Comments on: Pay Attention: We are on the Edge http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/ Learning and sharing investment knowledge. Thu, 04 Dec 2008 22:05:58 +0000 http://wordpress.org/?v=2.0.4 by: bntuwyvywawe http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-211865 Sat, 01 Dec 2007 10:30:28 +0000 http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-211865 <strong>titzopoxeroso...</strong> exsoxykicoxo... titzopoxeroso…

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]]> by: BloggerJacks > I Am Relieved That the Market Dropped! http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-138310 Mon, 13 Aug 2007 08:09:32 +0000 http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-138310 [...] Since my Feb 02 blog entry market on the edge I have been really tense because I executed a strategy that I thought was wrong. Let outline what my investment plays have been since end of November. [...] […] Since my Feb 02 blog entry market on the edge I have been really tense because I executed a strategy that I thought was wrong. Let outline what my investment plays have been since end of November. […]

]]> by: Dr. Michael Roberts http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-24257 Mon, 05 Feb 2007 04:11:32 +0000 http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-24257 Hello, I like your blog and so I will place a link of it on my site. I was wondering if you could do the same in kind. My blog is at www.marketbarometer.blogspot.com Thank you once again. Hello,

I like your blog and so I will place a link of it on my site. I was wondering if you could do the same in kind. My blog is at www.marketbarometer.blogspot.com

Thank you once again.

]]> by: Christian Gross http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-23864 Sat, 03 Feb 2007 17:18:10 +0000 http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-23864 I agree, but at the same time want to point out that an index is an arbitrary measure anyways. You can slice and dice the numbers however you please, but there is no single correct way to calculate the market. If there was a single correct way then we wouldn't have oodles of indicators and indicies. I would even go so far as to say that technical analysis and any attempt to rationalize the market into one neat formula is an arbitrary measurement. For example, take volatility. When you want to price an option you plug in the interest rate, time to expiry and a couple of other factors. Then the biggy is volatility. You plug the numbers into an option pricing formula, and volia you get the "correct" option price. Yet, the number you get probably is not going to be the market value. At that point you make a judgement of whether or not the option is priced correctly. I agree that the DJI might be flawed, but I like the DJI due its long history. When I look at an index I look at snap shots of less than a year. And then I compare multiple snapshots just to give me some sort of idea of what has happened in the past. I don't use the past as an iron clad rule with numbers, but rule of thumb. I agree, but at the same time want to point out that an index is an arbitrary measure anyways. You can slice and dice the numbers however you please, but there is no single correct way to calculate the market. If there was a single correct way then we wouldn’t have oodles of indicators and indicies. I would even go so far as to say that technical analysis and any attempt to rationalize the market into one neat formula is an arbitrary measurement.

For example, take volatility. When you want to price an option you plug in the interest rate, time to expiry and a couple of other factors. Then the biggy is volatility. You plug the numbers into an option pricing formula, and volia you get the “correct” option price. Yet, the number you get probably is not going to be the market value. At that point you make a judgement of whether or not the option is priced correctly.

I agree that the DJI might be flawed, but I like the DJI due its long history. When I look at an index I look at snap shots of less than a year. And then I compare multiple snapshots just to give me some sort of idea of what has happened in the past. I don’t use the past as an iron clad rule with numbers, but rule of thumb.

]]> by: Jason http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-23612 Sat, 03 Feb 2007 00:01:31 +0000 http://www.investorgeeks.com/articles/2007/02/02/pay-attention-we-are-on-the-edge/#comment-23612 I've just been reading up on how the DJIA is a "poorly constructed" index to follow. From Ken Fisher's "The Only Three Questions...", here are the top reasons people shouldn't use the DJIA as an indicator of the overall market. (1) It's only 30 stocks and represents less than 1/4 of the market value of all US stocks. (2) The stocks are picked "arbitrarily" by the Dow committee. (3) -the biggy- The index is a "price-weighted index". Why are price-weighted indexes so bad? Because stock splits and reverse splits, while not having an impact on the stocks market share or economic impact, will have an impact on how that stock effects the index. Here is the Forbes article by Fisher that explains this: http://www.forbes.com/columnists/free_forbes/1999/1115/6412310a.html Now I don't know if there has been recent splitting activity that could be affecting the Dow, but it is assumed that the index is messed up already from all the previous splits and shenanigans. Also, the S&P (which is weighted by market cap) also looks a little overbought anyhow. I think a pull back could come. I don't think we're going into a bear market though so it might be best to wait it out if you're not sure of your ability to time it. I’ve just been reading up on how the DJIA is a “poorly constructed” index to follow. From Ken Fisher’s “The Only Three Questions…”, here are the top reasons people shouldn’t use the DJIA as an indicator of the overall market.

(1) It’s only 30 stocks and represents less than 1/4 of the market value of all US stocks.
(2) The stocks are picked “arbitrarily” by the Dow committee.
(3) -the biggy- The index is a “price-weighted index”.

Why are price-weighted indexes so bad? Because stock splits and reverse splits, while not having an impact on the stocks market share or economic impact, will have an impact on how that stock effects the index. Here is the Forbes article by Fisher that explains this:

http://www.forbes.com/columnists/free_forbes/1999/1115/6412310a.html

Now I don’t know if there has been recent splitting activity that could be affecting the Dow, but it is assumed that the index is messed up already from all the previous splits and shenanigans.

Also, the S&P (which is weighted by market cap) also looks a little overbought anyhow. I think a pull back could come. I don’t think we’re going into a bear market though so it might be best to wait it out if you’re not sure of your ability to time it.

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