The Big Picture

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• Steve Jobs by the Numbers
• Apprenticed Investor: Stop-Loss Breakdown
• Income Gain Distribution 1917-81; 1982-2000; 2001-08
• Occupy Wall Street Needs to Occupy Congress, AG offices
• Neuroeconomics: Drazen Prelec
• Move On Tries to Co-Opt the OWS Protests
• Ferrari 458 Spider
• Visualize Yahoo Mail
• Tokyo Hit With Fukushima Radiation

Steve Jobs by the Numbers Posted: 15 Oct 2011 03:00 PM PDT via

Apprenticed Investor: Stop-Loss Breakdown Posted: 15 Oct 2011 12:00 PM PDT Apprenticed Investor: Stop-Loss Breakdown Barry Ritholtz 11/04/05 – 03:04 PM EST > This was originally published at The Street.com on November 4, 2005 > There’s an old joke about the investor who never used any stop losses. His friend knew his big positions were getting crushed. Out of concern, the friend asked, “How are you sleeping?” “Like a baby” he answered. “Really? You aren’t nervous or upset?” “I sleep like a baby” he repeated. “That’s amazing. I’d never be able to sleep through the night with those types of losses.” “Who said anything about sleeping through the night? I said I slept like a baby: I wake up every two hours, wet myself and cry for 30 minutes before falling back to sleep.” That’s why risk management is so critical: to save you from sleeping like a baby, and in the long run to save you a lot of money. Last week’s column focused on protecting your assets and avoiding “fiasco” stocks. The method we discussed was the simplest of all stop losses: the percentage stop. The percentage stop is not my favorite type of stop loss, but it is better than none at all. The tricky part is deciding what percentage to use. Make the stop too tight (i.e., 6% to 8%), and in a volatile market you will get stopped out constantly. If the stop loss is too broad (i.e., 25%), then by the time it gets triggered, a lot of damage is already done. I prefer percentage stops between 12% and 15%; longer-term holders and volatile tech stocks may need a little more room to oscillate. Your goal is to protect yourself against a position that’s gone sour — not against ordinary short-term market swings. This week, we review several other stop-loss strategies you can use to prevent losses from getting out of hand. All Kinds of Stops Stops Below an Uptrend: Placing a stop just below an uptrend is a technically based loss limit. The goal is to liquidate a position that is in the early stages of institutional distribution (i.e., mutual fund selling). Use a daily or weekly chart, draw a line connecting the three most recent lows. On the far right side of the chart, place a mark a short way below that line. That’s your stop loss. Don’t Fight the Trend When Cisco broke its long uptrend in mid-2000, it was time to bail on John Chambers & Co. Source: Barry Ritholtz This stop should be monitored as the stock price rises. Review it at least once a month; active traders review their stops more often, typically weekly (or even daily). I know traders who like to re-enter a position after getting stopped out if it reverses back above the trend line. For example, when Apple’s (AAPL) trendline broke at $38, it looked as though the institutional world was in the early stages of major distribution in Apple. Once the stock returned to that trendline, we knew that was not true. It’s worth occasionally missing a few points to avoid riding a profitable position back down to break-even or worse. Bruised, Not Rotten Apple’s trend break last spring was a false signal Source: Barry Ritholtz Stop Loss Below Support: You don’t have to be a technician to see where support is on a chart. Look for the horizontal line that a stock often trades down to, then bounces off. That line reflects the price where buyers find the stock compellingly cheap. It’s also where they have reliably bought it in the past. Support often holds, because investors remember the last time that stock was that cheap and they failed to buy. That memory of missed opportunity is what supports the stock from falling further; your stop loss goes a little below that level. Retailer on Sale Wal-Mart’s break of long-term support was a sell signal Source: Barry Ritholtz When a stock breaks support, it suggests that the thinking about the company may have changed. Perhaps the company’s prospects are no longer so rosy and the stock no longer looks cheap at that price. Whatever the reason, a break in support often precedes a further move south. On the other hand, buying a stock right above support, with a stop just below, offers good risk/reward potential. Downside is limited to a few points, while upside may be substantial. Stop Below Moving Average: One of the most reliable sell signals is the 50- or 200-day moving average (MA). The MA is the average daily closing price of a stock for a specific number of days. When a stock is rising, its moving average will rise, albeit at a lag. Once the stock begins to falter, its price will fall much faster than the moving average. When the share price crosses the average to the downside, that’s a very powerful sell signal. Since the market peaked in March 2000, every major disaster — from Lucent (LU) to Global Crossing to WorldCom — has given clear 200-day moving average sell signals. Trailing Stops: Any of the above stop losses can be turned into a “trailing stop.” This strategy locks in specific profits and prevents you from giving back too much of a winning position. Regardless of what your original stop loss was, you should raise it as a position rises. Each time your stock enters a new “decade” ($30s, $40s, $50s, $60s, etc.), you increase your stop loss proportionately. You can adjust the stop loss on the basis of the weekly or even monthly closing prices. This makes it more likely you’ll get the benefit of a rising stock price for as long as possible, while still getting downside protection. When moving your stops up, it’s a good idea to avoid using round numbers (i.e., $60, $70, $80), because option strike prices can temporarily “pin” a stock to those levels on expiration day each month. There’s a tendency for stocks to trade to just below these levels and then snap back. For lower-priced stocks (say, under $20), try using weekly increments of $5 instead of “decades.” Profit Protection Stop Loss: One frustrating issue for investors is when a winning position starts reversing on them. Those profits that took so long to accumulate slowly start slipping away. How can you avoid giving back all of your hard-won gains? I use the 25% net gains rule. Let’s say you owned Amazon.com (AMZN) in 2003, near $20. By the end of the year, the stock was above $60, giving you a 40-point gain. How do you preserve your profits if the stock reverses? Determine in advance how much of those profits you are willing to give back. I never like returning more than 25% to the house. When the stock reverses enough so that 25% of those gains have slipped away, that’s your sell signal. In the Amazon example, that was a 10-point move down to $51. That’s my liquidation point. The goal of this stop loss is simple: Give the stock enough room to trade, but do not give back all of your profits. Time Stop: Stocks not only go up and down, they also can just go sideways. While this is not a dollar loss, it is a loss of a different kind. Tying up capital in a stock that’s doing nothing involves opportunity costs. It means that your capital is not in another investment making money for you. If you buy a stock at $17, and all it does is fluctuate between $15 and $20 for the next 10 years, there’s probably a better place to deploy your capital. You can always come back to the name and buy in when it finally breaks out over $20. When you purchase a security, decide in advance how long you are willing to hold it. Give it enough time for catalysts to develop. Six months to a year should be sufficient. The market is far less efficient than many people — especially academics — assume. If your stock is really undervalued, the rest of the world will eventually figure it out. What you don’t want to do is sell something out of boredom. Too often, this seems to happen just before a stock takes off. In Conclusion There’s a reason flight attendants show you where the emergency exits are before takeoff. The same thinking should apply to investors. Prudent investors have a sell strategy in place before they get involved with a stock. Using any of these stop strategies helps keep your emotions out of the process when an investing emergency arises.

