I have been trying to work out what is the next move for equity markets. I’ve been watching TV, surfing the Net and reading the papers. I’ve even started looking at the analyst reports that the bank produces. My conclusion is that there is an approximately equal number of commentators who think that markets are about to rebound as there are commentators who think that it has farther to fall.
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Need some stock tips? It’s anyone’s guess but casinos seem a good bet
By Alan Alanson 27th July 2008
I have been trying to work out what is the next move for equity markets. I’ve been watching TV, surfing the Net and reading the papers. I’ve even started looking at the analyst reports that the bank produces. My conclusion is that there is an approximately equal number of commentators who think that markets are about to rebound as there are commentators who think that it has farther to fall.
My broker is no help either. Her strategy is to hold. Frankly I don’t think “hold” is a strategy at all. Surely a stock is either an attractive proposition or an unattractive proposition. I either want more or I want less. I have come to the conclusion that “hold” means, “I really have no idea what is going to happen next.”
And that would be the most honest advice anyone could give. Anyone can explain very well what happened yesterday, but they’re all just guessing about tomorrow.
The other conclusion I have been able to reach is that there are two major approaches to investing: fundamental analysis and trend analysis. The fundamentalists, if you can call them that, look at annual reports and accounts and other sorts of data to try to come up with a sensible argument as to what is a good company. The trendies look at which direction things are generally going and try to work out when they will head in the other direction.
Trendies say things like “the Hang Seng has a key resistance level at 22,000 and, if it holds above this level, it will rebound in afternoon trade”. The fundamentalists, on the other hand, say, “China Mobile is well positioned to benefit from the growth of the PRC mobile communications sector.”
It’s a little difficult and expensive to test these approaches on the share market, not least because there are too many stocks and too many analysts to keep track of. So I decided instead to try to test the approaches in a place that is pretty much the same thing but on a smaller scale: a casino.
I headed to the roulette wheel, while my two friends sat down at the blackjack table. My strategy was to bet on the natural order of things, that when there have been four reds in a row, there must be a black one coming up next. So I am the trendy.
My buddies were analysing the cards at the blackjack table, figuring the probability of certain outcomes and determining the hands with the most potential for upside. They were the fundamentalists.
I got off to a flying start. While my buddies were watching their stacks of plastic quickly dwindle down to nothing, after half an hour I had a 100 per cent success rate. Admittedly I had to wait a long time to get four reds in a row before I could bet on black and so I only placed two bets in that time, but the trendy system worked. I proudly announced this to Dave as he passed me on the way to the cash machine to replenish his chips. He was not excited.
I had a little scare in the next half hour and lost on an improbable fifth red in a row, but I sensibly doubled my bet on the next spin and, the unavoidable outcome being a black, recouped my losses and added another HK$100 to my winnings. I decided at that point that I would wait for five in a row of one colour before betting on the next, to ensure unavoidable success.
This of course meant that I had long waits between bets, so I could watch my depressed friends at the blackjack tables and perhaps raise their spirits by telling them of my successes. This time, however, their fortunes had changed, they had switched tables, deciding wisely that the croupier was somehow damaging their chances, and at the new table they were having great success.
Although I was up, by a whole HK$300, at that point I felt a little envious at their much larger piles of chips. The fundamentalists had won back their previous losses and were now in the thousands ahead. Plus they had managed to get free drinks.
I didn’t have long to stand there and wonder why I wasn’t feeling happy for my friends - the roulette wheel had just spun a fifth red. Here we go. I started with HK$100, resisting the temptation to go bigger to catch up with my friends, and it turned out to be a lucky decision, as the little white ball incredibly landed on another red. Six in a row! The next one is a sure thing, and I doubled my bet.
I’ll cut this play-by-play short and let you marvel at the amazing thing that happened that night. The roulette table produced 11 reds in a row. I continued to double my bet all the way to HK$1,600 and then sulked away to the bar, my entire stake and winnings gone in about 2 minutes. The trendy strategy was discredited.
My two friends joined me about half an hour later. I was feeling pretty hard done by and I was really not ready for their jubilation, but to my surprise they too were sullen. Somehow their winning streak also turned into a losing streak and we all drank iced tea with empty pockets while we waited for our ferry.
Did I learn from this experience? I certainly did. Forget fundamentalists, forget trendies, invest in casinos.
Roulette: "Bet $100 on No. 23, WON $1,600! " べ_べ
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