Category: Financial News

In this category, Latest Financial News visitors can find everything that Traders-Paradise finds it is related to the educational material existing here. As the name suggests it is news but ONLY related to Traders-Paradise’s tutorials, courses, guides about trading, and investing.

Here the readers can find posts and articles about recession and how to overcome it. Many trading or investing strategies are explained here. For example, why to use open interest strategy when investing, or growth stock investing strategy.
Here, our experts and journalist are taking examples from the real-life. it is usually breaking news, and use them to explain what is the best solution for traders and investors over a given time or related to the particular event.
Also in Latest Financial News readers can find an explanation of, for example, ratios useful to measure the particular market conditions.

Also, Traders-Paradise gives you some clues on how to react to changes in the markets, no matter if it is the stock market, the Forex market, or any other.
The main aim of the Latest Financial Market News is to connect the real events with the theory. Traders-Paradise uses real-life examples to explain the theoretical rules of investing and trading.
Also, when some breaking out news appear Traders-paradise will write about it but at the same time, the visitors will have a comprehensive analysis of what caused that event and how to overcome it.
Traders-Paradise hopes that this category will be very useful for its visitors and that they will find it helpful.

Shiller CAPE Ratio – The Measurement Of Market Valuation

The Shiller P/E or the cyclically-adjusted price-to-earnings (CAPE) ratio of a stock market is a market valuation metric that eliminates change of the ratio caused by the difference of profit margins during business cycles. It is the regular metric for evaluating whether a market is overvalued, undervalued, or fairly valued.

Shiller CAPE ratio or the cyclically-adjusted price-to-earnings ratio of a stock market is one of the regular metrics if you want to evaluate whether a market is overvalued, undervalued, or fairly valued.

Shiller CAPE ratio, developed by Robert Shiller, professor of Yale University and Nobel Prize Laureate in economics. This ratio usage increased during the Dotcom Bubble when he claimed the equities were extremely overvalued. And he was right, we know that now. Shiller P/E is actually a modification of the standard P/E ratio of a stock.

Investors use this Shiller CAPE ratio mostly for the S&P 500 index but it is suitable for any. What is so interesting about the Shiller CAPE ratio? First of all, it is one of several full metrics for the market valuation able to show investors how much of their portfolios should wisely be invested into equities.

The ratio is based on the current relationship among the price of equities you pay and the profit you get in return as your earnings.

For example, if the CAPE ratio is high it could indicate lower returns across the following couple of decades. And opposite, a lower CAPE ratio might be a sign of higher returns across the next couple of decades, as the ratio reverts back to the average.

Investors use it as a valuation metric to forecast future returns. The metric has become a popular method to get long-term stock market valuations. To be more precise, the Shiller CAPE ratio is the ratio of the S&P 500’s (or some other index) current price divided by the 10-year moving average of earnings adjusted for inflation.
The formula is:

CAPE ratio = share price / average earnings over 10 years, adjusted for inflation

That was the formula but let us explain a bit more how to calculate the Shiller CAPE or also called Shiller’s P/E ratio.
What you have to do is to use the annual earnings of the company in the last 10 years. Further, adjust the past earnings for inflation.

How the Shiller CAPE ratio works

As an investor, you know that the price is the amount you have to pay, and the value is the amount you get. That’s clear. We have to compare the price to the value and that’s why we have many metrics to do so. One of them is the P/E ratio, read more HERE.

It is legal that everyone wants to buy a healthy company when the shares are trading at a low P/E ratio. This means you can get lots of earnings for the price you paid. This is valuable for index too. Just take an aggregate price of the shares of the company from, for example, the S&P 500 index for one year and divide that number by the aggregate company’s earnings for that year. You will get an average P/E for the index.

But it isn’t quite true. For example, during the recession. At the time of the recession stock prices will fall as well as companies’ earnings (okay, they may fall significantly sharper). The problem is that the P/E ratio can rise temporarily. The investors want to buy when this ratio is low but temporary high P/E can send them a fake signal that the market is overpriced. And what is the consequence? Investors wouldn’t buy at the time when it is the best solution.

So, here is the Shiller CAPE ratio to fix that. Shiller invented a special version of the cyclically-adjusted price-to-earnings ratio to help fix this simple calculation. If we use his CAPE ratio we’ll have a more accurate understanding of the ratio between current price and earnings. This ratio employs the average earnings over the past business cycle, not just one year that may have bad or good earnings.

The importance of the ratio

Shiller himself explained this the best. He used 130 years of data and noticed that the returns of the S&P 500 over the next 20 years are fully inversely connected with the CAPE ratio at any observed period. How should we understand this? Well, when the CAPE ratio of the market is high, that means the stocks are overvalued. So, the returns in the next 20 years will be lower. Hence, if the CAPE ratio is low, we can be sure the next 20 years the returns will be satisfying.

This is natural and logical. Cheap stocks can increase in price no matter if it is from a growing company’s earnings or a rising P/E ratio. Contrarily, when stocks are expensive and have a high P/E ratio, they don’t have too much space to grow. It is more likely they have more chances to drop when market correction or recession comes.

How to use the Shiller CAPE ratio

Shiller warned against using CAPE in short-term trades. The CAPE is more helpful in predicting long-term returns. Siller said in an interview: “It’s not a timing mechanism, it doesn’t tell you – and I had the same mistake in my mind, to some extent — wait until it goes all the way down to a P/E of 7, or something.”

But really, you have to combine CAPE with a market diversification algo or some other tool for that. Maybe the most important part is that you never get fully in or fully out of stocks. As the CAPE is getting lower and lower, you are moving more and more in. We think the CAPE ratio for March this year is 21.12. Check the Shiller P/E ratio HERE

So, it isn’t super high. We, at Traders-Paradise, think the stocks should be an important part of your portfolio. Don’t get out of the stocks and go in cash because the CAPE is at 21. It is smarter to buy less and expect poorer returns in the next several years. Some experts noted that markets are most vulnerable when the Shiller P/E is above 26 like it was in February this year. Some stats show that investors respecting Shiller’s ratio are doing better.

Bottom line

Since Shiller showed that lower ratios signify higher returns for investors over time, his CAPE ratio becomes an important metric for predicting future earnings.

There are criticisms about the use of the CAPE ratio in predicting earnings. The main matter is that the ratio doesn’t take into account changes in the calculation of earnings. These kinds of changes may turn the ratio and give a negative view of future earnings.

The CAPE ratio was proved as important for identifying potential bubbles and market crashes. The average of the ratio for the S&P 500 Index was between 15 -16. The highest levels of the ratio have exceeded 31( February 2020). For now, the Shiller CAPE ratio announced market crashes three times during history: Great Depression in 1929, Dotcom crash in 1990, and Financial Crisis 2007 – 2008.

Opponents of the CAPE ratio claim that it is not quite helpful since it is essentially backward-looking, more than it is forward-looking. Another problem is that the ratio relies on GAAP earnings, which have been changed in recent years.

The proponents claim the Shiller P/E ratio is good guidance for investors in determining their investment strategies at various market valuations.

Historical data show that when the market is fair or overvalued, it is good to be defensive. When the market is cheap, companies with strong balance sheets can produce great returns in the long run.

24th March 2020
The Bear Market Starts – How To Avoid Big Losses?

We are not clairvoyants so we cannot predict how long this bear market will last, but what we can do is to suggest to you how to overcome this market condition.

