Market showing signs of exhaustion for the next momentum, expecting some more mayhem across sectors & stocks.
Like many politicians, Brazilian president Luis Inácio Lula da Silva identified himself with different citizens by dressing like them. He seemed to delight in donning an Indian headdress or squeezing into a hard hat. Such images fit the populist message of this remarkable man, a man who rose from poverty to become leader of the labor movement that challenged the military dictatorship and helped restore democracy to Brazil, the world’s eighth largest economy. But in July 2003 when Lula placed the bright red cap of the Landless Laborers’ Movement (Movimento dos Trabalhadores Rurais Sem Terra [MST]) on his head, all hell broke loose. Subsequent editions of nearly every news vehicle in the country featured alarmed criticism of this fateful act. Words like “rebellious,” “revolutionary” and “irresponsible” characterized the reaction as dozens of reporters were sent to the field to document the dangers posed to the country by the MST. The controversy reached the United States, where concerns on Wall Street and in Washington threatened to undermine Brazil’s fragile credit rating and international standing. By 2004, the Lula administration had carefully finessed most of the criticisms, supporting the right of the MST to mobilize and pressure the government while simultaneously investing in a conflicting agribusiness development scheme.
What is the MST? In contradistinction to the image projected by the Brazilian press, the collection of recently published books reviewed here describe it as an institutionalized social movement of unprecedented significance for Brazil and the world that does not pose an immediate revolutionary threat to society. On one book’s jacket, Eric Hobsbawm, a frequent traveler to Brazil, validates the MST as “the most ambitious social movement in contemporary Latin America” (Branford and Rocha 2002). On another’s cover, journalist Studs Terkel describes the MST as “a million or so ordinary people fighting for the right to live ordinary lives” (Wright and Wolford 2003). Founded in 1984, the MST fights for radical agrarian reform—that is, state intervention to reverse historic land concentration trends, distribute good agricultural land to needy workers, and reallocate resources to support small and cooperative farming as fundamental to the development of a stronger, more democratic and just society.
Today, the MST boasts a membership of more than 500,000 families—at least two million people—and has a presence in every state and more than 700 municipalities. The MST runs some 500 farm co-ops in the areas of production, marketing, credit, and technical assistance. It trains most of its own technicians, militants, and leaders. It has succeeded in redirecting government funds to support its administration of 1,800 elementary schools with more than 160,000 students, teaching basic literacy to 30,000 teenagers and adults, and operating a college. In the meantime, some sixty members are studying in Cuba to be doctors (MST 2004).
It can be difficult to encounter something or someone without having a preconceived opinion. This first impression can be hard to shake because people also tend to selectively filter and pay more attention to information that supports their opinions, while ignoring or rationalizing the rest. This type of selective thinking is often referred to as the confirmation bias.
In investing, the confirmation bias suggests that an investor would be more likely to look for information that supports his or her original idea about an investment rather than seek out information that contradicts it. As a result, this bias can often result in faulty decision making because one-sided information tends to skew an investor’s frame of reference, leaving them with an incomplete picture of the situation.
Consider, for example, an investor that hears about a hot stock from an unverified source and is intrigued by the potential returns. That investor might choose to research the stock in order to “prove” its touted potential is real.
What ends up happening is that the investor finds all sorts of green flags about the investment (such as growing cash flow or a low debt/equity ratio), while glossing over financially disastrous red flags, such as loss of critical customers or dwindling markets.
Another common perception bias is hindsight bias, which tends to occur in situations where a person believes (after the fact) that the onset of some past event was predictable and completely obvious, whereas in fact, the event could not have been reasonably predicted.
Many events seem obvious in hindsight. Psychologists attribute hindsight bias to our innate need to find order in the world by creating explanations that allow us to believe that events are predictable. While this sense of curiosity is useful in many cases (take science, for example), finding erroneous links between the cause and effect of an event may result in incorrect oversimplifications.
For example, many people now claim that signs of the technology bubble of the late 1990s and early 2000s (or any bubble from history, such as the Tulip bubble from the 1630s or the SouthSea bubble of 1711) were very obvious. This is a clear example of hindsight bias: If the formation of a bubble had been obvious at the time, it probably wouldn’t have escalated and eventually burst. (To learn more, read The Greatest Market Crashes.)
For investors and other participants in the financial world, the hindsight bias is a cause for one of the most potentially dangerous mindsets that an investor or trader can have: overconfidence. In this case, overconfidence refers to investors’ or traders’ unfounded belief that they possess superior stock-picking abilities.
Avoiding Confirmation Bias
Confirmation bias represents a tendency for us to focus on information that confirms some pre-existing thought. Part of the problem with confirmation bias is that being aware of it isn’t good enough to prevent you from doing it. One solution to overcoming this bias would be finding someone to act as a “dissenting voice of reason”. That way you’ll be confronted with a contrary viewpoint to examine.
source : http://www.investopedia.com
Demystified: How to use PE ratio to value a stock During bear markets, stocks generally trade at lower PE multiples and during bull markets at higher levels in relation to historical values.
