Investing For Value

Invest for Value, Ignore trends and Speculation

Bloomberg News today reported that Airline Stocks were falling and the commentator questioned why Airline stocks rose when the weather was bad with flights being cancelled, and today when the weather is fine and there are few flight delays, Airline Stocks have fallen quite significantly. A response was that the market anticipates news and reacts accordingly, and therefore it is a great barometer of what will happen. The drop in values today was simply a ‘coming back to reality’ that should have been expected.

Isn’t it quite amazing how stock market pundits having the advantage of hindsight, tend to be so knowledgeable.

A different interpretation, is that trading, including buying on momentum and trends, or pundits’ commentary, is a game only for those in ‘the know’, and the average investor is certainly not ‘in the know’. Nor is your average Investment Advisor. Nor is anyone the average investor is likely to speak to.

 

CymorFund Published “Why Gold Stocks Fell – Market Short Sellers Make Big Money (June 7, 2013)”

In that article and preceding articles, we explained how Wall St took advantage of their power and influence to rake in money from the unsuspecting investor. We explained what the crash in commodities was really about, and how the odds of betting on conventional metrics was a ‘fool’s paradise’.

We have often recommended buying on value and being prepared to hold, as temporary swings in market value are more likely due to high frequency traders, than related to value.

 

“Michael Lewis – A Wall Street Revolt”

A recent book that has gained wide spread notoriety, has claimed to expose some of Wall Street’s deceitful practices, and claims to have shed light on why parties ‘in the know’ rake in tremendous profits, while average investors contribute those profits. It is a good read and well worth your time to read it. If nothing else, it will widen your eyes as to how you might consider trading, and illustrate just how the deck is stacked.

The book exposes ‘high frequency trading’. According to the book, until recently, markets encouraged this type of trading in the mistaken belief that it promoted market liquidity. One of the mainstays of this position, is the dramatically increased volume in trading each year, over the previous year. ‘A Wall Street Revolt” takes the position that high frequency trading is just another of the many tools created by Wall St to extract money from the average investor.

However, it seems that politicians are starting to notice just how badly they have been taken advantage of, as today’s announcement by the Attorney General of New York.

We quote today’s report in Business Insider which follows.

April 16, 2014 Business Insider 

New York Attorney General Eric Schneiderman has subpoenaed a number of high-frequency trading firms for information about their “special relationships” with exchanges and dark pools, Bloomberg reported.

 Dark pools are private exchanges in which investors can trade stocks anonymously. The HFT firms that Schneiderman is targeting are Tower Capital Research, Chopper Trading, and Jump Trading.

Last month Schneiderman declared war on HFT firms, saying that some of their practices were “fundamentally unfair — and potentially illegal — situations that give elite groups of traders early access to market-moving information at the expense of the rest of the market.”

What the attorney general could be looking for is “trade through violations,” which allows high-frequency trading firms to know the best price of a security before it’s even processed by the exchange.

There is a regulation that requires stock exchanges to execute all trades at the National Best Bid and Offer, or NBBO. The NBBO is the national price for any stock. Exchanges do this by aggregating bids and offers all over the market and finding the most precise price based on that demand.

HFT critics believe some exchanges may be allowing HFT firms to get a jump on the aggregation process, technically allowing them to trade the NBBO before it’s the NBBO. You follow? 

What regulators don’t want is for there to be two prices in the market, one for HFTs and one for everyone else.

We’ll let you know more when Schneiderman makes his announcement. Knowing him, he will make it loud.

 

A Finger in the Dam

Like that old child’s tale about the futility of trying to stop water flooding out from a dam by sticking a finger in the hole, trying to stop Wall St practices is a relatively impossible task. Investors trying to time the market, or trying to follow the trend, or trying to gauge the time of year, or all the other practices, are fighting a losing battle. Because no-one can win or lose every time, it is inevitable that trying to beat the market using all of these and other tools does actually work some times. However, in the long run, most traders are losers.

The answer to how to invest in the stock market, is to have patience and to buy value. 

 

Warren Buffet

 We quote America’s most famous investor as follows: “Price and value are not the same”

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Source: Letter to shareholders, 2008

 

Current Investing

  • In the resource market, and in the junior markets, almost all stocks have been beaten down significantly.
  • In the larger markets, stocks have raced ahead of value, as much as 25% gained last year. 

In the longer term, today’s price of large cap stocks will look cheap, as the US economy is continuing it recovery, albeit slower than hoped for. It might be better for shorter term horizons to wait just a bit before buying large caps.

In the resource and junior markets, bargains abound. There are many stock that are very cheap right now, and have very good assets. Due diligence and long term patience will reward those that dare to venture where others fear to tread.

 

 

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By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.