Income Gain Distribution 1917-81; 1982-2000; 2001-08 Posted: 15 Oct 2011 09:00 AM PDT Here is an interesting interactive tool that lets you look at different year ranges based upon societal gains in income, and how they got distributed. Fascinating to see the shift over the past century: > 1917-81: Bottom 90% captured 69% of income gains > 1982-2000: Bottom 90% captured 23% of income gains > 2001-2008: Bottom 90% had income losses (negative gains) http://www.stateofworkingamerica.org/pages/interactive#/

Occupy Wall Street Needs to Occupy Congress, AG offices Posted: 15 Oct 2011 07:00 AM PDT There seems to be some debate as to what Occupy Wall Street should be focused on. I have 3 suggestions — excerpted from my Sunday column in the Washington Post. You will note that these three are issues that both the Left and the Right — Libertarians and Liberals — should be able to agree upon: 1. No more bailouts/Bring Back Real Capitalism! The United States used to be a capitalist system. Companies lived and died on their own successes. "Corporate Welfare" – the term coined by Wisconsin senator William Proxmire – came into being in 1971 with the bailout of Lockheed Aircraft. Thus began a run of corporatism, not capitalism. Some companies, less than successful in a competitive marketplace, chose instead to suckle at the teat of the public trough. Innovation, execution and hard work were replaced with lobbying, crony capitalism and bailouts of failure. All of this paid for by taxpayers. 2. End Too Big To Fail/Restore Competition As George Shultz once said, “If they’re too big to fail, make them smaller.” The current economic approach of "Too Big to Fail" is itself a failure. It reduces economic competition, concentrates risk, and raises costs for consumers. University of Missouri–Kansas City (UMKC) professor of Economics and Law William Black notes that the TBTF moniker is misleading. We should start calling these firms by the more accurate phrase "Systemically Dangerous Institutions" (SDIs). TBTF makes it sound like the size is the problem – in reality, the systemic risk, regardless of size, is what we should be focused on. SDI is an accurate phrase, and appropriately pejorative. 3. Take Congress back from Wall Street Whatever changes come, they will only be temporary if the current system of spoils is allowed to continue. The United States has become a "corporatocracy." Campaign finance and lobbying money has so utterly corrupted Congress that we might as well put elected officials up for bid on eBay – that is how corrupted the system has become. We must become a democracy again, where one man one vote matters. To do that, Wall Street money must be taken out of the process. The Supreme Court has ruled repeatedly on campaign finance reform, finding against voters and in favor of corporate interests. The only way to take the government back is a Constitutional Amendment. There is much more, but you get the flavor of the piece. We shall see what resonance it will have amongst the crowd and OWS leaders . . .