The bear market starts. Dow Jones closed down over 20% on March 11 compared to its highs in February. That is the end of its historic bull market run. The bear market starts. Actually, it started at the moment as the pandemic was declared by the WHO. What to do with your investments right now? Will the stock market crash?

No one knows for sure what will happen next. But it is quite possible that the coronavirus could put stocks down for a long time. What makes us afraid is that the bear markets can go along with the recession.

Investors are panicked. Past several weeks the stock market was switching so fast and unpredictable. Michael Macke, founder of Petros Advisory Services told CNBC Make IT about investors’ feelings: “like we are all Chicken Little.” His comment was relating to the tale about the chicken who was claiming the sky was falling, but the chicken was wrong, right or wrong? “Only after the fact will we know for sure if we have a bear market or even a recession,” said Macke.

Nothing can last forever, even bad or good. The good times must come to the end at some point. This is particularly true for the stock market. And this bullish period did it. So, the bear market starts.
After a fairly exciting run, the stock market lastly jumped into the bear market territory. Investors are disturbed and panicked.

But what do we know about the bear market?

What to do when the bear market starts

The bear market is a point when stock prices drop at least 20% from a recent high. They will stay down there for a while. But how long will it take for the stock market to recover? What to do? Will the recession come too? What to do with investments? How to avoid losses and is that possible at all? This is a turbulent time. So many questions but several answers.

If we try timing the market we’ll be foolish. So, let’s see what experts have to say. First of all, they say drops like this one is a good opportunity to buy more stocks, particularly the people investing for retirement. This is important for younger investors who couldn’t buy stocks during the bullish market because the prices were too high, hitting all the time the new highs. If you have some spare money and you don’t need it in the next, for example, five years, put it in investments. But if you think you will need that cash it is smarter to stay away from the stock market. The history of the 200-years old stock market shows that the market will start to rebound as the bad news stops coming and the prices will stop to decline.

What is smart to do during the bear market period?

When the bear market starts, it is smart to check your concrete investment strategy. If you are a young investor it is quite possible you are facing the bear market for the first time in your life. So, this is a great opportunity to check your risk appetite and how much you are able to manage it. You might obtain a valuable lesson.

Even advanced investors do the same. They are reviewing their portfolios to be sure that the investments they are holding are suitable for their investing goals. It is very important to see your investments are in line with the risks you take. Some experts think that pilling off into safer investments is a bad decision. And maybe they are right. History shows that if you successfully handle your stocks during the bear market, it is more possible to profit a great when the market recovers. Yes, this all about long-term investors because investing isn’t about a moment in time, it is a process over time.

What is the best strategy when the bear market starts?

No one likes this. This enemy is dangerous so don’t try to fight back with it. The most important is to stay calm. Okay, you may play dead as you should do when you meet the bear in the woods. Just lay down and pretend you are dead. This was a joke but it works when the bear market starts and everything seem so uncertain.
So, don’t be frightened. Fear is a bad partner now.

Do you know the old saying on Wall Street? “The Dow climbs a wall of worry.” What does it mean? This means the markets will continue to rise despite anything. Nothing can stop that. No matter if we have an economic crisis, terrorism, or other misfortunes. Just keep your emotions under control and far away from investment decisions. Look, today’s catastrophe will be just an unpleasant flash one day. Nothing more. Well, it can last a few years but still.

It is a normal condition

The other important thing. It is normal to have bad years in the stock market. They are coming in the cycles and it isn’t unusual. For long-term investors, this is particularly a favorable situation. They can buy stocks at discount.

Speaking about this bear period, it might be smart investing in, for example, NFLX (Netflix) can be a good choice. Due to the coronavirus outbreak, and pandemic people have to stay at their homes and what are they going to do? Watching TV, of course. That will bring a higher income with more subscribers, consequently, the dividends could be higher and the stock price will rise. But don’t buy Uber’s stock, for instance. You might wonder why. It is quite simple to explain. As more people will stay at home, less income will be for Uber and prices can drop. (Thank you Guy, for these examples.)

Maybe the stocks of the companies that are involved in vaccine development or anything related to this unfortunate situation are not bad decisions. Pharmaceutical, detergent, soaps, antiseptic, hygienic supplies producers, virus testing, and other biotech companies. Think about this.

Diversification can help also

The point is to have a well-diversified portfolio. If you don’t have yet, it is time to add bonds, cash, stocks. The percentage of each will depend on your risk tolerance, goals or are you an investor with a long time horizon or not. A proper allocation strategy will save you from potential negative forces.

Further, invest only the amount you can allow to lose, that will not hurt your budget or the whole capital. For example, don’t take short-term loans and buy stock with that money if you don’t plan to hold them for a long time, e.g. five years or longer.
Keep in mind, when the bear market starts, even trivial corrections, can be remarkably harmful.

But as we said, when the bear market starts that may provide great opportunities if you know where to look for. We pointed to just a few examples above. Maybe you should follow what Warren Buffett did. So, buy the value stocks since their prices are going down.

Bottom line

What to do when a bear market starts?

We can’t predict how long this bear market will last. If you’re considering selling off a group of stocks to lower your losses, just don’t do that. By doing so you’ll end up locked in losses. How can that situation help you? But if you have cash available for investing, this bear market period is a great time to do so. Remember, just don’t invest money you may need in the next five years or more.

Also, don’t get scared as some investors are when a bear market starts. The stock market will recover from this as always it did during history. If you buy stocks now and your plan is to hold for a long time, you will have good chances to end up in profit.

Maybe it is best to use our preferred trading platform virtual trading system and check the two formula pattern.

18th March 2020
How To React To The Stock Market Decline

Dropping stock prices don’t have to be your enemy necessarily. Wealthy investors know how to react to dropping prices and how to find stocks that are good buys.

When such an unpleasant event happens, the most important thing is how to react to the stock market decline. We have had many very dangerous situations in the stock market over the past several decades. Some investors were ruined, some survived and even more, they succeeded to grow their wealth. What did they do differently? How did they make it? Is there any rule about how to react to the stock market decline?

The S&P 500 had the fastest 16% decline ever. We already wrote about the possibility of how coronavirus can affect the stock market badly. And it happened, coronavirus is a catalyst for investors’ fears.

This shakeout in stocks is motivated by the uncertainty caused by the coronavirus outbreak. We can be sure about that. A kind of support for this claim comes for the media, we are constantly under analysts’ opinion-fire and it is so easy to feel bad and frightened. But we have to do something! We have to protect our health in the first place but also we have to protect our capital invested. So, how to react to the stock market decline?

Investors are fearful. Did you remember what the great value investor Benjamin Graham said for stocks?

“In the short run, a market is a voting machine but in the long run, it is a weighing machine.”

What does it mean?

This means that companies can be popular or not and that’s how markets are valuing them and fears can beat the market but in the short run. But in the long run, the market is assessing the substance of the companies, their underlying business performances. What really matters isn’t the media’s fickle opinion in the short run.

That makes up the stock market. Yes, we saw many cases of risks in the market but the stock market has a long history and had so many UPs on its way. So, what do we have to do NOW? How to react to the stock market decline NOW? Should we be fearful? Or maybe greedy?

Millionaires are down on the stock market

Some wealthy people are getting out form the stock market these days. Especially the millionaires. Some surveys reveal that investors’ confidence fell since economic conditions look like they’re worsening. The stock market strength is the factor that most changes their current investment plans. And as we know, the stock market declines.

