GalaTime

• Wall Street Journal: Bernanke’s Bubble Laboratory

They are building on work done by the late Hyman Minsky, whose once-ignored ideas about investing manias are now in vogue, and the late economic historian Charles Kindleberger, whose 1978 “Manias, Panics and Crashes” is a classic. But compared with Mr. Minsky or another student of bubbles, Yale’s Robert Shiller, the Princeton trio focuses less on mass psychology than on mathematical models. These they use to show how bubbles can be created even in markets that include rational, calculating investors.

• Marketwatch: Confessions of a Short Seller

The dedicated short pool totals about $5.4 billion, according to Knowledge@Wharton, a Website. That’s roughly one-seventh the size of the Fidelity Magellan Fund. It’s also a tiny sliver of the approximately $1.9 trillion of hedge-fund assets.

. . . it is essential to maintain a disciplined short-selling strategy because, remember, risk and reward are asymmetric in selling stocks short. An investor can make only 100% if correct — that is, if the stock sold short goes to zero. But you can lose an infinite amount if you’re wrong as the stock keeps appreciating.

We strenuously avoid stocks whose short interest is high relative to the float, or companies whose shares have large short positions relative to their average daily trading volumes . . . we also mitigate risk by avoiding leverage [borrowing to enhance the size of a position] . . . shorting large-caps is another way to control risk.

• Economic Times: Indicators from stock mkt try to tell us something

. . . the Indian VIX has slowly, but surely eased off to close at an all time low of 23.25 (data is available only since November ’07) on Friday — a clear indication that bullish days are here again.

. . . the absolute gay abandon in which puts have been written at 5000, taking the total build-up at close to 60 lakh shares, even with implied volatilities (IVs) being low, gives one the feeling that some of these overenthusiasts will first get killed before the market heads higher.

. . . the 5100 call option, even being in-the-money , saw a fresh build-up on Thursday and Friday and now sits with a huge build-up of around 36 lakh shares, only further validates that traders on the sidelines should probably wait a week more before getting on this bus.

Hmm. Wish it were that simple - we could all predict what the market was going to do!

This entry was posted on Monday, May 19th, 2008 at 11:02 am and is filed under investing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Related Posts: