Will AI Replace Investment Bankers?
According to Wells Fargo, as many as 200,000 banking jobs will be replaced by artificial intelligence in the coming years. While this generally means a move to online banking instead of branch banks, no part of banking will be secure. This includes much of the work done by investment bankers. But, will AI replace investment bankers? That is not likely to happen. Investment bankers act in an advisory capacity to government and corporations in financial markets. They do not deal with individual investors where AI is most likely to replace jobs. What is likely to happen is that investment bankers will adopt many AI tools to assist in their work.
AI and Investment Banking
In the banking industry, it has become clear that artificial intelligence will level out the playing field between large and small operations. Much like the advent of personal computing brought advanced computational tools to everyone, AI will give small investment banking operations the tools former just available to the giants of the industry. AI is likely to make investment banking for precise, more efficient, and more profitable. Because AI systems learn as they go, there is less need to continually upgrade to smarter and more advanced products.
AI Return on Investment
The degree to which AI benefits any business operation will depend on how deeply the company invests in artificial intelligence. And, it will depend on how well the AI system is designed to address business issues, fix them, and learn from the experience. According to Forbes, not every business currently sees benefits from adding AI to their operations.
Among the 90% of companies that have made some investment in AI, fewer than 2 out of 5 report business gains from AI in the past three years. This number improves to 3 out of 5 when we include companies that have made significant investments in AI.
(Return On Artificial Intelligence: The Challenge And The Opportunity: Forbes)
The point is that when investment bankers or anyone wants to use AI to improve business operations, they need to adapt the AI to deal with the specific needs of their business and follow through with the necessary changes.
The Best AI Stocks to Invest In
If you want to benefit from artificial intelligence in the coming years, there are more options than employing AI in your business. The best AI stocks to invest in provide you with the opportunity to invest and increase your wealth without having to understand and deal with AI directly. US News provides a nice list of the best AI stocks to invest in.
- Nvidia Corp.
- Alphabet (formerly Google)
- Salesforce
- Alteryx
- Amazon.com
- Microsoft
- Twilio
- IBM
- Tencent
Some of these produce AI products to help businesses, some employ AI in their own businesses, and some do both. Choosing the right ones for you will depend on your specific needs.
Best AI Startups to Invest In
If your goal is to maximize your profits when investing in AI stocks, the best bet is to find promising startups. Picking several AI startups will reduce your odds of investing in a stock that fizzles out and will increase your odds of picking a winner. There is a short list of the best AI startups to invest in.
- Metromile
- Conversica
- DataVisor
- IdentityMind
- Numerify
- Cruise
- Plus.ai
(Built in SF)
Tech history is full of promising companies that did not make the cut and apparent also-rans that moved on to dominate the industry. Picking a basket of these stocks might be the best way to profit from AI investment.
AI Stocks to Invest in Now
Companies that do well in AI or any sector hit the business news when their profits go up which is also when their share prices will soar. When you invest in a successful company you are betting that they will continue to do well and grow in multiples year after year. But, how do you pick AI stocks to invest in now before their share prices go up? An approach suggested by The Motley Fool is to pick established companies in high cost of entry business. Choose companies that are developing and integrating AI successfully into their businesses. Examples noted by The Fool include Nvidia, Apple, and Baidu.
(Three Top Artificial Intelligence Stocks to Buy Right Now: The Motley Fool)
How to Invest in AI and Robotics
If you want to profit from investing in any stock or sector, you will do best if you understand what they do and how that will lead to long term profits. This is the standard intrinsic stock value approach to investing in stocks. If you believe in the AI sector and expect to see growth over the years, there are ETFs that you can invest in and not have to worry about deciding if an individual investment is a good idea. And if you want to choose an individual AI or robotics stock, you need to find out what they are making and how much money they will gain. Some applications of AI can be applied to businesses with huge profit margins and others to businesses that don’t make much money. Your job is to decide who will dominate a profitable sector for AI applications.
The No 1 AI Stock to Invest in Right Now
If you would like to avoid a lot of time and effort finding the best AI stock for today, is there a best choice? The No 1 AI stock to invest in right now according to multiple sources is Nvidia. This company makes the chips that lie at the heart of most AI applications. As their chips improve, so does AI. They are in a high cost of entry business and a modern version of selling picks and shovels when everyone else is digging for gold.
Will AI Replace Investment Bankers?
Is Gold a Good Investment Now?
Gold is always a useful part of an investment portfolio. Although gold prices may fluctuate over the short term, gold maintains its value over the years. Gold is an excellent long term hedge against the devaluation of paper currencies and investments like stocks and bonds that are denominated in these currencies. Governments across the world are reducing the pain of the covid-19 economic crisis by printing money. The long term results will be devalued currencies and an increase in gold prices. To what extent is gold a good investment now?
Should I Invest in Gold or Stocks?