Neuroeconomics: Drazen Prelec Posted: 15 Oct 2011 05:15 AM PDT Drazen Prelec June 7, 2008 Running Time: 0:54:31 A pioneer in a "dangerously hot research area," Drazen Prelec peers into the human brain while it makes decisions. In his corner of the new field of neuroeconomics, Prelec uses a functional magnetic resonance imaging (fMRI) machine to scan minds pondering the pros and cons of purchasing and selling products like Godiva chocolate and flash drives. Prelec first provides a brief background on the emergence of his discipline, made possible by technological advances in measuring brain activity, and the recent introduction of psychology into economics. The convergence (or perhaps collision) of behavioral approaches and economics has led to a "sustained criticism of the rationality assumption in economics," says Prelec, most prevalent in game theory. So much current research, he says, "is a series of responses to the incorrect predictions of the rational normative model." Some Nobel Prize-winning work has emerged in the past few decades from studying the differences between the way human beings actually behave and the way classic economics suggests. Prelec describes prospect theory, which captures in a formula how there is "something about the way our mind deals with numbers (so that) if you look at positive things, you have one way of looking, and at negative, it's a different way." Using three case studies, Prelec illustrates how "neuroeconomics picks up some of these violations of rationality, trying to understand where in the brain we can get a deep understanding of what's going on." In a notable instance, subjects sipped different wines (through a straw) in the fMRI, and were asked to rate them. They were told they were drinking wine that ranged in price from $5 to $90. The "dirty trick was the $5 and $45 wines were the same, as were the $10 and $90 wines." Not surprisingly, "ratings were massively influenced by price," so the $90 wine was considered exceptional. What was surprising, says Prelec, was that "the brain lies also." An area behind the forehead, the medial prefrontal cortex, which is associated with the perception of value, burst into more activity when the subject experienced the "$90" wine than with the exact same "$10" wine. It seems as if the very idea of quality, or value — often a marketing ploy — makes a product like wine more enjoyable.

Move On Tries to Co-Opt the OWS Protests Posted: 15 Oct 2011 05:09 AM PDT BR: I believe it would be better if OWS stayed a non-partisan group, and not become a Democrat version of the Tea Party . . . ~~~ Move On Tries to Take Over Occupy Wall Street Protests David DeGraw – one of the primary Wall Street protest organizers – just sent me the following email: Top MoveOn leaders / executives are all over national television speaking for the movement. fully appreciate the help and support of MoveOn, but the MSM is clearly using them as the spokespeople for OWS. This is an blatant attempt to fracture the 99% into a Democratic Party organization. The leadership of MoveON are Democratic Party operatives. they are divide and conquer pawns. For years they ignored Wall Street protests to keep complete focus on the Republicans, in favor of Goldman's Obama and Wall Street's Democratic leadership. If anyone at Move On or Daily Kos would like to have a public debate about these comments, we invite it. Please help us stop this divide and conquer attempt. DeGraw – who is wholly non-partisan [like the writers at Washington's Blog] – tells me that about half of the protesters are liberals, but the other half are libertarians (and see this.) This mirrors what one of the original organizers of the "Occupy Trenton" protest told me: MoveOn attempted to set the agenda and pretend it was their event. As I noted last week: Everyone's trying to cash in on the courage and conviction of the Wall Street protesters. People are trying to associate Occupy Wall Street with their pet projects, in the same way that advertisers try to associate the goodwill of the Super Bowl, NBA playoffs, World Series or Olympics with their product. But I hear from OWS organizers that the protesters come from totally diverse political affiliations. Many protesters support Ron Paul, many like Obama, others are for other parties or candidates or don't vote at all. The protesters themselves are having none of it, tweeting today: We don't want to be the democratic tea party or liberal tea party. We want to be our own movement separate of any political affiliation. Update: Another tweet from the protesters: We don't represent liberal interests nor are we the liberal tea party. We represent the interest of the 99% And as I pointed out Tuesday: The two main challenges [facing the protesters are]: (1) An attempt by both the Democratic and Republican parties to co-opt it (see this, this and this); and (2) agents provocateur (see this, this and this) [and here].