But there are some different examples of how to react to the stock market decline. While these investors mentioned above are getting out of the market some, also millionaires, see the opportunity.

Smart and reach investors are buying stocks

They are getting in instead. Are they right? How can they see the opportunity in the declining market? Examining this was so exciting.

Let’s say like this, the majority of average investors are not leveraged. That isn’t a disadvantage, we should look at that as a gift. If they have, and they have, available cash and enough to invest, they are putting it to work right now while the prices are cheap. Are they crazy? The others are going into cash. Well, we think they are not crazy, they are completely smart investors.

Okay, here the explanation.

The major asset classes like stocks will grow over time. The advantage of buying now and holding stocks is that the value will rise faster than the value of the cash. What? Yes, the epidemic will stop one day sooner or later (sooner is better for many reasons), and everything will come to its place. The economy will recover and grow, and we will have a better place to live. Much better than we have now or we had before. Okay, if we are wrong, then we will have more important things to be worried about than the stock market is.

Average investors should do the same

As we said, the individual investor should buy now. Historical data shows that the global stock markets have an upward trajectory and the investments are going to grow over time. So, this theory is simple to understand. That is the philosophy of the richest investors. For example, Carl Icahn and many others. They are buying while markets sell-off on panic and uncertainty. Is that a recipe? It looks like that. This is an example of how to react to the stock market decline. The circumstances in the stock market like we have now are a great opportunity to buy stocks of high-quality companies since there are no fundamental reasons behind the market decline. Even if your stocks are going down, don’t panic! Don’t sell! Buy them more at a cheaper price. In this way, you will grow your wealth.

How to react to the stock market decline

Follow the example of the great Warren Buffett. What he did, how he reacted to the stock market decline?

He advised, “being greedy when others are fearful.”

This kind of view while the market decline is a powerful advantage and the best investors have it. That is different, in contrast to what the majority of investors are doing. That’s why they are unique and rich. So, that attitude works. The point is to pick stocks that can outperform the market. Such stocks even when they have a double decrease, usually turn out and become winners. To make this clear, the stocks that have had bigger declines, had bigger final outperformance after they started to add their positions. That’s the fact according to a recent Harvard study. This study also reveals that wealthy investors choose stocks that exceed the wider market historically and they outperform by double figures. So, follow what really rich investors are doing and do the same.

Pay attention to how to react to the stock market decline

When the stock market is down your stocks will drop, for sure. Some of your stocks will drop more, some less. But let’s assume you were a smart stock picker and you hold a stake in a stable company. But due to the market downturn, its stock dropped 30%. It was a good, steady company. What happens? This stock was one of the winners in your portfolio. Well, it happens due to the coronavirus outbreak now. The stock is down and the stock price decreased by 30%, let’s say. How much did you lose? Should you get out? If you don’t, how long and how much will it take to get back? If your stock decreased by 30% it will need to increase 60% to get back, to break even. This is just an example, remember that. So, since your investment isn’t problematic and you hold a stake in a good company, you can be pretty sure that it will recover after the market starts to rise again. Further, if you sell when the company is down, it is more likely you will miss out on a lot of money. Instead, find the sellers of that stock and buy more at a cheaper price. Just act as wealthy investors do.

Bottom line

However, the stock market decline is stressful not only for the stockholders. The overall economy suffers. But instead of panic, try to use advantages. For example, you can reinvest your dividends and buy more stocks and double your holdings. Of course, the cash you have you can use to buy more stocks in some other company. This is a great opportunity, with less money you can buy more stocks at a cheaper price.

If you need cash right now, you might have to sell your stock at great losses. But this can be a problem only if you invested all your money. If you put some of your money aside and saved it for rainy days, you are safe and can avoid this scenario. All you have to do is to follow what the best investors are doing. That’s how to react to the stock market decline.

6th March 2020
How to Invest In Stocks?

Investing in stocks is an outstanding approach to grow wealth. But how to start? Follow the explanation below to learn how to invest in stocks.

There is a difference between understanding that investing in stocks is a reasonable financial decision and understanding how to invest in stocks. If you are a beginner it can be very important. Yes, investing in stocks is a reasonable decision in any circumstances. But do you know how to invest in stocks? It isn’t just about picking some stock and putting the money. For many people, the stock market is a big enigma but it hasn’t to be. Also, many people are questioning how to invest in stocks and still, this is complicated for them. So many potential investors are scared to start investing.

But we have to say they are making maybe the biggest mistake in their lives. There are so many benefits of investing. The effort that it takes to learn how to invest in stocks, will result in great benefit. Anyway, the advantages of investing far outweigh the efforts spent to learn. One thing is for sure, investing in stocks isn’t frustrating at all. At least, it shouldn’t be.

So, let’s start.

We are going to explain how to start investing in stocks

First of all, you can buy and sell shares in any public company at any time. The principle is almost the same as any other business. The point is to buy a share of stocks in the company when it is cheaper than its actual value. The next step is to hold on for some time until its value has risen to the position that you feel satisfied to sell it for a profit.

So a successful investment could be (please keep that in mind this is a made-up example) as followed. Let’s say you bought a stock of a company and you paid $20 per share. And you hold on to this company for 3 years. After that period of time, your stock has grown at $50. You wouldn’t like to miss this opportunity for profit and earn 2.5 times more than your initial investment was. Even better is if you bought a dividend-pay stock so you can gain profits along the way without selling any of its shares.

How really to invest in stocks

You cannot start without any knowledge about it. Therefore, you have to know the fundamentals of investing. The main goal of investing is to make money. That will not be complicated if you have a plan and investment strategy. So, we already said that investing is simply buying assets that are supposed to grow in value. That can be stocks, bonds, ETFs, mutual funds. But keep in mind that you don’t have guarantees that your investment will increase in value over time.

You are wary of taking risks now, aren’t you? Don’t be, we know your hard-earned money can be at risk. You may choose some low-risk investments, for example, bonds. But historically, stocks generated larger returns than bonds. And you are seeking wealth. You may ask why to invest and not put your money into a savings account. Well, investments will give you higher returns, particularly over a long time.

But you have to decide where to invest, what are your financial goals. We are talking about how to invest in stocks. And if you follow some rules it can be safe and provide you high returns.

Let’s buy our first stock

As a beginner investor, you can invest for the long-term or invest in companies that mean something special to you personally. It is always easier to make a success with the long term-investing. Trying to make short-term profits can be a tricky part for new investors.
So, in short-term investing, you have to know when to buy and sell. That requires great research, education, and a bit of luck. Yes, why not say that. If you choose a long-term investing, all you have to do is pick a great company at a fair price. Your stock will increase in value over time. The possible costly errors will be reduced as the longer your investing horizon is. Invest in companies that you are already familiar with.

Okay, let’s assume you found a company you would like to invest in. So, you can buy shares in that company through a broker. Brokers provide you to easily do that. Remember, they are charging a fee for the services. Buying stocks is simple like you are picking something from the online catalog. Just pick the stock you want, the number of shares you want, and your purchase is completed when you put money. You have great options with online brokers but you have to check them before starting working with them. Also, online brokers will charge you lower fees. How to choose a broker you will find HERE.

