not thousands, of stocks over a multi-year time horizons in a matter hours.
  • new trading vehicles were introduced such as stock options and Exchange Traded Funds (EFT’s).
  • Tools for individuals were designed for back-testing, developing trading systems, alerts and auto-ordering.

Meanwhile, gambling and gaming (Indian casinos, state lotteries, online gambling, for example) became readily accessible and more generally accepted. Some stock market enthusiasts went overboard in this new environment and give birth to “day trading” and the tech bubble.

The subsequent 5-year secular bear market brought things into better focus. Walking around the booths at TradersExpo and sitting in on many of the lectures I realized that many traders and investors today view the stocks market as if it were a commodity or foreign exchange market. Traders in those markets may not understand nor ever physically touch an underlying precious metal, commodity or foreign currency; but they are interested in the underlying supply and demand and use volume and price movement to guide their decisions.

Many stock market traders, including this one, now successfully apply similar tools, principals and practices. “Buy-and-hold is dead; long live technical analysis”

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