Play the Stock Market for $1 |
| Written by Rob Goldman | ||||||||
|
It may sound implausible but there is a way to play the volatility and downside nature of the stock market for just $1. It is a very risky play and is just for day-traders. But, since this ETN (like an ETF) is at a year low, even a modest move down or a bump in volatility could move this low-priced play higher quickly. Please do your own due diligence and move quickly when selling! Read more in the latest issue of The Goldman Guide. Anyone else notice that stocks and the market are trading like opposite day? It’s the craziest thing but we outline it and why we have a totally new investment landscape and factors moving equities today. Also in this week’s issue of The Goldman Guide we tell you why the biotech craze is about to run its course and how some of the latest data may portend we go lower before we go higher in the market. Also, the financial press seems to be all over recent moves by some of the biggest names in the investment business, driving some small stocks to meteoric heights. Is this good and should you follow the herd? Plus, how has the performance been on these plays? Read more in the latest issue of The Goldman Guide.IS EVERY DAY OPPOSITE DAY FOR INVESTORS?I have been involved in the investment industry in some capacity (broker, analyst, mutual fund manager, investment banker) for over 25 years and I am pretty sure I have seen it all. For years I have felt that since history always repeats itself in some fashion, investors can compensate and adjust for changes in the market and come out on top—if the situation is accurately recognized, of course. However, the more I dive into the numbers, the metrics, and the psychology, I am inclined to believe that this time may indeed be different, which means we have to approach stocks differently in order to achieve success. Let me count the ways… #1: In years past, low economic growth and declining EPS meant a shift from growth to value investing. Instead, funds are now rotating abroad and to hybrid funds as well as ETFs. This is especially puzzling since the dollar has been on the rise. It’s like it has become “Opposite Day.” #2: The domination of funds used to include actively managed equity funds. Today, these funds are the sources of the biggest outflows while index-linked funds and ETFs are the inflow winners. Shouldn’t stock-picking be considered more important now than at other times? #3: The herd is as narrow-minded as ever. Aside from investment dollars flowing outside the U.S. it seems all the “juice” from gains come from a small number of biotechs and health care stocks. In the absence of the stock picker focus and success, investors are blindly following Icahn, Soros, and others in the small cap and micro cap space with their latest plays. Is this the sign of a top or an acknowledgment that individual stock alpha is nowhere to be found unless driven by these larger than life investors? Performance drops off big time after the first few days so why isn’t the media screaming buyer beware instead of hyping these plays? The New Investment LandscapeFact: Funds and ETFs Dominate Now More than Ever Since 1997, all funds (mutual funds, ETFs, etc.) have risen in total assets form $4.7 trillion to $18.2 trillion in 2014. Obviously the growth in ETF investing has played a big role. How much? How is this for direct correlation? According to the ICI, from 2005-2014 investment companies enjoyed a roughly $4 trillion inflow of investments. During this same time, $4 trillion in outflows of direct investments in equities occurred. Moreover, one in five dollars invested in funds is invested in an index fund. Since 2007, while index domestic ETFs have enjoyed $600B of the $1 trillion in index funds, actively managed domestic equity funds have seen a $659B outflow. It is no surprise that 24% of all household assets are in funds and half of all retirement investments are in funds. Reaction: Achieving Stock-picking Success is Difficult The actively managed asset declines/transfers, coupled with the decline in new hedge fund openings and the rise in fund closures are evidence that investors prefer to take a bigger or macro approach rather than a micro approach to investing. That means fewer dollars are allocated to individual stocks. Instead, an approach we have advocated for some time that is in full gear is the core and satellite method of investing which calls for investing a substantial sum in a “core” of ETFs, including index-linked vehicles, in order to match market performance. That leaves a smaller percentage for direct equities or other investments for the “ alpha”, in order to get some extra juice in the returns. Proof of this strategy is in the numbers: 28% of all ETF assets are in large cap ETFs while less than 5% of all ETF assets are in small cap ETFs. Fact: Despite the High Dollar, Money Flows Abroad It is crazy to think, but 25% of equity mutual fund assets are now in world funds, and that figure may now be greater on a percentage basis than the large cap ETFs. Reaction: Fewer Dollars Means it May Take Time Before the $ Returns Here What to Do: Diversifying abroad may be a good idea for a portion of one’s investment but I suspect that the returns could be muted. Still, with fewer dollars allocated to stocks or funds here in the interim, the ETFs that invest abroad could outperform. We think that sitting on a little cash and waiting for the next rotation makes more sense. Say What?