Follow three basic strategies when investing

Start investing earlier
If you want your money to work for you, and you start investing as soon as you can, the more chances it will have for growth.
Stay invested as long as you can
This is something about compounding returns. The point is to stay invested, meaning don’t go in and out of the market. If you stay invested you’re able to earn more money than you have already earned.
Risk management
You’ll need to spread out your investments to be able to handle the risks. Never put all your money in just one investment. It is too risky and dangerous. Diversification is the recipe for successful investing. When you have several investments added to your portfolio, the risk of losing money is lower. Some of your investments will be winners, some will not. But over a long haul, you will profit.

Stocks pay you dividends

That will provide you a stream of income and without having to sell even one share. We know you’ve heard how investors are interested in the drop and rise of the value of stocks. But, trust us, they are very interested in the dividends paying stocks. To make clear what dividends are. They are amounts that the companies are paying to their stockholders for each share of stock they hold. It is commonly less than one dollar, for example. But…

Let’s say you want to buy shares in the company at $10 per share. And you want to invest $2.000. So, you’ll have 200 shares of that company. That company pays a dividend of $0.10 quarterly. What does it mean? This means you will have $20 every three months, $0.10 x 200 = $20. It isn’t much, but for one year you will receive $80 and you can reinvest it or buy some other stake of shares in different companies. Anyway, it is an additional income from one stock. When you become a large investor, dividends only could provide you a nice life. For example, instead of $2.000 investment, you were able to invest $2.000.000. In this case, you would own 200.000 shares of the stock mentioned in our example. That would mean you could have a $20.000 per quarter or $80.000 per year just in dividends. Not bad, right? Moreover, you didn’t need to sell any of your stock.

The companies can change their dividends. It is normal. They can pay out a smaller dividend per share or raise them. You have to know that dividends are not guaranteed. They are just a nice bonus, particularly with a solid company with a long history of raising dividends.

How to invest in stocks in four steps

It is very important to estimate what some company means to you. If the company has some meaning to you, you’ll be more interested in it. You’ll be more inspired to research it and you can invest with confidence. So, that will be the first step before starting investing in stocks. Find and examine a company that means something to you.

The second step is to examine how the company prevents its rivals to take over the control over its market. In other words, it is a so-called moat. Big companies with famous brands have a moat, for example. They are unique in the market, well-recognized, and well-positioned. The competitors can stay on the coast and cry but you will have a safe investment.

Also, pay attention to management. Are the people who are the leaders of the company competent? You don’t want to invest in the company which is led by corrupted managers.

But maybe the most important part of how to invest in stocks is to find a company with a high safety margin. It is a financial ratio that estimates the number of sales that exceed the break-even point. In other words, that is the point where the company stops being profitable.

Also, the safety margin represents the difference between the intrinsic value and the market price of stocks. To calculate the safety margin use this formula:

Safety margin = sales – the break-even point

Bottom line

You may ask how much you should invest in stocks.
The amount of money you should invest in stocks is up to you and your financial condition. Never invest more than you can afford to lose, that’s the rule. Even the smartest and most advanced investors sometimes can be dried. Never invest in something you can’t understand. Always calculate the risks. In that way, you’ll be able to recognize the potential reward and the probability of loss. Does the stock have a history of giving returns, how losses could occur, are important questions and you have to find the answers.

Don’t jump into the stock market without knowing why. Do detailed research to avoid big losses and failures. Your most important step should be to research the companies, though. The final step is to buy a stock and start getting rewards.

While this article isn’t meant to cover everything you need to know about investing in stocks or everything on how to invest in stocks. That is the no-end process. For more to know, participate in our Full Trading & Investing Course.

3rd March 2020
Markets Are Down – Should We Invest Further

The spread of the coronavirus has disturbed investors. The fears of new outbreaks can push down global demand. The S&P 500 closed down 3% on Tuesday, the index is deeper in the red.

Markets are down, an inverted yield curve is noticed, coronavirus is progressing and spreading all over the world. Everything tells us that we should be afraid. This inverted yield curve is proof of investors’ fears. They are starting to fear the worst and sell in panic. Almost all benchmark indexes are decreasing. While we have several things that can help- us to avoid infection by COVID-19, what can we do to protect our investments?

Stock markets suffered two big drops so far this week. Coronavirus outbreak made a great influence on the global stock markets. An economic downturn has increased quickly following China. It is the reality now in the US, Middle East, and Europe.

The best sign of how this situation is difficult is visible among the investors who are looking for safe havens for their capital. But there are so many signs that worry us. The yields on U.S. government bonds are dropping to near-record lows and showing red flags. Further, returns are higher for short-term debt in comparison to the 10-years bonds meaning, yields continue inverted. Everything is opposite to the regular situation and some of the experts think that is the sign the recession is coming.

But our intention is not to cry over this situation. We would like to discuss how to turn this market downturn to our benefit. Is it possible at all? We are receiving controversial information from our governments, experts have their interests also. That makes confusion among investors especially when it is so obvious that stock markets are down. As we said, let’s try to find the way out there. The mother of all questions is:

Should we invest when the markets are down?

In short, yes. Why shouldn’t we? We should invest in any case no matter if the stock markets are down, sideways, or they are up. The essence of investing is to reach settled financial goals. To do that we have to keep our eyes on our investments, to the stock prices, no matter what kind of market condition is. That’s a general duty while investing. Otherwise, everything will go apart.

Let’s say you are going to shop and you notice that something you planned to buy is on discount. What will you do? Step away? Will you buy it or not? Of course, you will. When it comes to stocks, why would your decision be different? As far as we remember, investors’ mantra is “buy low, sell high”, right? Actually, when everyone is selling, the smart decision is to buy. That is according to Warren Buffett. But where is the catch? Don’t buy if you didn’t plan that or just because you saw someone is doing so. Buy only after you made a consistent plan of your investment. Buying cheap stocks just because they are on sale can be the wrong move.

Buy, buy, buy

We don’t want to diminish the influence of the coronavirus outbreak. It is a horrible situation, a possible dead-ending disease, very dangerous. But what we know is the financial markets have been almost immune to the influences of earlier epidemics.

Stock prices are affected by various outside factors and some of them have nothing to do with companies’ operations, that’s true. The prices will decline on the bad news such as the coronavirus outbreak or a downturn in the overall economy. But that has nothing to do with the company, to repeat. The circumstances like this one actually represent a great opportunity. For example, you were looking at some company for a long time and its stock was too pricey for you. Due to the markets down it becomes cheaper. Maybe you have enough capital to buy it since it is such a good market player.

We have a great reason to change our position and buy more stocks

Why not? It is a good time to buy more at fire-sale prices. But what if you don’t have suitable cash to deploy? Think! Maybe you can find one or a few investments in your portfolio to sell and buy a new one.

Always keep in mind, your investment decisions should be based on your financial goals, not managed by market movements. That’s why you should buy stocks when markets are down only if you wanted particular stock and it is suitable for your goals. Don’t rush with that because buying stocks just because they are cheaper at this very moment is also an emotional reaction as much as selling when the markets are down.

What are we doing instead?

Well, we are doing smart trading. We must have a plan, investing schedule and stick with it. That means we already planned some cash reserve and we are ready for a situation like this new market downturn is. So, we are able to look at this like a buying opportunity that comes.

Buying stocks while everybody is selling isn’t a strategy without risk. There is always a chance that the market doesn’t go to the bottom. But if we buy when the markets are down, we have a chance to have larger gains when the market rebounds. More than the investors who didn’t buy.

