Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

Stark and straight forward, like a business of sorts.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

As small as it is, the town, as such, thins out fast.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

A cross, a cistern and a dog house, implying there is a dog.

Comments [3] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

He didn't have a hook and line, he said. I later fixed that.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

It is nice and quiet when no one is there. The bothersome noise of doctrine attaches much more to people than it does to the church per se.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

The place to buy produce, flowers and plants.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

Checking out a small fish they caught.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

Women of social status, probably nobles. There are three classes here. Royal, nobles and commoners.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

She gains weight when she doesn't want to go.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

The day's catch just came in.

Comments [0] | | More

Kimball Corson
10/30/2009, Neiafu, Vava'u, Tonga

Girls always give me their best expressions. Lucky old dog that I am.

Comments [0] | | More

Kimball Corson
10/27/2009, Neiafu, Vava'u, Tonga

Steps into the more blue.

Comments [2] | | More

Kimball Corson
10/27/2009, Neiafu, Vava'u, Tonga

And over a church, at that.

Comments [0] | | More

Kimball Corson
10/27/2009, Neiafu, Vava'u, Tonga

It's about to get mowed over.

Comments [0] | | More

Kimball Corson
10/27/2009, Neiafu, Vava'u, Tonga

Not a whole hull of a lot.
_______

How Trend Trading Compromises the Stock Market

There are three basic approaches to stock market "investing:" fundamentals analysis, charting theories and raw trend trading. Obviously, some market participants mix two or more of these approaches to some degree. By fundamentals analysis, I basically mean a Value Line or Graham & Dodd approach to buying and selling. The other two approaches depend on one or another type of trend analysis. Raw trend trading is simply jumping in and out of the market to ride up long and down trends short, with little real consideration given to the fundamentals of the stocks selected. How is it so little attention need be paid to stock selection, according to investment criteria, in order to successfully trade the market trends? That is the core question. Obviously, a disconnect has clearly arisen between company performance and stock market price performance. Why?

I argue that all forms of trend analysis and trading - anything but classic investment criteria buying and selling - compromises the stock market as a market per se. What do I mean, you say? By compromising the market, I mean the following:

1. Market prices less accurately reflect true company performance;
2. Market prices move less independently of each other;
3. Herd behavior and band wagon effects become more dominant;
4. The market becomes more volatile and less stable;
5. The market is more amenable to manipulation by major players;
6. The market is more open to trading abuses;
7. The market disconnects from reality and has internal life of its own;
8. The market is more inclined to react to irrelevant information;
9. The market also overreacts to external information;
10. The market has a shorter term memory;
11. The market seeks new information to overreact to; and
12. The market is more disposed to bubble up and to crash.

In short, the market does a less good job by far of accurately reflecting companies' current actual and expected performance and of distinguishing between companies in the market and having their stock prices move more independently of each other in the shorter term. These are major failings for a market.

None of this should come as a surprise. The more buying and selling in the stock market is based on factors other than underlying actual and expected company performance based on fundamentals, the less well market prices will reflect that performance and those fundamentals. The reverse is true as well. The more actual company performance becomes irrelevant to buy and selling stocks, the more the stock market takes on the characteristics (1) through (12) above and the less effective the market becomes as a market for the stock of those companies. These may not be popular notions, but that does not alter the truth of them.

The real difficulty is that, given these results from trend trading and given the market's consequentially developed failings, it is still not unreasonable to engage in trend trading. More do it all the time, in one time frame and manner or another. That is because, for everyone, the market is about making money, not about the health of the market per se. But the situation does become a vicious circle and the problems (1) through (12) above are exacerbated the more trend trading occurs. The market is further compromised. Trading manipulations and abuses become more prevalent.

As a practical matter, I believe that little can be done about this problem, but it is very much worth noting and keeping an eye on because it does have a strong bearing on what you should be able to expect from your investments, especially in the shorter term, if you investment using classical investment criteria.

Rejected for publication. Very unpopular notions? Too controversial? Who knows? Its just economic analysis. The more buying and selling in the stock market is based on factors other than underlying company actual and expected performance, the less well market prices will reflect that performance. Surprise! Obvious, at that level, but not at others. One of my more insightful articles, too.

Flash Bulletin: The article was published, albeit late and out of order. Perhaps there was a struggle among the editors or perhaps an assigned editor was simply on vacation. Whatever, it made it.

Posted and published on seekingalpha.com

Comments [2] | | More