Although the stock market took a hit at the onset of the covid-19 pandemic, the market as a whole has come back. Many tech stocks are likely to continue to do well even as the economy struggles due to the virus. Thus many investment advisors suggest that you stay in the market either with well-chosen tech stocks or an ETF that tracks the S&P 500. However, the issue of currency devaluation persists. While the valuation of your stocks in dollars may continue to climb, the purchasing power of the dollar will probably decrease over the years. Here is where gold comes to the rescue as it maintains its purchasing power over the decades.
Is It Good to Invest in Gold?
If gold is going to be your only investment vehicle, timing is very important. Too many investors get attracted to gold when the price rallies and forget about gold when the price falls. A better approach is the dollar cost averaging approach. You will accumulate more gold when prices are low and less when prices are high. Over the years your gold investments will grow and provide an excellent hedge against inflation and the periodic social, political, and economic crises that hit the world. Long term gold investors know that gold always comes back when times are tough. They take the long term approach.
Gold Investment 2020
Because of economic uncertainty, many investors are looking to gold as a refuge this year during the covid-19 pandemic. This concern has driven up the price of gold. Gold was selling for $1,400 an ounce in early December of 2019 and is selling for $1,800 in July of 2020. As the covid-19 pandemic and related economic crises are nowhere near an end, gold is likely to continue to rise over at least the next few months. Gold investment options today include ETFs that track the price of gold instead of simply buying and storing gold itself. Gold mining stocks tend to do very well at the onset of a gold rally as well.
Top Gold Stocks to Invest In
Gold investment in 2020 is not limited to buying gold bars or coins. There are gold ETFs and excellent gold stocks. Investopedia notes three top gold stocks for now. These are Barrick Gold Corp., Kinross Gold Corp., and Alacer Gold Corp. The first two are Canadian mining companies and the last operates in Turkey. Those who want to time the market may wish to invest in gold mining stocks which tend to rise faster than the price of gold going into a gold rally. However, these stocks also fall faster than gold when a rally fizzles. As such they tend to be short term options for many gold investors.
Investing Futures Gold
Commodities investors often buy and sell gold futures as they seek to profit from trends or hedge against risks. CME gold futures currently price gold at $1,856 an ounce for April of 2021. The current futures price for June 2026 is $1,938. The majority of gold futures are bought and sold by gold mining and gold processing companies in order to hedge their risks. However, speculators who successfully predict price swings are profit handsomely by trading gold futures. As you can see if you visit the CME link, there is a steady increase in the price of gold built into the futures as everyone expects a slow but steady decrease in the purchasing power of the US dollar.
Best Ways to Invest in Gold and Silver
Folks who want to hedge against inflation and the predictable steady decrease in the purchasing power of the dollar, pound, euro, yen and other currencies put part of their portfolio in gold and silver investments. The easiest and, for most, the best ways to invest in gold and silver are to buy shares of ETFs that track precious metal prices. You do need to find secure storage for gold or silver bars like you do if you buy these precious metals. We mentioned mining stocks which can be part of your portfolio but these investment vehicles need more attention and will not fit the needs of many buy and hold investors.
Forex Gold Investing
Most of the world does not use US dollars to buy gold. But many investors use the Forex system to find more lucrative investments that lie outside of their currencies. By using Forex options, a trader can move money from Yen to USD, for example, use dollars to buy stocks, bonds, or gold, and protect against currency risk as well. This can be a very profitable way of using the Forex system but takes expertise and time. The average investor will do better simply using the Forex system to protect their assets against losses in their home currency and not try to game the system.
Does Long Term Investment Work?
Much investment advice tells you to put your money into a basket of US stocks and hold on. The argument for investing in stocks is that over the years, the US stock market has routinely created wealth for those who stay invested. However, how does that work out when you look at the profits of long term investments and inflation? After all, the reason we save and invest is to maintain our purchasing power in retirement and to increase it generally over time. The question is, does long term investment work?
Does Long Term Investment Work?
First, let’s review the experience of the US stock market since 1929. The argument is that even if you never sold any of your stocks during the 1929 crash that you would have been ahead again after a few years. This “analysis” is done by following the Dow Jones Industrial Average over the years. It is true that the Dow uses an adjustment to allow for stock splits and dividends. But, the first ETF was only born in 1993 and they were not common until more than a decade later. Today you can put money in the SPDR Dow Jones Industrial Average and forget about it. But, that option was not available for decades after 1929. You would have needed to buy every stock in the DJIA at that time. And that approach would not have worked out very well!
Investing in Stocks in the 1929 Dow Jones Industrial Average
Because the recovery of the Dow Industrial Average is used as an argument for staying with the stock market through thick and thin, we looked at the stocks in the 1929 DJIA. As today, there were thirty stocks. Of those thirty, twelve survive today as the same company in the same business or, as in the case of Union Carbide Corporation, a part of a company in the same business, Dow Chemical. Here are the twelve.
Survivors from the 1929 DJIA
- Atlantic Refining Company merged and became ARCO
- Curtis-Wright Corporation continues under the same name
- General Electric Company continues under the same name
- General Foods Corporation is part of Kraft Foods
- General Motors survived bankruptcy and continues in the same business
- International Harvester Company downsized and continues as Navistar
- National Cash Register Company continues as NCR
- Sears Roebuck & Company is a shadow of its former self as Sears
- Standard Oil of New Jersey is now ExxonMobil
- Union Carbide is part of Dow Chemical
- United States Steel Corporation remains as a shadow of its former self
- Westinghouse Corporation continues its nuclear power business as Westinghouse Electric Company
Of the dozen that still resemble their former selves, US Steel and Sears have gone from being the first in the world in their businesses to being 26th place in the case of US Steel and ready to fall off the earth in the case of Sears. While General Electric still is a huge business with an impressive cash flow, their profits have been awful for nearly a decade and their stock price has suffered.
Non-survivors from the 1929 DJIA
The eighteen other companies were taken over by other companies, changed their business models so as to be unrecognizable as their former selves, went out of business, or were broken up by the SEC.
The point of all this is that in order to have benefitted from the recovery and forward growth of the DJIA, you would have had to buy and sell stocks so as keep matching the constituents of the Dow. A problem with that approach is that companies get kicked out of the DJIA after their performance gets bad and not beforehand. Thus, a better approach would have been to have learned how to calculate and use intrinsic stock value to guide your choices. But, then you would not have been tracking the DJIA!
Long Term Inflation
According to the CPI Inflation Calculator, to have the same purchasing power as $100 in 1929 you would need $1,499.38 today. In other words, your investments would need to have increased fifteen-fold after taxes to simply hold their purchasing power today. This would never have worked out with the majority of the stocks in the 1929 DJIA list.
Are Stocks for the Long Term a Problem?
Market Watch published an opinion piece questioning investment in stocks for the long term. They claim that there is a 30% chance of losing money by holding stocks for five years, a 20% chance of losing money over 20 years, and a 12% chance of losing money over 30 years. They looked at markets across the world and went back to the middle of the 19th century. Many unforeseen events like world wars played havoc with investments but they note that we are now going through the third “once in a lifetime” crisis in the last 20 years!
So, Why Are Some Investors So Successful?
But, if stocks are such a terrible idea, why is Warren Buffett so rich that he can give away about $7 billion a year and remain one of the three of four richest people on earth?
The key may be in Buffett’s comment that stock portfolio diversification is merely protection against ignorance. If you follow his recipe of only investing in companies whose business plan he understands and whose business plan is likely to keep making money over the long term, you could avoid quite a few of the losses in the 1929 DJIA group. Jim Cramer was quoted as saying that the average investor should keep his investments down to five or less as it is too much work to track more unless you invest full time.
It would seem that if you want to engage in short term or long term investing, you need to pay attention or you need to accept lower gains. Buffett, again, has said that a good approach for someone who does not have the time or interest to track stocks should buy shares of an ETF that tracks the S&P 500 (which tracks 500 stocks and not 30).
Picking Stocks to Invest in Long Term
To do this successfully, you need to understand and use fundamental analysis. And, you need to continue to use the same analysis to decide whether or not to stay invested in any given stock. Past performance and current cash flow are good guides to investing in stocks, but you still need to understand just why the company is making money and how that is going to continue into the distant future! Using the Dow Jones Industrial Average as a starting point by investing in an ETF that tracks this average can be a good starting point for long term investing.
Does Long Term Investment Work? – Slideshare
Does Long Term Investment Work? – DOC
Future Dow Jones
The Dow Jones Industrial Average is a market index of thirty large cap companies listed on US stock exchanges. It has been around since 1896 and is the stock index most commonly followed by both investors and the general public. It was named for Charles Dow and Edward Jones. The SPDR Dow Jones Industrial Average ETF allows investors to replicate Dow performance in their own portfolios. As noted by Investopedia, the SPDR Dow Jones Industrial Average ETF is the only ETF that tracks the Dow. As with individual stocks on US markets, one can buy and sell Dow Jones Industrial Average Futures as well as any given Dow constituent.
Dow Industrial Average Futures
Investors who want to speculate on movements of the Dow or who wish to hedge against loss with other investments can buy and sell Dow Industrial Average Futures. The most commonly used futures instruments are called E-mini Dow Futures. These futures are products of the CME, Chicago Mercantile Exchange, and expire in March, June, September, and December. You can trade these almost twenty-four hours a day on the CME Globex exchange starting on Sunday afternoon and ending on Friday afternoon,
The ticker symbol for E-mini Dow futures is YM and a minimum tick is one index point or $5. To maintain a position with CME you need continuing equity of $3,200 and a starting payment of $3,550. The most common use of these futures is to hedge commodity investments.
What Does Dow Futures Mean?
When you listen to the early business news, you commonly hear that Dow futures are moving up or down. Investors use this information as an indication of where the market is headed for the day. Those who buy Dow Futures make money when the Dow goes up and those who sell Dow futures make money when the index goes down. Dow futures work like all other futures. They are contracts that define the price at which it will be bought or sold at a specified future date. You do not need to own any of the Dow stocks to buy and sell futures.
How Do Dow Futures Work?
Dow Jones Futures trade on the Chicago Board of Trade starting an hour and ten minutes before the markets open. Because you trade these futures on an exchange, you are protected against the risk of the other party not following through on their side of the trade. When you trade Dow futures there is built-in leverage by a ten-fold multiplier. Thus, for each dollar or point that the DJIA fluctuates, your contract goes up or down by $10. This gives the trader the opportunity to make substantial profits on relatively small investments but also opens to door to huge losses on poorly planned trades.
Dow Futures Stock Price
The Dow Jones Futures follow the Dow Jones Industrial Average. Thus, when the Dow is in the $25,000 range in July of 2020, that is the Dow Futures “Stock Price.” For every point that the Dow goes up or down, the buyer of a Dow futures contract makes $10 and the seller loses $10 on their trade. The Dow goes up or down based on the thirty individual large cap stocks in the index. These price movements can be based on earnings reports (past performance) or predictions of the economy going up or down (future performance).
Dow Futures Hours
Dow Jones Industrial Average futures trade on the CME Globex from Monday through Friday. However, trading actually starts at 5 pm the previous day so Monday trading really starts at 5 pm US Central Time on Sunday. With a built-in trading halt each day from 3:15 pm to 3:30 pm, trading goes until 4:15 pm. Thus, Saturday is the only day that Dow Futures do not trade. Futures traders need to be aware that downside and upside limits change throughout the trading day and that the times stated are always for the US Central Time Zone where Chicago is located.
Dow Futures Streaming
Dow Jones provides live streaming for both the Dow Jones Industrial Average and Dow Jones Futures which track the Dow Average. This information is useful for those who want to buy or sell Dow Jones futures either go get into or to get out of a position. This information can be found on the Dow Jones site and can be integrated into a trading platform for the active day trader. Using Dow futures streaming, a trader can use tools like important moving averages to guide their trading. This information can also be analyzed with Japanese Candlestick Trading Signals.
Current Dow Futures Live
You can see current Dow futures live on the Dow Jones site or on any of several sites that feature trading information and advice. In general, you will not be able to use an ad blocker as these sites aim to present advertising and to sell things. They use live streaming to get you to the site. The serious trader or investor using Dow futures will want to be connected through his or her trading platform to get live Dow futures without having to deal with the sort of spam emails and advertising too-often associated with commercial sites.
Future Dow Jones – Slideshare
Kennedy Act and Investing in China
As the trade war with China continues to simmer, a new law under consideration in Congress could reduce foreign capital flowing into China by way of investment in Chinese ADRs listed in US markets. The Kennedy Act which was passed by the Senate and is awaiting action in the House could put a crimp on investment going into China. It would require Chinese companies to provide the same level and quality of financial information to US investors as US companies and most other ADRs do. What is going on is more than the Kennedy Act and investing in China. It is a new phase of the competition for global supremacy between China and the USA as we noted in our article about a permanent trade war.
Kennedy Act and Investing in China
Forbes presents a good overview of what the Kennedy Act is all about and how it fits into the scheme of both individual investments and USA-China relations. Their article refers to The China Hustle.
There are two issues that Forbes points out. The first for individual investors is that many Chinese companies are “black boxes” which provide insufficient (or no) financial data. As such investors get sucked into investing in story stocks and lose their money.
The second issue which is at the heart of much of today’s thinking about China is that American investors are investing billions of US dollars to help Chinese companies. Some of that money is lost to bad investments. But, worse than that, much of that money goes to improve the competitive advantages of Chinese companies that take business away from American companies in Asian markets as well as in the USA.
In a perfect world, the Chinese would be doing the same in reverse. But, they aren’t.
Chinese investors are not returning the favor. They are not permitted to invest in Apple AAPL or Disney DIS or the latest 5G tower REIT.
American money goes to China. China money doesn’t come to America. Not because the U.S. doesn’t want it, but because China doesn’t allow it.
The official name of the proposed Kennedy Act is the Holding Foreign Companies Accountable Act. The goal is to demand that companies provide adequate financial information or not be listed on the NASDAQ or New York Stock Exchange. If the law goes into effect, Chinese ADRs will have to submit to third party audits to be listed on US exchanges.
What Else Is Affecting Investing in China?
As Forbes notes, the move to go after Chinese companies that do not comply with SOX is being further stoked by the ongoing trade war and anger over the lack of information coming out of China in the pandemic. There is a high level of disbelief in China’s reports of a relatively low number of infections and deaths from covid-19 when countries with advanced health systems such as in Europe have reported greater numbers.
This adds to the long-standing doubts about the validity of information coming out of China and the risks not only of investing in China but of doing business with a nation controlled by its Communist Party aristocracy. Investing in China has always been driven by the wish to get into a 1.2 billion-person market. Unfortunately for investors outside of China, China has blocked many companies from competing there, stolen business and technical secrets, and made “sharing” of technical knowhow a prerequisite to doing business in the land of controlled capitalism.
Thus we see movements on multiple levels to “decouple” from the current business relationships with China from the USA, the EU, Great Britain, and the democratic nations of Asia. China’s crackdown on legitimate protests in Hong Kong is simply adding fuel to the fire.
Forbes notes the likelihood of more investments into the Korean, Taiwanese, Japanese, Indian, Vietnamese, and Indian economies in Asia as well as greater investment in countries like Mexico and Brazil in the Western Hemisphere.
Effects of the Kennedy and Investing in China on Your Investments
Companies like Alibaba are already getting listed on the Hong Kong exchange to allow western investors access to their shares. We can see a lot more of that if the Kennedy Act takes hold. China’s economic miracle is cooling off but the country is not going to fall into an economic abyss. If you want to stay invested there that may still be possible if you are willing to work through other stock exchanges. But, foreign direct investment in China is likely to steadily decrease as the “anywhere but China” movement takes hold.
Kennedy Act and Investing in China – Slideshare
Kennedy Act and Investing in China – DOC
Kennedy Act and Investing in China – PDF
Low Risk Investments 2020
When the market is volatile you can look for high profits and accept the risk or find the low risk investments 2020 offers. Unfortunately, investments that are traditionally low risk are also low reward. And, many usually safe investments during normal times are terrible investments in a time when the covid-19 pandemic is changing the economy. Here are some thoughts to consider when thinking about low risk investments during a perilous time for all investors, including how, in fact, you can invest without losing any money during these times.
How Much Risk Should I Take When Investing?
This is really the first question an investor needs to ask. Investing is should not be gambling. Successful investors learn to assess risk versus reward and manage their investment funds accordingly. The amount of risk you accept when investing should relate to your age, your investing goals, and how much of your net wealth is tied up in investments. But, the degree of risk may take is related to their personalities which can be a problem. A rule of thumb mentioned by The Motley Fool in their article about how much investment risk you should take says to subtract your age from 110 and limit your stock market investments to that number as a percentage of what you invest.
Which Investment Typically Carries the Least Amount of Risk?
The least risky investments are typically U.S. Treasury Bills, savings accounts, and certificates of deposit (CDs) because each of these is backed by the U.S. government up to a point. And, if you limit your investment in any given bank to the insured limit per account, you can potentially insure all of your savings accounts and CDs against loss. During times of extremely high inflation like the 1970s the risk of these investments is that inflation will outpace the interest rate that you are gaining. On the other hand, when you buy a long term CD when interest rates and inflation are high, you will have an excellent rate of return when rates and inflation are less.
Which Risk Should Be Avoided for Short Term Investments?
When the stock market or interest rates are extremely volatile, many investors limit themselves to short term investments. By purchasing short term CDs an investor avoids getting caught in a return investment when rates go up. And, when the stock market is extremely volatile, many choose to take short term profits. The biggest risk in short term stock market investing is getting stuck on the wrong side of a trade and having to take a loss or seeing your money tied up for an extended period as you want for a stock to recover.
Where to Invest Money with Low Risk
The first places most people think of investing with low risk, as well as low returns, are the savings accounts, CDs, U.S. Treasuries, and even AAA bonds from either Johnson & Johnson or Microsoft. Another option is an annuity issued by an insurance company. A fixed annuity is like an IRA in that your income is tax-deferred until you take it out but you get a tax penalty if you take anything out before age 59 ½. An immediate annuity is a common choice for retirees as you put money in and begin taking it out immediately. However, you get a guaranteed monthly payment for life.
Low Risk Medium Return Investments
The problem with the low risk investments 2020 offers is that while you are protecting your money, you are getting very little in return. This drives some investors to look for better returns albeit at a slightly higher risk. Here is where investment-grade corporate bonds come into the picture. These are rated BBB or higher. You get a better rate of interest than with a CD and your money is safe unless the company goes into bankruptcy. Preferred stocks in blue chip companies give you more protection if a company needs to restructure. And, investments like utility stocks are generally safe as they keep doing business even during the worst economic downturns.
Average Return on Medium Risk Investment
Medium risk investment historically return in the six to 8 percent range. However, this is over the long term. The safest approach in this case is usually dollar cost averaging in which you invest a fixed dollar amount on a regular basis and do not try to time the market. Using intrinsic stock value as a guide, this is a good long term investing approach. Choosing safe investments during a time like the current covid-19 pandemic you earn on the low side of the long term average but will likely catch up as the economy recovers.
High Risk Stocks to Invest in 2020
If you are comfortable with investment risk and willing to do your homework, there are high risk stocks that offer the potential for huge rewards. US News highlights seven of these in an article for aggressive investors. These are Ameriprise Financial, Freeport-McMoRan, United Rentals, Boeing Co, Nvidia Corp, SVB Financial Group, and Citigroup. In each case they detail the reasons that the stock has suffered recently and how it is likely to do well in the future as the pandemic lessens and the economy begins to come back.
Low Risk Investments 2020 – Slideshare
How Will Your Investments Do in the Second Half of 2020?
The stock market fell with the onset of the covid-19 pandemic and then recovered. How will your investments do in the second half of 2020? We wrote recently about stock market recovery risks. We noted that three things need to happen for the economy and the market recovery to continue. The Fed needs to continue its “anything necessary” approach to supporting credit and maintaining low interest rates. The economic recovery shape needs to be a quick “V.” And, there needs to be no huge second wave of the virus. What makes this murky are the huge increase in covid-19 cases right now and the seeming disconnect between economic reality and the stock market. To the degree that you and the market are ignoring the economy, the stock market and your investments may be in for big trouble.
How Will Your Investments Do in the Second Half of 2020?
The New York Times asks what is next for stocks after the impressive recovery. Here is what they say about the second half of 2020 and stocks.
Where they go next is a mystery. There’s so much uncertainty about the coronavirus crisis that roughly 40 percent of the S&P 500, about 200 companies, have withdrawn their customary forecasts about how their businesses will perform in the months ahead, according to data from S&P Capital IQ.
This means that investors are working on gut hunches instead of rational thinking about company projections. The concern voiced by The Times is that many folks will be in for a rude shock when earnings reports come out in July. The recent market volatility reflects the tension between worried investors who want to see real numbers and those who are buying on every bit of good news while selling whenever the news is bad.
A popular measure that Warren Buffett attests to is the comparison of the total value of the stock market to the gross national product. The economy is not doing well and it is likely that many companies are making less money than investors would like to see. As more and more people remain out of work and congress drags its feet on more stimulus money, nobody is going to have any money to buy things.
Thriftiness Will Slow Spending
A young woman friend of the family said after the Financial Crisis that most of her friends had started to “sound like grandma” who survived the Great Depression and never quit being thrifty. It is our opinion that this way of thinking will become more pervasive as more and more folks run out of money and cannot find work. The net effect will be that spending will drop across the economy and affect all sectors. Some sectors like travel, dining, and hotels be hit harder and for longer than others but even the tech companies will see reduced sales as their customers start counting their pennies.
The other concern is that the virus is in charge of how things go from here and those economies and countries that deal effectively with the virus will open sooner, remain open, and return to a semblance of normal before a vaccine or medicine emerges to improve the global situation. The USA in not in this category as it cases are skyrocketing while countries in Europe and Asia are maintaining low infection rates and resuming what passes for normal activity in these times.
As the stock market buys on speculation and sells on the news it may well be that when earnings reports come in later in July that the second half of 2020 may turn out to be dismal for your investments and everyone else’s.
How Will Your Investments Do in the Second Half of 2020? – Slideshare
How Will Your Investments Do in the Second Half of 2020? – DOC
How Will Your Investments Do in the Second Half of 2020? – PDF
Does Algo Trading Work?
Algorithmic trading, AKA algo trading, employs high speed computer programs and predetermined criteria to trade. This manner of trading gets into and out of the market at high speeds. A simple example of algo trading is when the program is set to purchase a stock very quickly when it falls below a set price and to sell it again when it rises to another set price. The value of algo trading is that the program watches the market, does not fall victim to fear or greed, and executes trades quickly before opportunities disappear. But, does algo trading work for the average trader?
Types of Algo Trading
There are as many types of algo trading as there are ways to day trade. The most common types are momentum investing, mean reversion, factor-based investing, ETF rotation strategies, smart beta, trend following, sentiment analysis, statistical arbitrage, and seasonality strategies. Just like regular day trading, you can employ algo strategies that are pretty basic or ones that are increasingly complex. The advantage of algo trading programs is that they can do the analysis needed to successfully employ complex approaches a lot faster than you can. This lets you get into and out of a lucrative trade while the possibility exists and not miss out because you had not finished your calculations!
FX Algo Trading Strategies
Algo trading is not limited to the stock market. The biggest market in the work by daily dollar volume is the Forex market where traders typically employ a high degree of leverage in order to profit from small changes within currency pairs. FX algo trading strategies are generally similar to those used for trading stocks. Investopedia has a nice discussion of Forex algorithmic trading. The advantage of being able to make fast trades at high volume can turn to a disadvantage in an extremely volatile market or when a flaw in your algo program results in repeated losses!
Algo Trading Risk Management
On a basic retail investor level, risk management for algo trading involves the use of understandable and reliable programs that duplicate what you would do in a trade but do it faster and without letting emotion take hold. Even basic programs need to be evaluated routinely to make certain that they are doing what you want and actually making money on your behalf. The more complicated algo programs are, the more prone they are to problems and thus need competent oversight. Deloitte has a useful (and lengthy) discussion about when algorithms go wrong.
Algo Trading Performance
The goal of algorithmic trading is to make to take a successful trading strategy that makes money on most trades and simply make more trades. This means you will make more money with expected algo trading performance. Although this is a laudable goal, you need to keep track of your algo trading performance on a daily basis. So long as the program is making money many traders simply leave it along. However, there are times when the program may not make you any more money than when you handled each and every trade in person. When that is happening your choices are to dump algo trading and go back to the old way or tweak your program so that it does what you want!
Algo Trading Signal
An algo trading signal is the same as a signal that you would look for sitting at your trade station. But, it needs to be coded into a computer program in order for it to work. The advantage of a good algo program is that it sees signals that you might miss, sees more signals, and sees them quicker. An algo program can also be working when you are absent. Basic programs can wait to buy when a stock prices fall to a given level and proceed to follow your programmed instructions to set stop losses and to execute trades that not only make money but also reduce your risk of loss.
Open Source Algo Trading Software
One of the concerns about getting into algo trading is that you will need fast and sophisticated programs, computers, and internet access to take advantage of the most fleeting opportunities. These programs can be very expensive and costly to maintain. Luckily, there is open source algo trading software. The retail trader is not looking to compete with the fastest programs but rather to take advantage of trades that occur throughout the trading day and to do so without fault and without fail. If you have the technical competence or have access to a programmer who will not break your budget, an open source program may be your best bet.
Fixed Income Algo Trading
As the use of algo trading programs has expanded, asset classes other than stocks or currencies can be traded using this approach. As with algo stock trading, parameters can be set up to purchase at the best prices such as when interest rates fluctuate upwards and bond prices fall. Likewise, the same bonds can be sold using an algorithmic program that sees a drop in interest rates and a concurrent increase in the value of the bonds. As with any algo program, you will want to track performance to make sure that the criteria that you have set up are producing the profits that you expected.
What Is the Tax Rate on Day Trading?
Day trading can be much more profitable than long term investing providing that you learn how to do it correctly. There are even some tax advantages. Just what is the tax rate on day trading and what are the other advantages? Here we present a snap shot of trading equities within the market day, how this system works, and what you need to know to be a profitable day trader. We start with day trading fees and taxes and how to arrange to have your tax status be the most beneficial for day trading.
Day Trading Fees and Taxes
The top value of day trading comes from the fact that stock market and Forex movements are not gradual. Prices jump up and down and the profits that a long term investor seeks over the years can, in fact, be made within a few well-chosen trading sessions. Aside from making bad trades, the biggest risk in day trading is that your fees and taxes will override your profits! If you make no effort to deal with this, all of your profits will be taxed at the short term capital gains rate of 25% and your capital losses will be capped at $3,000.
But there is a way to deal with this problem for day traders who work more than 30 hours a week and average at least 4 or 5 daily intraday trades. You can keep track of all losses as well as gains and apply to the IRS for a trader tax status. You need to do this in advance of the tax year and realize that the IRS may or may not grant you this status. If you receive trader tax status, you can deduct trading losses as well as all home and office expenses related to your trading business as well. The key is to make your “mark to market” election prior to April 15 of the previous tax year. There is one important tax-related matter, however. You need to sell all trading assets at the current price on the last day of the trading year and purchase them again at the start of the next year. You will want a competent tax accountant to help you do this.
Can You Really Make a Living Day Trading?
Now that you have plowed through the tax issue, you are wondering can you really make a living day trading. It is true that many take up day trading lured by the promise of quick profits only to see their hard-earned assets bleed away due to poor trades, lots of fees, and taxes. But, there are folks who make a great living day trading. The keys are knowledge and discipline. You need to learn how to set up your day trading as a business so that you can deduct fees, commissions, and losses from your gains. And, you need to learn to make only trades that hold a great deal of promise while always setting up a stop loss strategy. This requires that you treat your day trading as a full time job and always make sure to pay attention and get out of the market before the end of the day.