A few days of bad news are not a reason to sell in panic

To be honest, drastic drops can be upsetting to look at. The markets trended upward for so long and suddenly we have this. But we have to consider this situation as a buying opportunity.
The worst strategy when the markets are down is to sell your portfolio. Okay, maybe the worst of the worst is to take the short positions. The stock market knows how to punish investors who are too bearish.
Rather, maintain a notable piece of your portfolio in stocks, even now when the stock markets are down. The point here is to be in position and take advantage when the markets turn forward. Of course, you would like to protect your portfolio against dangerous market forces as much as possible.

So what and how to do it?

Well, you have to reduce your stock exposure but you have to keep the main strengths. Keep the winners. You can sell the positions that are not performing well because they represent the weak part of your portfolio. So, during the market correction or situations like this one when the markets are down, those stocks or funds might get the most critical hit. Further, even when the markets are down you may have some positions that are extremely good but you assume that they will not play so well. Your actions should be – take a profit. Yes, why not? Just do it at market peaks to have profits.

Further, consider the way you invest, maybe it’s time to change something. Maybe index-based ETFs are not the best choice, they work well during bull markets, but bear markets are less safe.

Don’t follow the prevailing sentiment and sell investments. Rather sell risky positions, for example, some with a high beta. Also, think about selling some with a history of volatility. Yes, we know there are some investors who sell their positions in the most steady companies to avoid losses. What we can say is that they are very nervous. Who else wants to sell everything and sit at the sideline? You know, the market will bounce back one day. But if you sell everything you hold now you will miss big gains when it happens. Sell risky investments only, as we said. Hold blue-chip companies!

Bottom line

The keyword for overcoming the market’s downturn is advance preparation. There is no better strategy. The nature of the stock market is to experience declines from time to time. Preparations mean having enough cash to provide ourselves more opportunities in investing. Think about this downturn as a normal cycle. As said, it is so normal for the stock market to go down after it reached its peak. Savvy investors made some other preparations while the market was at the peak. They already lowered their exposure on time.

But it isn’t too late yet. At least once in life, every single investor has to deal with weak market conditions. So, we truly believe you are prepared for this one. Stay calm, lower your exposure to stocks, sell stocks that are not good players, buy more. But never try to stay at the market with knee-jerks reactions. Don’t sell in panic, that will ruin your investments, your capital, family and finally you. Stay stick with your investment goals and wait for the market to rebound. It is the only proper way to overcome the market’s downturns.

26th February 2020
Expect More Volatility In the Stock Market This Year

This year could be a volatile period for investors given the fact that a global financial crisis could be in the offering in the next several years

Last year showed the best look and we are not here to destroy the joy. Yes, we all can expect more volatility in the stock market this year. But don’t be afraid. The volatility in the stock market can be a stimulus. How is that? If you expect more volatility in the stock market that is the sign you understand the market’s behavior. The volatility of the stock market is normal and part of investing. When the market shows the volatility means the market is operating logically. You are not sure? Let’s say this way. The volatility runs both ways. It gives kicks to the downside and successes to the upside over the short-term periods. When volatility occurs, experts advise it is best to stay calm and let the volatility proceed its way. But you have to prepare your investments for that. Even more, you have to learn how to profit from stock market volatility.

Why do we think we can expect more volatility in the stock market in 2020?

We can’t neglect history, for example.

Look at the S&P 500 over the last 38 years. You can see that the market corrections were so frequent that they became the norm. The average yearly correction is -13,9% over the last 30 years. The historical data shows that there were only a few years when the Index didn’t drop at least -5% for one year. Actually, it happened the Index had a decline of 5% only two times, 1995 and 2017. Last year, it was -7%, it was below average for market volatility.

The second reason to expect more volatility in the stock market this year is that high volatility always comes after low volatility. If you look closer to the S&P 500 Index, you will not see any move more than 1% in any direction during any single trading day since October last year.

Such a low volatility period wasn’t seen in the last 50 years and it marks the constant move higher. All data shows that these long periods of low volatility are followed by periods of high volatility.

The last time we could notice similar before January 2018 and October 2014, both were followed by sharp corrections.

How to prepare investment for stock market volatility?

When the stock market starts falling, we are all faced with bad news on a daily basis. We may feel anxiety, uncertainty, fears. The downside is that it triggers drastic decisions. Even the most experienced investors may panic. Is panic a strategy? Not at all. You must stay calm when expecting more volatility in the stock market. There are some techniques and strategies to use when volatility appears.

It’s absolutely true that short-term losses can cause anxiety. But the worst decision is to let emotions drive you, it may cost you a lot of your money. So, stay invested, don’t pay attention to daily impacts, stay focused on your long-term goals. Yes, it can be difficult but you may have more choices with that.

The short-term volatility fluctuations can be hard to look at, but it’s essential for long-term investors to continue. Even if you want to pull out of the stock market and think it is the best choice, just think, what if you miss out on a market rebound? Such a great opportunity! The gains while you are on the sideline.

The historical data for the S&P 500 Index shows positive total returns for 24 out of the last 30 years.

How to survive market volatility

Advanced investors know that the best way to survive volatility is to stay with a long-term plan and a well-diversified portfolio. Yet, it is easier to say than to do, we know that. But can you find a better way? Diversification is the essence of investing. Hence, when the markets shift, you might have to rebalance your portfolio. So, market volatility could be a great time to mix your assets. Just don’t be lazy. It is your money in the play. Of course, you have to know your risk tolerance.

Day traders can profit from the stock market volatility

The coming back of volatility is bad news for some, but day traders can profit from market volatility. If you are one of them or want to try your hand just start small, big games are not suitable for volatile conditions. Day traders should limit the size of trade to limit the size of losses. To be honest, if you want to learn how to be a good player in this game, you have to experience the pain. What we want to say is, you have to lose some money to be able to be happy when you make a great gain. Don’t you agree?

Further, never place too many trades per day. You have to think about each trade separately. Too many trades mean the bigger potential for losses and more headaches with empty accounts. Trade only a few stocks per day. This doesn’t mean you are without confidence. Contrary, this means you are a reasonable trader. Modesty isn’t IN today, but with this approach, you may have constant profit for a longer time. Just stick to your strategy and always plan your exits. Moreover, now you have this app to check them even before you open the position.

You know very well the trading is risky, especially if you trade for a living. That’s why you have to develop a strategy, with the possibility to test it now and follow it.

What long-term investors have to do while the market is volatile

A normal reaction to market volatility is to reduce any exposure to stocks. Will it make any sense? Long term investors must stay calm when stock market volatility comes. Don’t make radical changes to the portfolio. It can be harmful to your wealth. Meaning, don’t invest more in stocks because the exposure to more stocks could be risky for your investments as a whole.

You have worked hard to build your portfolio. Just stick with your plan and stay calm. Market volatility is usually a temporary event. Don’t panic.

Bottom line

Expect more volatility in the stock market this year but, to repeat, volatility is completely natural and expected. The S&P 500 could experience a correction this year in the –10% to –15% range. That is the average correction. Stay focusing on economic indicators and be patient if you are a long-term investor. If you are a day trader just trade a few stocks daily. Until the volatility goes. Eventually, it will, sooner or later.

9th February 2020
Tesla Bubble is Bringing New Short-Sellers

Tesla stock rose an incredible 17% on Tuesday, but Morgan Stanley recommended selling Tesla for the first time since 2012.

UPDATE 07/02/20:

Yesterday 47 million shares of $TSLA traded at an average price of $750/share – equating to a nominal value of $35 billion. The last price was $748.96 on February 7.

Tesla bubble is turning heavy bulls into short-sellers.
The short-seller Andrew Left’s Citron Research tweeted: “even Elon would short the stock here if he was a fund manager.”

Tesla’s (NASDAQ:TSLA) rally has seen the stock double in 2020 alone. The company’s market cap is over $160 billion. Great news to CEO Elon Musk and his bonus.

The surge is getting headlines but what caused this change? Actually nothing. Tesla’s revenue growth dropped in the last quarter. The traders recognized it as a Tesla bubble and it isn’t surprising that a lot of them want to short it.

One is Citron Research as we mentioned.

In a tweet posted on Tuesday, Citron Research said that they were shorting the stock again. Citron changed its mind after the recent run, despite their earlier statement that they would never do it again.

On Thursday, even Morgan Stanley recommended selling Tesla for the first time since 2012. The bank downgraded Tesla to “underweight” from “equal-weight.” This new rating came at the time of a record rally for Tesla. Morgan Stanley also recognized rising downside risks. Shares of this electric-vehicle maker dropped 4% in early trading Thursday. It looks that traders who bet against Tesla’s victory are the ones who have to push the share price higher. What an irony!

Tesla bubble causes fears. How is that? Can you recall bitcoin’s surge back in 2017? Exactly.

The climbing for shares of Tesla provokes some investors to compare this jump to the bitcoin bubble. Tesla’s shares have grown 36% to a record price of around $887 in the last two sessions. This Silicon Valley favorite has jumped 180% during the last three months. Just to give you the right perspective, on June 3 Tesla’s traded low at $178.97, on February 4, Tesla’s shares have gained almost 395%.

And now Andrew Left said he’s betting Tesla will go back down. For the market winner 2020? Also, Michael Novogratz compared the surge in Tesla to bitcoin’s likewise parabolic progress.

The gains have come too greatly, too wild

The parabolic rally put shares up 21% Tuesday, after a 19% increase Monday. That put gains at over 100% for the past 12 months. Bulls are clapping the record run, but short-sellers are also measuring in on what’s next for the electric car-maker.

But Citron Research doesn’t think the company is bankrupt, Andrew Left said Citron is shorting Tesla only because of the valuation.
Citron Research tweeted more: “when the computers start driving the market, we believe even Elon would short the stock here if he was a fund manager. This is no longer about the technology, it has become the new Wall St casino.”

Morgan Stanley downgraded shares of Tesla to “underweight”

Now it is the “sell” rating. Tesla gets this rating from Morgan Stanley for the first time after seven years. According to Bloomberg, in September 2012 Morgan Stanley gave a selling rating to Tesla. This one came after a record rally and amid optimism about Tesla’s China factory. The bank saw the problem in “sentiment around the stock” that is “admittedly very strong, but we ultimately question the sustainability of the momentum.”

Morgan Stanley also lowered the valuation for the company’s mobility unit and increased the expectations for the core auto business. That resulted in a higher target price.

Why Tesla Bubble?

Tesla’s current valuation is more downside risk for the stock than upside. Even the company’s increased price target from $250 to $360 indicates a 30% downside from the last trade price on Wednesday.

Also, the optimism around the China factory had a great influence on Tesla’s stock. The problem is that the risks are not entirely recognized.

Adam Jonas of Morgan Stanley in his Thursday note wrote that investors “continue to harbor concerns whether an auto business commercializing advanced, dual-purpose technology in economically sensitive industries could be a long-term winner in the Chinese market.”

Tesla has entered into the bubble-zone, everyone is following what’s going on with it, even the people who are out of the stock market are reading news about Tesla’s stock price. And cheering. The surge was too fast, too far. That’s why it looks like a bubble. Who is surprised by short-sellers’ appearance now?

What is a bubble?

A bubble is when the fast rise of asset prices is followed by a shortening. It is generated by a surge in asset prices and driven by an enthusiastic market reaction. When fewer and fewer investors want to buy at a high price, a massive sell-off happens. That causes the bubble to decrease. After the new Morgan Stanley’s gave Tesla shares a “sell” rating it is quite possible the stock price will fall quickly. That is the situation with Tesla stock. The share value grows beyond asset value. So, investors withdraw their money faster in fear that supply will exceed the demand. That could cause the share price to drop.

Tesla’s 2020 rally has been strong. The stock was all the time very high and reached new all-time highs each week. But on Tuesday investors assumed that holes may arise whenTesla fell by over $100 just 15 minutes before the closing bell. This drop was followed by a large volume, implying that it wasn’t quite a healthy correction. Yes, TSLA finished the day up 17%, but the mini-drop was visible. It looks like the air is coming out of the bubble.

Bottom line

Everyone should be skeptical when such a massive run in stock in a short time with very few visible reasons, appears. If we have in mind the recent rise of retail ownerships, we must consider that the further drops for Tesla stock are near.

Citron’s current change on Tesla stock can be accurate as the last one was. As an illustration, according to Bloomberg, Tesla overtook Apple as the most shorted US stock and analysts have bearish ratings on the asset. Everyone is predicting TSLA short squeeze. That can be right but on the other hand, it is more likely this stock price will decline slowly. Increasing short selling is more possible than a sharp fall. One of the analysts, Ihor Dusaniwsky said: “This is due to the amount of short hedging that is being done to offset Tesla convertible bond and options exposure.”

Before Tuesday’s rally, Tesla short-sellers had taken a $2.89 billion loss last year and a loss of $8.31 billion from the beginning of 2020.

Tesla shares were trading 12.73% higher at $879.30 on Tuesday.

By the way, analysts that cover Tesla, predict the average price target is $506, which is around 35% below the closing price on Monday.

But who can predict the market’s movement or what Elon Musks’ next move?

6th February 2020
The Black Swan Event – Is it Coronavirus?

No one can predict the Black Swan event, but this coronavirus is a danger in many ways.

The question could coronavirus be the Black Swan event for the stock market, started with the increasing number of infected people. But this reason isn’t the only one that generates this question. Numerous companies temporarily shut down their operations in China. According to CNBC, General Motors’s spokesman sent an email that stated the company said to its employees that it will keep its factories in the country shut through Feb. 9. General Motors is the largest U.S. automaker in China. Also, Starbucks temporarily shut down almost half of the existing locations in the same country. Moreover, if the infection progresses, the company will close more without hesitation, said its CEO, Kevin Johnson. Google is another large company that temporarily closed its offices, and Microsoft employees in China will work from home until Feb. 9. Amazon and Google have restricted employees to travel to China. Also, many airline companies slashed or stopped their flights to China. All due to government-imposed travel bans in China.

Markets reaction

Markets are reacting to the potential consequence of the coronavirus blast.
Global markets sold off on Monday but started to stabilize on Tuesday. The stocks are still close to record highs reached recently. But the comparisons with the 2003 SARS is out the question. Though, everyone makes them.

Could coronavirus be the Black Swan event for the markets?

Let’s say this, in 2003 China growth was reduced by 1 percentage point. But the growth rate of China’s economy since 2003 increased and China has a bigger role in the worldwide markets today. Maybe the markets shouldn’t be so careless this time.