The PE ratio is probably the most common measure to help investors compare how cheap or expensive a firm’s shares are, as stock prices, for lack of a better term, are arbitrary. The trailing PE is just the price per share of the stock divided by the annual net diluted earnings per share the firm generated in its last fiscal year. The forward PE is the price per share of the stock divided by next fiscal year’s annual net diluted earnings per share of the firm. It’s only when investors compare a firm’s share price to its annual net diluted earnings per share that they can get a sense for whether a company’s shares are expensive (overvalued, overpriced) or cheap (undervalued, underpriced). The higher the PE, the more expensive the company.
Participation :the action of taking part in something.
Accountability:the fact or condition of being accountable; responsibility.
Public Money : money that has been collected by the state, usually through taxation.
WE can take capital or the very word capital’s dichotomy can be understood as capping the little.
Capital = Working capital+ FIxed Capital or the industrial capital, this term industrial capital can be widely understood to be the market capitalisation or the market share ;specific or as a whole.
Capital Style when taken to be in different contexts as the base & lift off as the predicaments or presuppossitions rather than as assumptions or presumptions.
Presumptious ; when taken as the capital style , is more taken to be rather than processed as a system.
Capital style as taken to be decisive to approach the indecisiveness , indecisiveness being on the humane side or error presupposed directly categorizing it into the very section of Behavioural Finance than behavioural economics. Behavioural finance is the study of the influence of psychology on the behaviour of financial practitioners and the subsequent effect on markets. Behavioural finance is of interest because it helps explain why and how markets might be inefficient.
When we talk more on this capital Style this takes us to the behavioural skills which is the application. THE APPLICATION.
Behavioral skills are the skills you use to successfully interact with others.
Capital Style & portfolio management can be a theory of relativity study or an application as taken to be for the purpose of the very study.
Capital Style presumed to be the Runway, the establishment , the operative efficacy, nintendo hitherto.
The captain goes down with the ship” is an idiom and maritime tradition that a sea captain holds ultimate responsibility for both his ship and everyone embarked on it, and he will die trying to save either of them. Although often associated with the sinking of the RMS Titanic in 1912 and its captain, Edward J. Smith, the phrase predates the Titanic by at least 11 years. In most instances the captain of the ship forgoes his own rapid departure of a ship in distress, and concentrates instead on saving other people. It often results in either the death or belated rescue of the captain as the last person on board.
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The idiom literally means that a captain will be the last person to leave a ship alive prior to its sinking or utter destruction, and if unable to evacuate the crew and passengers, the captain will not evacuate himself. In a social context, especially as a mariner, the captain will feel compelled to take this responsibility as a type of social norm. Shirking this responsibility in a crisis would go against societal mores because of the offender’s lack of ethics.
In maritime law the responsibility of the ship’s master for his ship is paramount no matter what its condition, so abandoning a ship has legal consequences, including the nature of salvage rights. So even if a captain abandons his ship in distress, he is generally responsible for it in his absence and would be compelled to return to the ship until danger to the vessel has relented. If a naval captain evacuates a vessel in wartime, it may be considered a capital offence similar to desertion unless he subsequently returns to the ship at his first opportunity to prevent its capture and rescue the crew.
Abandoning a ship in distress may be considered a crime that can lead to imprisonment. Captain Francesco Schettino, who left his ship in the midst of the Costa Concordia disaster, was not only widely reviled for his actions, but was arrested by Italian authorities on criminal charges. Abandoning ship is a maritime crime that has been on the books for centuries in Spain, Greece and Italy. South Korean law may also require the captain to rescue himself last. In Finland the Maritime Law (Merilaki) states that the captain must do everything in his power to save everyone on board the ship in distress and that unless his life is in immediate danger, he shall not leave the vessel as long as there is reasonable hope that it can be saved. In the United States, abandoning the ship is not explicitly illegal, but the captain could be charged with other crimes, such as manslaughter, which encompass common law precedent passed down through centuries. It is not illegal under international maritime law.
What are derivatives?
Derivatives help to improve market efficiencies because risks can be isolated and sold to those who are willing to accept them at the least cost. Using derivatives breaks risk into pieces that can be managed independently. From a market-oriented perspective, derivatives offer the free trading of financial risks.
What is the importance of derivatives?
What are the various types of derivatives?
Who are the operators in the derivatives market?
Source : http://www.capitalmarket.com
Description: Usually, is in the form of a detailed report based on the financial history of borrowing or lending and credit worthiness of the entity or the person obtained from the statements of its assets and liabilities with an aim to determine their ability to meet the debt obligations. It helps in assessment of the solvency of the particular entity. These ratings based on detailed analysis are published by various credit rating agencies like Standard & Poor’s, Moody’s Investors Service, and ICRA, to name a few.