Day Trading Investment Strategies
Knowledge is power in whatever you do and this applies to day trading as well. Successful traders use real time news services, electronic communication networks, and analytic tools like Japanese Candlesticks. The best traders limit their trades to ensure profits. This means always setting stop loss limits on trades and exiting trades when a good profit has been made. Too many new day traders try to ride a promising trade to huge profits and end up losing what they could have easily gained. The most important part of successful day trading is to set aside sufficient time to do research and to trade and not to worry about market action that occurs while you are getting a good night’s sleep or well-deserved rest.
Stake Day Trading
Stake is an excellent mobile or desktop trading application that lets Australians trade stocks in US markets with no brokerage fees. For access to more than three thousand five hundred US stocks as well as exchange traded funds, many traders find this to be their best trading option. However, Stake does not offer specific trading advice that takes into account your individual investment goals, risk appetite, or financial situation. It is a low-cost way to get access to a wide range of equities in the USA but not a guaranteed way to make profits. That part is up to you!
Top 5 Indicators for Day Trading
The point of day trading is to identify and take advantage of changes in equity prices. The top 5 indicators for day trading success are the following:
- Volume
- Volatility
- Trend
- Momentum
- Fundamentals vs Market Sentiment
Traders use tools such as Bollinger bands to identify volatile markets or individual stocks or currency pairs. The point is to trade on the outer edges of the band of volatility to take advantage of price swings within the band.
Volatility is what leads to profitable day trades. Traders often do best when they wait for periods of volatility to enter their trades.
Trend trading is typically a safe way to make money in day trading. Traders enter and leave trades with small, incremental profits and avoid the risk of too many losses.
Momentum refers to the tendency of the market to follow a trend as more and more investors jump in. Day traders make their money by entering and leaving these markets at the right times.
Market prices eventually return to what fundamentals support. Day traders make their profits by realizing when prices will diverge from or return to fundamental values.
Common Day Trading Stocks
Once a trader has set his or her strategy to take advantage of market changes, he or she needs to choose specific stocks or ETFs to trade. The common day trading stocks are those that offer high volume, volatility, and predictability for the attentive trader.
The best options are typically ETFs that track the S&P 500 or other major indices. Many traders use stock screening tools to pick those that currently show promise due to their volatility, volume, and trend. The key to success in day trading often lies in picking the right stock or index to trade even before applying a trading strategy.
Candlestick Pattern for Day Trading
The most common candlestick pattern for day trading is the Doji. This trading signal indicates an uncertain market that is ready to break out in either direction. It is the job of the day trader to decide which direction to trade. Many day traders use stock options at this point in order to limit their risk and lock in potential profits. Option trading strategies such as the long straddle allow a day trader to lock in profits for both up and down market simultaneously.
What Is the Tax Rate of Day Trading? – Slideshare Version
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Why Is Boeing Stock Recovering?
Boeing took a big hit when air travel collapsed with the onset of the covid-19 pandemic. But why is Boeing stock recovering now that the pandemic continues? According to Investor’s Business Daily, Goldman Sachs Boeing is doing a good job cutting production and reducing costs while airplane orders have not fallen as badly as expected.
Why Is Boeing Stock Recovering?
Boeing has seen substantial reductions and retraction of airplane orders. The total aircraft order reduction globally is around 17% but that is quite a bit below what many had expected. However, airlines with healthy balance sheets and cash reserves, state-owned airlines, leasing companies, and carriers who are cycling out aged aircraft are still placing orders. Airplane orders for commercial jets are typically placed years in advance of delivery so airlines and other buyers with the cash are still looking to the future and the eventual recovery of the airline industry.
In addition, Boeing has other parts of its business that are not directly affected by the pandemic. Despite the software snafu that put its Starliner space craft for deliveries to the International Space Station behind, this project is going forward as well as other space and military ventures.
In our 2019 article about how bad it will get for Boeing, we looked at their range of businesses and concluded that they would not only survive but prosper in years to come bases on their strong intrinsic factors. Not the least of these are the “high cost of entry” nature of their business and the many design and production secrets that make competing with them difficult.
Investors Anticipate the Future for Aviation and Boeing
Boeing had already seen its stock price fall due to the 737 Max crashes and ceasing production of the jet while software issues are being fixed. We believe that the mindset of Boeing as past its prime may have affected how far its stock fell when the pandemic took air travel down. Nevertheless, the stock has doubled in value since its drop to $95 a share just a few months ago. This is likely due to anticipation of a recovery from the pandemic’s effects on air travel but also to a realization that things are not as bad for Boeing as many had anticipated.
The company has halted both dividends and stock buybacks which might otherwise have driven the stock price down but as these actions have supported the company’s balance sheet, we have seen the stock recover to the $200 a share range. But none of this would help without investors believing that Boeing will not only remain a viable company far into the future but also resume its position as the number one or two exporters from the USA competing for slot number one with all of US agriculture.
It would seem that Goldman Sachs is thinking along the same lines as they increase their price target for Boeing from the $195 range to the $235 range.
Why Is Boeing Stock Recovering? – Slideshare Version