The coronavirus could have a far more serious impact on the world economy than the SARS epidemic in 2003. At the end of 2002, the Chinese GDP was estimated at around $1.5 trillion, 4% of global GDP. In 2019, the Chinese GDP was $14.3 trillion and above 16% of global GDP. In the time of the SARS epidemic, China just joined the World Trade Organization. That’s the main difference.

Influence on the global economy

According to some estimates, today even a small downturn in the Chinese economy can cause volatility in the global oil market and global trade, for example.
Firstly, the number of tourist and business trips to China is already declining. Further, China’s GDP growth rate could decline by 0.5% to 5.6 percent this year, as a result of the outbreak of the virus corona epidemic, according to some experts.
As we can see, the coronavirus has already impacted the world’s commodity markets, including the oil market.

The price of Brent crude oil has fallen 14% since the beginning of this year, largely due to news from China and continues to decrease.

But could it be a Black Swan event?

The coronavirus is an understandable concern to stock market investors. Since the stock market is overbought and in such a condition, it can be extremely unsafe and vulnerable. Some investors are convinced that the coronavirus epidemic could cause the Black Swan event in the markets. Moreover, they started to buy on dips thinking that this event is temporary and will not live for a long time.

We all hope so since medical science has dramatically advanced and the virus could be contained. But who can predict what is going to happen in the markets? The Black Swan event could happen or not. There is a 50/50 chance, in fact.

Investors should be realistic. The coronavirus can be a seasonal event and by spring it can be contained. But as we said, even such a small and short-term event may cause changes in the stock prices. Of course, when the number of cases is increasing, the stock market is decreasing. The main problem to the market is that this virus appeared in the time of bullishness in the stock market. This is a critical point.

It can be the Black Swan event for the Asian market

Asian markets fell Thursday, January 30. The reported number of coronavirus infected increases every minute. That makes difficulties for the global economy. Hong Kong’s Hang Seng Index (HSI) had its worst day since August this year on Wednesday, January 29. The index lost 2.1% and it already has fallen over 5% in January.

Japan’s Nikkei 225 sunk by almost 2% on Wednesday. South Korea’s Kospi fell 1.5%. But Taiwan is the biggest loser among the Asian markets, Taiex fell 5.5%.

So, the virus can really disrupt China’s and Asian economy. How far it will spread? Will it affect the global markets?

Several circumstances could lead coronavirus to affect asset prices on a global level. On Monday, January 27, the US stocks dropped significantly gaining a new low record since October last year. The fear is rising. Investors are moving their holdings from risky stocks to safe havens. The coronavirus affected the global markets. Is it a Black Swan event? The risk is high and also the possibility. The influence of coronavirus on global stock markets is than SARS could ever do.

How is it possible the coronavirus affects markets so quickly?

First of all, the news is spreading very fast creating reasons for turbulent market moves. The virus’ is spreading over the world fast and leads to market downswings. The global supply chains are interconnected tighter than ever. The trade networks are complex and, at the same time, vulnerable. So, some kind of domino-effect is very possible. If the coronavirus spread extensively that will influence the companies based in China.

Also, if the coronavirus continues to spread, it could reflect in stock prices. Well, one of the biggest global economies is affected already.
JPMorgan decreased its GDP estimate for China on Wednesday, indicating a “demand-side shock” caused by the coronavirus.

Thus, the positive 2020 economic predictions can be undone very easily due to coronavirus.

30th January 2020
La Roche Caught Lying

La Roche defrauded U.S. federal and state governments for $1.5 billion. The company was lying that its influenza drug Tamiflu was effective at preventing potential pandemics.

Drug company La Roche (OTCMKTS: RHHBY) cheated U.S. federal and state governments out of $1.5 billion. The company was falsifying clinical studies and incorrectly declaring that its influenza medicine Tamiflu was effective at suppressing potential pandemics. That is stated in recently unsealed court documents.

The lawsuit alleges the La Roche company by publishing misleading articles incorrectly affirming that Tamiflu can reduce complications, mortality, and transmission of influenza, mislead the public and regulators. The problem is that the company used those articles for aggressive marketing. Its goal was to assure the US federal and state governments that Tamiflu is efficient for pandemic use.

Governments spent around $1.5 billion to stockpile Tamiflu

According to the complaint, governments spent around $1.5 billion to stock with Tamiflu in good faith to Roche’s claims. But Hoffmann-La Roche caught lying about Tamiflu.

The lawsuit comes under the False Claims Act. According to this Act, individuals can bring claims on behalf of the government. It is stated in the lawsuit that the reimbursement is seeking in the name of taxpayers whose funds were spent on buying Tamiflu. The governments bought tens of millions of units of Tamiflu for the Strategic National Stockpile and spent, from 2005 $1,5 billion for that.

Possible penalties

Roche could pay judgment bellow $4.5 billion but this one, the False Claims Act requires payment of triple damages, and civil penalties are added.
The whistleblower is Dr. Thomas Jefferson, a doctor and public health researcher in the global Cochrane Collaboration research network.
He has researched inhibitors and among them, Tamiflu also. He works in this field over the past twenty years. When he started to examine Tamiflu’s efficacy in 2009 he demanded from the company to release the underlying clinical study data. Dr. Thomas Jefferson got data four years after. It was 2013 when he realized that Tamiflu’s effectiveness didn’t fit Roche’s statements about the use in an influenza pandemic, the lawsuit states.

To make this more unbelievable, as early as 2000 the Food and Drug Administration (FDA) analyzed Roche’s data about clinical trials of Tamiflu and warned the company that data showed different effectiveness than Roche claimed. Moreover, the FDA found that Tamiflu gives a small benefit of reducing the duration of flu symptoms but the drug isn’t able to prevent transmission nor infection. Hence, the FDA also warned Roche that its statement was misleading.

The lawsuit declares that Roche was aware that Tamiflu is an inefficient drug for resisting influenza pandemics. Yet, Roche marketed this medicine to fill Roche’s account at taxpayers’ expense.

Hoffmann-La Roche caught lying a long time ago

This drug was originally produced as an answer to seasonal influenza. But the competition was great and Roche wasn’t satisfied with the revenue the drug generated. So, they started to promote Tamiflu as neuraminidase inhibitors, which are intended to prevent clinically relevant influenza virus strains from spreading inside the body. But the data was false.

Almost six years ago The Guardian reported about how Tamiflu is efficient. At that time, the Cochrane Collaboration, a not-for-profit consortium of 14,000 academics and researchers who periodically examine the medical literature to assess the safety and effectiveness of various treatments. obtained all data despite Roche’s willingness to withhold the results of its clinical trials.

By having the data, the Cochrane Collaboration has found that Tamiflu has little or no impact on problems of flu infection, for example, it couldn’t prevent pneumonia.

In December 2009, the British medical journal (BMJ wrote about an investigation that proved that Tamiflu couldn’t prevent serious complications or death in people that have the flu. At that time, the British medical journal suggested that Roche, the Swiss company that produces and sells Tamiflu, has misled governments and doctors.

Roche has claimed that its medicine decreases hospital admissions by 61% in patients who were healthy before they got the flu. It has also claimed that Tamiflu reduces complications like bronchitis, pneumonia, and sinusitis by 67%, and lower respiratory tract infections requiring antibiotics by 55%. All lies.

Still unrevealed

Who can answer the question of why governments all over the world have invested $3 billion in one year, according to the investment bank, JP Morgan, from the emergence of H1N1 in spring 2008 to the end of 2009, for a drug that is not efficient.

Tamiflu’s luck began in 2003, after the SARS outbreak and the emergence of bird flu. And governments started to pile up the drug in a fear of pandemic.

Roche Holding AG Stock (ROG.SW), (OTCMKTS: RHHBY)

Despite the mentioned scandal with Tamiflu and lawsuits, Roche Holding AG stock seems to be a good long-term investment. RHHBY (ROG.SW) could be a profitable investment option if you are looking for stocks with good returns.

The stock traded at a bit above $41 on January 14 this year. Experts anticipate that RHHBY could go above $73 in the next five years. But the whole pharma sector isn’t in such a good position right now. Especially, European pharmaceuticals.
The interesting thing, Bank of America anticipates European stocks to rise this year. But with the exception of the pharmaceutical sector.
The pharma stocks, related to the broad market, move in the opposite course to U.S. bond yields. So if yields rise (the Bank of America expects it will) then the pharmaceutical sector should be damaged. But also, there are some other problems for this sector too. It is its sensitivity to the dollar. It is normal because 40% of the sector’s sales come from the U.S. With the reduction in trade tensions between the US and China, it is expected for the US dollar to weaken.

If we put all of this together, the European drug sector could underperform the broader index by 13% over six months. Maybe some influence could have a reducing drug price. But we will not bet on it. It’s better to put it on a political field not financial.

Bottom line

The analysts have issued 12-month target prices for Roche Holding Ltd. Genussscheine’s shares. Their forecasts are from CHF 225 to CHF 375. On average, they anticipate Roche share price to reach CHF 318.17 in the next year.

Twelve Wall Street analysts have issued “buy,” “hold,” and “sell” ratings for Roche Holding Ltd. in the last year. Currently, there are 2 sell ratings, 2 hold ratings and 8 buy ratings for this stock. So, a consensus recommendation is “Buy.” After the last lawsuit that alleges the Hoffmann-La Roche company was incorrectly affirming that Tamiflu can reduce complications and death in people with flu, everything is possible. The company can be punished by investors and they may start hard selling. That will decrease the stock price. Since things work that way in the market, some other investors will see the opportunity to buy more at a lower price.

14th January 2020
Stocks Reached New Records in the First Five Days This Year

Stocks rose in the first five trading days in January. There is an old tale of the January Effect but is that true or myth?

Stocks reached new records in the first five days of this year. And when stocks play well in the first several sessions in some years like it is in this one, investors like to recall the “first five days” rule. The point is that this rule is, therefore, able to predict the market is often up at year-end. But is this true?

Stock Trader’s Almanac, which analyzes the market phenomenon since 1950, discovered that if the first five days have a good track record it is a good prediction for the whole year meaning it will be well in the stock market.

Actually, it is an old Wall Street “first five days in January” indicator and as we know the brokers are superstitious. They believe if the stock market during the first 5 days of the year reaches record, that represents the potential for the strong performance in the given year.
So, stocks are sending a bullish signal for this year, according to that old indicator. Well, it is a good way of pumping stocks. Bulls in the market do that.

Will the whole year be like this?

But is this a reasonable way to make predictions for the whole year? We think it is an absurd way to estimate valuations.
Yes, stocks reached new records but if you take a serious look at the indicator you will find some drawbacks. Frankly, stocks are overvalued more than ever.

The stocks reached new records

Yes, in the first five days in 2020 but few days will last forever and maybe it’s time to consult the historical data just to compare what could happen next.

According to Dow Jones, historical data shows that the S&P 500 index has completed the year in the same trend as it started it in 82% of presidential-election years. It occurred from 1950 to today every time. In the first 5 days of 2020, the S&P 500 rose 0.7% and if the mentioned historical pattern is correct that should suggest that this year will finish with higher gains.

But be serious. We will need a deeper look at this indicator and on what it shows. Otherwise, you can easily read your horoscope (pay attention to the “sex” section better than “finance”) it will make more sense.

The ‘first five days of January’ indicator

January in the stock market has a strong influence on predicting the trend of the stock market for the rest of the year. The January Effect occurs when investors’ selling off their losing positions at the end of the prior year to realize the tax losses. Usually, these stocks are at a discount during January. And what we have there? Bargain hunters! They step in with their buying pressure in the market.

Statistics show when the S&P 500 rise in the first five trading days, there is around 86% possibility that the stock market will rise in that year. But this indicator isn’t very reliable due to the fact that we cannot find what happens when the gains in the first 5 days in January are below expected or in comparison to previous January or whatever. All we have is data for periods when the January Effect is triggered. But markets exist even without the January Effect. Even more, the markets exist even beyond January.

With a little help of stats, we can see that this effect had good predictions in 31 out of the past 36 years. Stocks reached new records in the first five days of 5 exceptions, 4 were war years and one was a flat market.

So, this was a confirmation of the January Effect.

Statistical answer as confirmation of something different

Let’s use more current data and divide the past 34 years into two sections separated, from 1984 to 2000 and from 2001 to 2017.

Let’s observe the period from 2001 to 2017. Data shows that, for example, the December effect produced an average return of 2.62% or a return of 36.5% during the observed years. But if you take a look at January for the same period, you will find poorer results. The average returns in that month were at 2.48% or 34% pre the whole year.

This seems to be a strong approval for the January effect. Nevertheless, whoever tried to use the January effect, and bought an S&P 500 index fund on January 1 and sold it on January 31, and kept cash for the rest of the year and did it in the next years to the end of 2017 made losses of 0.84% per year.

Stocks reached new records but ignore the January effect.

The using the January effect can be dangerous. This phenomenon is based on limited data and adjustments for confirmation. So, you shouldn’t believe that every time when the stocks reached new records in the first five days of the year were great gains in the market.

The conclusion about the January Effect came from small samples. So, it has low statistical reliability if it has at all. You cannot make a conclusion based on limited data. Yes, some financial press reports will try to assure you how these “five days effect” is important and you will find a lot of catchy titles but it’s fishing and fake news also.

Even the month of January was great for the stocks, what about the other months? If it is the only one-month effect what are you going to do with your investment over the rest of 11 months? Would you make decisions based on superstitions? Cash-out? We don’t think it is a smart investment strategy.

Common sense tells us something different. This isn’t a hypothetical situation, this is reality. Try to figure out why this phenomenon isn’t part of any extremely advanced computer software? Some software, and even not so sophisticated, will be able to identify the phenomenon and profit on it.

The reason is obvious. There is no unusual market’s phenomenons, that’s nonsense. If there is any phenomenon that is simple to be explained to the inexperienced trader or investor you can be sure it isn’t real. It is superstition.

Bottom line

This was another old tale to neglect, just like many others. Who can really believe that the first 5 trading days in January could predict the stock market’s direction for the full year? Yes, this old “indicator” gets much attention every year. As we said, the bulls are trumpeting it right now.

But nothing is that easy, especially the stock market.

If you have a problem to accept all of this, examine what did happen over the last 40 years. You will find that this pattern was a reversal. The fact is, since the 1970s every time when the Dow was down during that mythical period of 5 days in January, the whole year had higher gains.

To be said, any investor who admits the extraordinary influence of this superstition has a lack of knowledge and self-confidence. On the other hand, newspapers and financial reports enjoy cheating people when insisting on this.

We would like to point one thing at the end. The words written above doesn’t mean the stock market will not rise this year. It can do it very well and produce great gains, but what does it have with “First Five Days of January”?

Nothing!

10th January 2020