Understanding Market Orders: Three Resources

If you’re anything like me then you think that once you click on the appropriate button, or get off the phone with your stock broker, your order speeds off to be filled at whatever price the stock is currently trading at. How wrong I was.

After placing an order to buy a stock recently, I was shocked to discover that my order did not speed off and was not filled nearly instantaneously despite my broker’s “5 second execution guarantee”. This perplexed, befuddled, and scared me to be quite honest. I had placed the order anticipating that the order would be filled almost right away, and had assumed that the order would be filled at a certain price. “What if the stock price jumps?”, I thought. I’d be paying more than I wanted to for this stock. Rather than risk it, I canceled the order before it could be filled. (I won’t even comment on whether I should have been buying a stock that I was so ready to give up on, based on the fact that the stock had actually gone up in price.)

So why didn’t my order go through right away as I expected it too? After all it was a no-fuss no-muss market order. Just buy it at the stock’s current price no worries about the bid-ask spread or anything like that. Right?

Not so much. Turns out that the bid and ask spread *do* effect market orders (in many ways) and that a stock purchase goes through a number of steps and can take any number of paths before you actually own the stock you set out to buy.

For an in-depth explanation from someone who actually knows what they’re talking about Take a look at these Investopedia articles:

Retirement Planning: Do you still rely on your Pension plan?

Pension plans have long been offered as part of employee benefit packages. Long thought to be an integral part of any retirement plan. But in todays environment, with large corporate bankruptcies and massively underfunded pension programs, do you still rely on your Pension plan?

For years individuals have relied of defined benefit pension plans offered by their companies. Years ago it was sometimes seen as all the retirement planning that most individuals would ever need. Between you company’s pension, after working there for decades, and social security what else would you need?

As we all know this is no longer the case. While I’m lucky enough to work for a company that still offers a pension as part of it’s benefits packages, many individuals are not. Even those who have long since retired face the prospect of having their benefits cut. Either by the company as it struggles with it’s underfunded plan, or by the government when the company goes bankrupt and sheds their pension obligations.(Even those benefits are in jeopardy, as the entity that takes over the pension obligations is it self suffering from a funding gap.)

Even the companies that still offer pensions plans are not garaunteed to continue offering those benefits. Even then there are employees, and managers who would prefer some form of “supercharged” 401(k). Myself among them. So I ask, what role does your pension plan play in retirement planning? Is it an integral piece of the puzzle, something that you rely on you supplement your retirement income? Or just a nice to have with anything that comes out of it being just a bonus? Please come join me in our forums for a discussion about this.

Deal is Near on Pension Proposal (Washington Post)

Time to Panic?

Today, and the past few days have been hectic for the market. The price of oil keeps rising and I need to sell my gas-guzzling van. So do we panic yet and where is the market going? Over at HipEgg we did a review of the Dow.

I don’t know if a TA is the right tool for the over all market, I don’t know that it isn’t. If TA is correct then we are testing support and could be looking at a correction soon but that is not the point. The point is, there is profit to be made in panic. As the aged Templar said to Indiana “You must choose, but choose wisely.”

Happy trading.

Can Nissan & Renault Save the Troubled GM?

Renault saved Nissan in 1999. The partnership now boasts the highest profit margins in the industry. GM took a $10.6 billion plunge last year. Can the powerhouse French / Japanese duo rescue the US’s largest auto maker?

The offer by the French / Japanese group to buy a 20% stake in GM would arm the troubled automaker with a potential $3.3 billion dollar in cash.

Although the car industry has undergone much consolidation in the past decade, most of it has been disastrous. Jaguar and Saab, were consumed by Ford and GM respectively only to cost many billions in further losses. The Daimler-Benz Chrysler merger took approximately 5 years to stabilize.

If the Renault Nissan group purchases a stake in GM, it’s estimated that the conglomerate would hold a 21.9% global market share, ahead of Toyota with a 12.3% global market share (source Automotive news). An extremely aggressive move, to say the least.

The two car manufacturers are due to meet this week in Detroit for further talks. Many Wall Street analysts, including Standard & Poors, are skeptic that the deal will go through.

The key questions remain: Can GM reclaim it’s title of “king” of the automobile industry without the help of foreign investments? Or are we in an era that requires cross-continent M & A’s to retain profitability in this highly competitive auto industry?

Monday Reading

WebWord has a good write up about Professor Feng Li who data mined the annual reports of 34,180 companies with some interesting results. Li counted the number of times words like “risk” and “uncertain” showed up in the reports and compared the data to previous years.

Professor Li discovered that a “big jump in words related to risk is usually followed by poor share performance” which makes a ton of sense. He built a model portfolio based on this data. The punch line is that he would have outperformed the S&P 500 index by 6% per year since 1995. Smashing!

Has anyone seen other analysies like this one? What else can we “data mine” to read the market?

We linked to WebWord before, for John Rhodes’ opinions on Microsoft and Web 2.0. (our article)

Realtors: Ouch

Some people are saying that you can track the real estate market by how many new realtors there are signing up. “When everyone thinks they will get rich selling real estate,” they say, “that is when the market will fall.”

Charles Turbiville has some advice for people wanting to get into the real estate game now, but you might want to reconsider. Charles has some scathing words for what he sees as a typical realtor:

Companies like [Redfin and Igglo] will expose the Real Estate Agency Industry as the “we know that you are stupid, and that buying a house is scary so we will drive you around town and hold your hand at closing and give you a dozen business card with my ugly face on them to hand out to you friends because all I care about is marketing myself, not selling your home. Actually if you never sell your home, that is fine, because I will take every potential buyer that I talk out of buying your house to a dozen other houses in the neighborhood and maybe I can list their house too, and do the same thing to them, and pass out a thousand more butt-ugly business cards to all of their potential buyers in the process and maybe we can sell your house before the listing expires, because ‘you’ve got to list to last'” business that it is.

Normally, I wouldn’t pay too much mind to a statement like this. It sounds like the typical rant of a dissatisfied customer. But then, Charles isn’t a disgruntled home seller; he used to be a realtor himself.

If Housing Prices Stopped Rising

According to the latest stats, American home prices are still on the rise – in most major markets across the nation.

The National Association of Realtors published a median increase of 4.2% from 1/06 to 4/06. Compare this figure to the published 16.6% last year.

Although prices appear to be leveling off, many economists don’t predict a sour turn for the worst. If housing prices were to weaken, logically the fed would cut rates. This is clearly not happening with rates at a 4 year high (currently 6.7%). A clear indicator that the housing market is still strong. And it would take a serious and unexpected shock to our economy to change that. Year on year, aggregate average US home prices have not fallen since the Great Depression.

So what does this “slower” growth mean to the economy as a whole? And why should I care about housing prices, if I currently am not a homeowner?

The housing market is a powerful motor which drives an economy. Homeowners “feel” richer, and that drives consumer spending. If housing prices stopped rising at these sharp rates, and only increased moderately from year to year (or remain stagnant), this has the potential to create a serious dent in the economy as a whole.

Even the non-homeowners like myself will surely be affected. And I’m a little bit worried.

My first blog entry, and my 2 cents.