The New York Times Hedge funds are taking it on the chin in this wacky market Investor’s Business Daily It’s the economy, stupid! Benzinga Another example of hyping up a big investor’s moves. USA Today http://www.usatoday.com/story/money/2015/05/17/silicon-valley-wall-street-fintech/27321361/ A very timely and thought-provoking piece, especially ahead of the eBay-Paypal spinoff. Just the Stats!
By the Numbers Last week, we proffered that following the Soros-herd in buying PlasmaTech BioPharma (NASDAQ—PTBI—$7.98) might not be the best play. The jury might be out as to whether we were right or wrong. All I know is this: A week ago it closed at $7.34. In a matter of five days, it hit a high of $10.29 but was as low as $7.80 last week also. A little too crazy for my taste, especially considering PTBI concluded a money raise last week. I will still keep an eye on it. Meanwhile, big stocks hit new highs despite so-so volume and the continued frustration by investors and traders alike as no one seems to feel warm and fuzzy. AAII Sentiment Survey (courtesy of AAII.com) There was little change in these figures but we hit interesting benchmarks.
The bullish figure (rounded) is a two year low and this marks the 10th time in 12 weeks we have had declines. It should be noted that the percentage of neutral investors has been above 45% for six straight weeks. It has only been above 40% nine times in the past year. What will be the trigger to get this figure down and the bullish figure up and when will it occur? That is the $64,000 question. I think it could be a few months, maybe as late as the fall, which means we are range=bound for a while. Stats and Thoughts
Lipper Fund Flows Survey (courtesy of Lipper.com) It seems like a broken record...All Equity funds report net outflows totaling $1.5 billion, with Domestic Equity funds reporting net outflows of $2.2 billion and Non-Domestic Equity funds reporting net inflows of $665 million. Money leaves the U.S. for overseas. It is much of the same based on the ICI figures. For the past five weeks ending on 5/6/15, the total domestic equity outflows were $19.9 billion, down only marginally from the previous five weeks. We seem to be in an interesting pattern index-wise. Stocks do poorly in the early or middle of the week only to rise toward the end of the week. Clearly this is a knee-jerk reaction to economic data or earnings and indicates the frenzied nature of the market at present. The big ASCO (American Society of Clinical Oncology) conference begins on May 29th. Typically, biotech stocks, particularly those slated to release information or speak tend to move higher ahead of the industry’s biggest and most important event. Of course we will glean a good deal industry-wise before and after the conference, but I wonder if this could be the last hurrah for biotech stocks which are up big this year. In fact, the whole health care space is up over 12% in the past 6 months alone. Is this market performance narrow, or what? Granted the new high/new low ratio on the NYSE and NASDAQ were impressive on Friday, but the advancing versus declining volume was anemic, providing more fuel for bears in the near term. NYSE—95 highs, 6 lows; 1.74B shares adv vs $1.3B decl NASDAQ—15 highs, 34 lows; 883M shares adv vs $708M decl Play the Market for $1
We have profiled this ETN (think highly leveraged ETF) before. Disclosure: I day-traded it over the summer and made big returns. I thought I was a genius. Then I lost my ass. The same can happen to you. This is a very risky play. Hence, the slot machine icon as a reminder. The skinny: VelocityShares Daily VIX Short Term Exchange Traded Note [ETN] (TVIX - NYSE - $1.04) is actually an ETF that is traded on the NYSE and can be bought and sold like a stock. The vehicle seeks to replicate the returns of twice (2x) the daily performance of the S&P 500 VIX Short-Term Futures index. The index itself was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve. The ETNs are linked to a multiple (2x) of the daily return of the index and do not represent an investment in the VIX. Investors planning to utilize this vehicle should have very short term time horizons of days, not weeks or months. In fact, the prospectus of the vehicle itself cautions that TVIX is only suitable for a brief investment horizon. After all, this product aims to deliver 200% of the daily return of the CBOE Volatility Index, making its losses or gains even more dramatic. Therefore, for investors seeking to eke out 5-10% gains over a one day or few day period by shorting the market, or taking advantage of increased volatility, this may be the vehicle for