Ferrari 458 Spider Posted: 15 Oct 2011 04:00 AM PDT From Jan Baedeker: A few years ago you would have described a Ferrari as emotional and racy, or perhaps moody and diva-ish – but practical? From Turin to Naples, the excitably opinionated Italians would have been collectively dropping their espresso cups. But Maranello has learned that emotion and everyday usability are not necessarily mutually exclusive. On the contrary, at a time when real men are not ashamed to chauffeur the children to school and then do a spot of organic food shopping, a real macho sports car must also be practical. Provided, of course, that at times it offers rather more than that. Much more. This is the promise of the 458 Spider unveiled at the recent Frankfurt Motor Show. To prove its point, Ferrari has rounded up a tiny group of journalists in Reggio Emilia in Northern Italy, where it's the beginning of October and the climate is still balmy. Before the group embarks west towards La Spezia and the Mediterranean, the initial focus is on the theory. Source: Classic Driver Photos by Ferrari

Visualize Yahoo Mail Posted: 15 Oct 2011 03:36 AM PDT Kinda cool (pointless) visualization of Yahoo mail. It shows geographic origination, spam sources, and trending key words in Subject lines. Here’s the geographic origination chart: > click for interactive graphic

Tokyo Hit With Fukushima Radiation Posted: 14 Oct 2011 10:00 PM PDT Fukushima Radiation Hits Tokyo CNN reports today: An extraordinarily high level of radiation was detected in one spot in a central Tokyo residential district Thursday, prompting the local government to cordon off the small area, local officials said. Radiation levels were higher in Tokyo's Setagaya ward than in the evacuation area around the badly damaged Fukushima Daiichi nuclear plant, according to ward Mayor Nobuto Hosaka. "We are shocked to see such high radiation level was detected in our neighborhood. We cannot leave it as is," Hosaka told reporters. But the tsunami-struck Fukushima plant may not be the source of the radiation, Hosaka said later on state television. Officials searching for the cause found "glass bottles in a cardboard box" in the basement of a house in the neighborhood which sent radiation detectors off the charts, he said on NHK. "We suspect these bottles in basement could be the cause of the high radiation reading and we are hastily working to confirm it," he said. Radiation experts are now checking what contaminated the bottles, a Setagaya ward official told CNN, declining to be named in line with policy. Perhaps it is just some random contaminated bottles. But as the Wall Street Journal reported yesterday: Japanese researchers discovered high levels of radioactive material in concentrated areas in Tokyo and Yokohama, more than 241 kilometers away from the Fukushima Daiichi nuclear plant, as increasingly thorough tests provide a clearer picture of just how far contamination has spread and accumulated …. In Tokyo, a sidewalk in Setagaya ward, in the western part of the city, recorded radiation levels of 2.707 microsieverts per hour, about 50 times higher than another location in Setagaya where the ward regularly monitors radiation levels…. In Yokohama, the local government said last month that it detected 40,200 becquerels of radioactive cesium per kilogram of sediments collected from one part of a roadside ditch…. Yokohama is investigating another spot on an apartment rooftop where tests conducted by a local private research institute detected more than 60,000 becquerels of radioactive cesium per a kilogram of sediments. The Journal also notes that these radioactive hotspots were not found through routine tests, but only because some residents walked around with geiger counters: Both Setagaya Ward and Yokohama discovered those concentrated spots after residents carrying their radiation measuring devices noticed such spots and reported it to local officials. The Australian noted today: Strontium 90, a highly dangerous radioactive isotope, has reportedly been found atop an apartment building in Yokohama, fuelling fears that fallout from the Fukushima disaster has affected the greater Tokyo area. Yokohama, a city of 3.6 million people, effectively adjoins the Japanese capital, and sits about 250km from the stricken Fukushima nuclear plant. [...] And ABC News (Australian Broadcasting Corporation) reported yesterday: Elevated levels of radioactive strontium, which can cause cancer, have been found 250 kilometres from the stricken Fukushima nuclear plant. The find in the city of Yokohama has heightened fears that radiation has spread further than the Japanese government has acknowledged. As I've previously noted, Japanese government officials and high-level scientists have considered evacuating Tokyo. I hope and pray that these high readings are not the start of worse to come. In related news, plutonium was found 28 miles from Fukushima and: The latest discovery is a potentially disturbing turn, as it shows that people relatively far from the plant could be exposed to more dangerous elements than had been previously disclosed. The Japanese government's response? To stop testing for plutonium, and to tell people they shouldn't use geiger counters to test for themselves. The Japanese government has been caught blatantly under-reporting radiation levels in general, and Japanese professors are starting to fear for Japan's future.

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