Is Your Money Safe in Low-Beta Stocks?

To conclude my three part series on volatility (part 1 and part 2 here), I wanted to take a look at exactly how “safe” low-beta stocks are when it comes to market downturns. After all, isn’t the whole point of owning low-beta stocks to reduce risk?

So we’re going to hop in the time machine back to 2008, one of the worst years for the stock market in history. The S&P 500 fell 37.6% that year, and billions of dollars of stock market wealth evaporated into thin air. That is every trader’s worst nightmare and the driving force behind the desire to control portfolio risk.  Continue reading

Quantifying the Volatility of Your Portflio

Last week, I read an article on CNN by Paul La Monica entitled “How to Stay Safe in a Scary Market.” In the article, La Monica says

So now’s the time… to be looking at blue chip, dividend-paying companies that can hold up well during rocky periods for the broader market.

The idea is that, when times get scary (as I have suggested they have become lately), you should build your portfolio around solid, low-volatility, low-risk stocks. I look at a lot of stock charts here on Trading Common Sense, and hopefully by using a little bit of common sense it’s easy to identify which stocks are more volatile in certain cases.  Continue reading

What I’m Selling: Efficient-Market Hypothesis

The other day I got to thinking about the Efficient-Market Hypothesis (EMH). EMH is the idea that the stock market is “informationally efficient,” meaning that a stock is always accurately valued at any given time based on the information that is publicly available about the stock at that time. In other words, day-to-day changes in share price are simply due to changes in information available to the market.

I do not subscribe to this theory, and neither should any other stock trader. Here’s why: if you believe EMH is true, there’s no point in trading stocks. According to EMH, there’s no such thing as an “under-priced” stock, and the smartest, hardest-working investment banker at Goldman Sachs has no trading advantage whatsoever over your doofus cousin who once tried to make “Super Deodorant” out of after-shave, cologne, a bar of soap, and a pack of Doublemint gum. It’s pointless. If EMH is true, every stock is accurately priced at all times. Continue reading

Melco Crown Entertainment Update

Anybody that has read one of the manymanymanymany articles I’ve written about Melco Crown Entertainment knows that it holds a special place in my heart. Today was a big day for the company, as it reported quarterly earnings of $0.33 per share on revenue of $1.2 billion. Despite the fact that these numbers slightly missed expectations, the stock has been beaten down so much already the past few months that I doubt these numbers alone would have had much of a negative effect on share price. Continue reading

Apple’s Round-Number Roadblock

Apple got so close to $100 last week that shareholders such as myself could almost taste it. But alas, it wasn’t to be. However, it will be interesting to see if $100 provides significant resistance for the stock moving forward.

If you have watched stocks trade for any significant amount of time, you have certainly noticed that “round numbers” such as $100, $50, $10, and $20 often provide resistance levels or support levels for stocks. Continue reading