you. Just be wary of big swings and be prepared to pull the trigger should the price turn against you. TVIX is at a year low but if we just get a small amount of volatility with stocks on the downside can move it higher quickly, and you should use that as a trigger too! Remember: Do your own due diligence! Have a great week! 1498 Reisterstown Road, Suite 286 Baltimore Maryland 21208 Phone: 410.609.7100 [email protected] www.goldmanresearch.com Launched in May 2010, The Goldman Guide is a free weekly publication of Goldman Small Cap Research and is written by Founder Rob Goldman with contributions from the GSCR contributor team. This non-sponsored investment newsletter seeks to provide investors with market, economic, political and equity-specific insights via an action-oriented, straight to the point approach. No companies mentioned in this newsletter are current sponsored research clients of the Company or its parent, unless noted, With some exceptions, all companies or investment ideas mentioned in this publication are publicly traded stocks listed either on the NYSE or the NASDAQ. Goldman Small Cap Research members and contributors’ bios, certifications, and experience can be found on our website: www.goldmanresearch.com Disclaimer This newsletter was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces non-sponsored and sponsored (paid) investment research. Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co. The Firm’s non-sponsored research publications category, Select Research, reflects the Firm’s internally generated stock ideas, along with economic, industry and market outlooks. In virtually all cases, stocks mentioned in Select Research offerings are listed on the NYSE or the NASDAQ. Publications in this category include the weekly newsletter The Goldman Guide, Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report. Goldman Small Cap Research analysts are neither long nor short stocks mentioned in this newsletter. Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored microcap research ideas that typically carry greater risks than those stocks covered in Select Research category. It is important to note that while we may track performance separately, we utilize many of the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in company-specific Opportunity Research reports, updates and articles. Goldman Small Cap Research has not been compensated for any content in this issue. All information contained in this newsletter and in our reports were provided by the companies mentioned via news releases, filings, and their websites or generated from our own due diligence. Economic, market data and charts are provided by a variety of sources and are cited upon publication. Stock performance data and information are derived from Yahoo! Finance and other websites or sources, as noted. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, other firms, or other financial news outlets. Goldman Small Cap Research relied solely upon information provided by companies through filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, update, article, blog, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed. This newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority. Statements herein may contain forward-looking statements and are subject to significant risks and uncertainties affecting results. Separate from the factual content of our articles about the company featured in this newsletter, we may from time to time include our own opinions about the companies profiled herein, their businesses, markets and opportunities. Any opinions we may offer about the companies are solely our own, and are made in reliance upon our rights under the First Amendment to the U.S. Constitution, and are provided solely for the general opinionated discussion of our readers. Our opinions should not be considered to be complete, precise, accurate, or current investment advice. Such information and the opinions expressed are subject to change without notice. ALL INFORMATION IN THIS REPORT IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION. For more information, visit our Disclaimer: www.goldmanresearch.com. |
Download This Report in PDF
Each week we identify must-read stories, including some great ones which may fall a bit under the radar.
This section is dedicated exclusively to data, either generated and credited by other organizations or by Goldman Small Cap Research that we deem useful for the purposes of economic, market, sector, or individual stock direction and trends. 
I may live to regret this but here goes: Step right up folks and play the stock market for just one dollar!