NSIC – CREDIT RATING
The investor buys a put contract that is compatible with the expected timing and size of a downturn. Although a put usually doesn’t appreciate $1 for every $1 that the stock declines, the percentage gains can be significant. the put holder is willing to forfeit 100% of the premium paid and is convinced a decline is imminent, one choice is to wait until the last trading day. If the stock falls, the put might generate a nice profit after all. However, if a quick correction looks unlikely, it might make sense to sell the put while it still has some time value. A timely decision might recover part or even all of the investment.
The investor is looking for a sharp decline in the stock’s price during the life of the option.
This strategy is compatible with a variety of long-term forecasts for the underlying stock, from very bearish to neutral. However, if the investor is firmly bullish on the underlying stock in the long run, other strategy alternatives might be more suitable.
This strategy consists of buying puts as a means to profit if the stock price moves lower. It is a candidate for bearish investors who want to participate in an anticipated downturn, but without the risk and inconveniences of selling the stock short.
The time horizon is limited to the life of the option.
A put buyer has the opportunity to profit from a fall in the stock’s price, without risking an unlimited amount of capital, as a short stock seller does. What’s more, the leverage involved in a long put strategy can generate attractive percentage returns if the forecast is right.
Another common use for puts is hedging a long stock position. It is described separately under protective put.
These remarks are targeted toward the investor who buys puts as a standalone strategy. See the discussion on protective puts for a discussion on using long puts as a way to hedge or exit a long stock position.
The maximum loss is limited. The worst that can happen is for the stock price to be above the strike price at expiration with the put owner still holding the position. The put option expires worthless and the loss is the price paid for the put.
The profit potential is limited but substantial. The best that can happen is for the stock to become worthless. In that case, the investor can theoretically do one of two things: sell the put for its intrinsic value or exercise the put to sell the underlying stock at the strike price and simultaneously buy the equivalent amount of shares in the market at, theoretically, zero cost. The investor’s profit would be the difference between the strike price and zero, less the premium paid, commissions and fees.
The profit potential is significant, and the losses are limited to the premium paid.
Although a put option is unlikely to appreciate $1 for every $1 that the stock declines during most of the option’s life, the gains could be substantial if the stock falls sharply. Generally speaking, the earlier and more dramatic the drop in the stock’s value, the better for the long put strategy. Given that the premium investment can be small relative to the stock value it represents, the potential percentage gains and losses can be large, with the caveat that they must be realized by the time the option expires.
All other things being equal, an option typically loses time value premium with every passing day, and the rate of time value erosion tends to accelerate. That means the long put holder may not be able to re-sell the option at a profit unless at least one major pricing factor changes favorably. The most obvious would be an decline in the underlying stock’s price. A rise in volatility could also help significantly by boosting the put’s time value.
An option holder cannot lose more than the initial price paid for the option.
At expiration, the strategy breaks even if the stock price equals the strike price minus the cost of the option. Any stock price below that level produces a net profit. In other words:
Breakeven = strike – premium
An increase in implied volatility would have a positive impact on this strategy, all other things being equal. Volatility tends to boost the value of any long option strategy, because it indicates a greater mathematical probability that the stock will move enough to give the option intrinsic value (or add to its current intrinsic value) by expiration day.
By the same logic, a decline in volatility has a tendency to lower the long put strategy’s value, regardless of the overall stock price trend.
As with most long option strategies, the passage of time has a negative impact, all other things being equal. As time remaining until expiration disappears, the statistical chances of achieving further gains shrink. That tends to be reflected in eroding time premiums, which put downward pressure on the put’s market value.
Once time value disappears, all that remains is intrinsic value. For in-the-money options, that is the difference between the going stock price and the strike price. For at-the-money and out-of-the-money options, intrinsic value is zero.
None. The investor is in control.
Slight. If the option is in-the-money at expiration, it may be exercised on your behalf by your brokerage firm. Since this investor did not own the underlying stock, an unexpected exercise could require urgent measures to find the stock for delivery at settlement. A short stock position might be a problematic outcome for an individual investor.
Every investor carrying a long option position into expiration is urged to verify all related procedures with their brokerage firm: automatic exercise minimums, exercise notification deadlines, etc.
All option investors have reason to monitor the underlying stock and keep track of dividends. This applies to long put investors, too.
On an ex-dividend date, the amount of the dividend is deducted from the value of the underlying stock. Assuming nothing else has changed, a lower stock value typically boosts the put option’s value. The effect is foreseeable and usually gets factored more gradually, but dividend dates could nevertheless be one consideration in deciding when it might be optimal to close out the put position.
Exercising a put would result in the sale of the underlying stock. These comments focus on long puts as a standalone strategy, so exercising the option would result in a short stock position, something not all individuals would choose as a goal. The plan here is to resell the put at a profit before expiration. The investor is hoping for a dramatic downturn; the sooner, the better.
Timing is of the essence. Some put holders set price targets or re-evaluation dates; others ‘play it by ear.’ Either way, all value must be realized before the put expires. If the expected results have not materialized as expiration draws near, a careful investor is ready to re-evaluate.
Net Position (at expiration)
Long 1 XYZ 60 put
Strike price – premium paid
Source: www.optionseducation.org Read more