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The Gambler's Fallacy Does Not Exist In The Stock Market (Advisor Perspectives)
Gambler's fallacy refers to the belief that past events can change the probability of that event taking place in the future, for instance, the believe that if five coin flips have ended in favor of heads, the next will be tails. This is because each coin flip is independent of the other. But Jeffrey Saut at Raymond James says this does not hold true in markets.
"While that’s true in gambling, it is not so true in the stock market. The fact is, there are certain historic precedents in the stock market that can tilt the odds of success decidedly in your favor. Take last Friday when I wrote, “It is rare for the Dow to go in any one direction for more than nine consecutive sessions, and yesterday was day 10 in this current upside skein. Indeed, in my notes of over 50 years, there have only been 25 occasions when the Dow has rallied for nine consecutive sessions (or more), the longest being 14 straight sessions that ended on 1/20/1987.” Almost on cue, the Dow ended its 10-session romp last Friday by closing down 25.03 points."
But Saut thinks the sell-offs are temporary and investors should consider this a buying opportunity.
SEC Freezes Assets Of Massachusetts Advisor Charged With Stealing From Clients (The Wall Street Journal)
The SEC has frozen the assets of Gregg D. Caplitz and his Massachusetts based firm Insight Onsite Strategic Management. Caplitz is charged with embezzling $1.1 million from clients who thought they were investing in a hedge fund. The assets of those who received the investor money have also been frozen.
Companies typically pay out dividends based on their balance sheet and increasing shareholder wealth, but that seems to be changing. Morgan Stanley's Adam Parker writes that this now also depends on changes to executive compensation packages.
"Management teams are paying themselves more in restricted stock units (RSUs) than in options. In recent years, more CEOs of S&P 500 companies have received compensation in the form of restricted stock than as options (Exhibit 14). It is important that fundamental analysts understand how the senior management teams of the companies they are analyzing are variably compensated, as those with restricted stock and not options are much more likely to increase dividends. The principle? People rarely intentionally damage their own net worth."
What To Do When Emotions Rise And Fall With Markets (Marketwatch)
After investors calm themselves there are a few key things they can do as they try and avoid losses in the event of a downturn and not entirely miss the rally either according to Chuck Jaffe. He tells investors to 1. Re-examine your criteria for buying and selling 2. Take another look at your portfolio allocation 3. See if your fund is performing the way you expected it to and if its keeping pace with the rest 4. "Don't let the market's rally go to your head."
The Latest Black Swan Risk Map (Societe Generale)
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