Wall Street Journal Analysis - July 11th
Ever since I started trading, it’s been very useful to keep tabs on the news. The Wall Street Journal offers some interesting insight into the market.
‘Margin Debt’ Hits Record $353 Billion on NYSE:
Investors are borrowing record sums of money to finance trades on the New York Stock Exchange, according to data due out from the Big Board today.
NYSE officials attribute the trend to recent regulatory changes effectively allowing both small and big investors to take on more leverage, or borrowed money, from their brokers. So-called margin debt, a broad measure of leverage, jumped 11% to $353 billion at NYSE in May, up from nearly $318 billion in April.
Market Analysis
This news kind of scares me. It’s a sign that investor confidence is reaching new highs. You can bet that when investors are borrowing money to put into the market, we’re stretching ourselves thin. Winnings get magnified, but losses get magnified even more. That’s why when the entire market is trading off a lot of margin, losses can cause chain reactions that result in market crashes.
Whole Foods is Hot, Wild Oats a Dud — So Said ‘Rahodeb’
In January 2005, someone using the name “Rahodeb” went online to a Yahoo stock-market forum and posted this opinion: No company would want to buy Wild Oats Markets Inc., a natural-foods grocer, at its price then of about $8 a share.
“Would Whole Foods buy OATS?” Rahodeb asked, using Wild Oats’ stock symbol. “Almost surely not at current prices. What would they gain? OATS locations are too small.” Rahodeb speculated that Wild Oats eventually would be sold after sliding into bankruptcy or when its stock fell below $5. A month later, Rahodeb wrote that Wild Oats management “clearly doesn’t know what it is doing …. OATS has no value and no future.”
The comments were typical of banter on Internet message boards for stocks, but the writer’s identity was anything but. Rahodeb was an online pseudonym of John Mackey, co-founder and chief executive of Whole Foods Market Inc. Earlier this year, his company agreed to buy Wild Oats for $565 million, or $18.50 a share.
Stock Analysis
The things people do nowadays to get ahead just don’t cease to amaze me. You can expect Whole Foods (WFMI) to take a hit - it has already dropped 1.27% in after hours. While this single incident may not be devastating to the company, investors will lose faith in management at the slightest wrongdoing. If Mackey is willing to underhandedly attack his competition, what other shady things is he capable of doing?
This incident is also a good example of why you shouldn’t believe everything you see or hear. Online message boards are notorious for having posters with ulterior motives. When reading content online, make sure you always question the author’s credibility - what’s in it for him or her to provide this content? Make sure you think for yourself and ask yourself if what the author is saying makes sense.
Your posts are awesome..keep it up!
Yay! More young traders! I stumbled upon your blog and am so glad I did! I have been trading for a while too, and it’s so hard to come across other young traders! I’ll definitely be adding you to my RSS! *=)
Thanks for the support! I really appreciate it.
Reading any news on stocks is a complete waste of time. Everything you need to know is given in the price action. Looking for high growth candidates in IBD, is about as far as I’d go researching a company too. Cheers.
I wouldn’t go so far as to say that news on stocks is absolutely a complete waste of time - although for the most part I agree. I don’t believe the markets are 100% efficient to the point that news is priced in perfectly. Often times, investors will underweight or overweight news. In these cases, it is good to read the news if only to understand the psychology behind the majority of investors and to read the charts to see the underlying price action.