As investors, and we are all investors these days, it is important that we understand the idiosyncrasies of the Stock Market price data we use to help us in our decision-making efforts. On Wall Street, investing can be a bombshell for those who do not take the time to understand why securities prices are at levels from quarterly account statements. At least four times a year, security prices are a function of institutional marketing processes rather than an expression of economic power that we would like to consider their key determining factors. Not closed at all… At the end of every quarter of the calendar, we hear financial news reports that Institutional Window Dressing Activity ”is fully operational. But that is far, and deep, as it always goes. What are they talking about, and what does it mean to you as an investor?
There are at least three types of Window Dresses, none of which should particularly impress you and all should make you question the integrity of the organizations that authorize, use, or approve their use. The best-known varieties include the collection of highly portable stock portfolios and have been replaced by shares of companies whose shares have become very popular in recent months. This practice not only makes managers look smart with reports sent to larger clients, but also makes Mutual Fund operating numbers more attractive to potential “fund changers” who will be present. On the sales side of the ladder, the prices of inefficient shares are further reduced. Obviously, all fund managers will participate in this practice if they choose to survive. This type of window dressing, by many definitions, is not deceptive or speculative. But no one seems to care about ethics, legitimacy, or the fact that the image “Buy Top, Sell Low” is painted with your Mutual Fund palette.
The more subtle window dressing occurs throughout the calendar quarter, but it “does not open” before Quarterly reports from the portfolio reach the compact. In this less expensive (but even more fraudulent) form, executives invest in securities that do not explicitly comply with the fund's published investment policy during a period when some of their skills have been favored by the guru. For example, adding ETFs for assets, or popular news from developing countries to the Large Cap Value Fund, etc. Benefits are taken before the End of the Quarter so that the fund's financial statements remain flawless, with improved quarterly results. The third method of Window Dressing is called “survival”, but it only affects Mutual Fund investors while others underestimate the information used (and market performance) of individual security investors. You may want to research it.
I do not understand why the media reports on this "business as usual". Perhaps ninety percent of equity market price movements are the result of institutional trading, and institutional financial managers appear to be more concerned with politics and marketing than with investing. They try to impress their big customers with their ingenuity by reporting ownership of all hot tickets and none of them lose much. At the same time, they exploit the performance statistics contained in their promotional material. They have made “Buy High, Lower Selling” an acceptable investment strategy in the Mutual Fund industry. At the same time, individual security investors are receiving incorrect signals and incurring collateral losses by going in the wrong direction.
From a analytical point of view, this fact of the quarterly market value (the hypocrisy created by some stocks and unnecessary weaknesses in others) completely undermines almost any individual or individual market sector statistics altogether with the company's foundations. But it is even harder, not in the most lovable way. Just for fun, consider the impact of the “need” for a growing list of ETFs. I do not think I am alone in thinking that the real meaning of security prices is more closely related to business economics than it does with the morning betting line on ETF… thousands of new dots. [Do you remember the “Golden Circle” since the 70's? Is the GLD, or the IAU, the same thing?]
As if all of this institutional capacity was insufficient, you need to consider the impact of job-generated tax code during the last quarter of the year. One can never suspect (after watching millions of CPAs directed at taxpayers with the joy of losing billions of dollars) that the purpose of investing is to make money! The remainder of the effect of this (written translation) “end-of-year tax-saving strategies” is almost the same as that of the First Class Clothing described above. But here's a chance to buy an off-quarter that you really shouldn't give up. Simply put, get out there and buy the 52-week lows for November, wait for the occasional and mysterious “January Effect” to be reported to the media with eye-catching surprises, and bring some simple profits.
There may be no way to determine the actual amount of a normal stock quote. Is the market price a function of the company's basics, the need for "extra" collateral, or various types of Institutional Window Dressing? But this is a situation that can be exploited for great financial gain. Since security prices have little to do with those old basic issues such as dividends, proposed profits, and unpaid pension debts and perhaps more closely related to required performance factors, the only way to work seems to be trading! Buy stressful (but still important) investment issues and take advantage of those that have been unfairly promoted on the basis of basic quality standards.
You must be logged in to post a comment.