Tech revival? Watch AAPL


Author Cam Hui

Posted: 06 May 2013

There was some excitement this week about the relative breakout of the Technology sector against the market:

Given the dominant weight of Apple in the Technology sector, consider the relative performance of an equal weighted Tech index. the equal-weighted NASDAQ 100 (QQEW) against the SPX. While the XLK has rallied out of a relative downtrend against SPX, QQEW remains range-bound against the market. In other words, the average Tech stpcl has performed in line with the market in general.

The rally out of the downtrend is far more evident in AAPL:

So if you start to get excited about the potential rally in Technology stocks, pick the appropriate benchmark and know what you are betting on.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Technical analysis as behavioral finance

Posted: 03 May 2013 12:18 AM PDT

A couple of items came across my desk that, in combination, made me think about how we think about finance today. The first was Mark Buchanan’s review of Gary Gorton’s book Misunderstanding Financial Crises where the author took down the blindness of economists and, by extension, the theory of rational expectations [emphasis added]:

I think it’s the most convincing book I’ve read so far that links the mechanisms of the recent crisis to crises in the past. In effect, he argues that the crisis was the direct result of the uncontrolled creation of money by the shadow banking sector, and ultimately took place as a classic bank run, no different from runs in the past, except that this run took place mostly out of public view because it didn’t involve ordinary bank deposits. The new kind of money in this bank run was stuff such as repo agreements and commercial paper which played the role of money for financial institutions. In 2007-2008, when lenders lost confidence (for good reason) in the mortgage-backed collateral backing this money, they demanded that money back, and the financial system seized up.

The explanation is convincing and wholly natural. The argument is most convincing because Gorton does a masterful job of placing this bank run in the context of the long history of past runs. And also because Gorton, as an economist, places blame squarely on the economics profession (himself included) for being asleep at the wheel:

Think of economists and bank regulators looking out at the financial landscape prior to the financial crisis. What did they see? They did not see the possibility of a systemic crisis. Nor did they see how capital markets and the banking system had evolved in the last thirty years. They did not know of the existence of new financial instruments or the size of certain money markets. They did not know what “money” had become. They looked from a certain point of view, from a certain paradigm, and missed everything that was important… The blindness is astounding. That economists did not think such a crisis could happen in the United States was an intellectual failure.

It seems to me that there is a certain amount of denial among economists. I have noticed, in talking about the ideas in this book with my economist colleagues, that there is a fairly clear generational divide on this. To younger economists and graduate students, it is obvious that there was an intellectual failure. Some older economists are inclined to hem and haw, resorting to farfetched rebuttals. It is clear that this is a sensitive issue, as like banks no one wants to have to write down the value of their capital.

…One other thing of interest. Gorton in a late chapter, when discussing the spectacular failure of the rational expectations paradigm, quotes University of Chicago economist James Heckman, winner of the economics’ Nobel Prize (yes, that’s not its actual name) in 2000, from an interview he did with John Cassidy in 2010.

Why didn’t economists saw the financial crisis coming? What happened to rational expectations?

In a recent interview, Nobel laureate Daniel Kahneman explained his problem with the rational agent and rational expectations hypothesis this way:

Think of the kind of market that Adam Smith described. You can get a lot of insight into how just the right amount of bread gets to London in the morning by assuming that the baker and the other participants in the market pursue their own interests in a sensible manner. The rational-agent model takes this idea to its logical extreme. If you want to predict the behavior of a market, you are best off assuming individual agents who act in a way that is predictable and fairly simple—for example by assuming that the participants are similarly motivated and exploit all their opportunities. I am not an economist, but I find it hard to imagine that they will ever give up the use of schematic individual agents, even if they endow these agents with a little more realistic psychology. And I see no reason why they should.

The rational agent model has more questionable consequences in the domain of policy because the assumption that individuals are rational in the pursuit of their interests has an ideological coloring and policy implications that many would view as unfortunate. If individuals are rational, there is no need to protect them against their own choices. At the extreme, no need for Social Security or for laws that compel motorcycle riders to wear helmets. It is not an accident that the department of economics at the University of Chicago, one of the most illustrious in the world, is known both for its adherence to a strict version of the rational actor model and for very conservative politics.

Rational expectations: Is this an anomaly?
The other item of note was a post at George Washington’s blog (via Zero Hedge) showing how much more likely an American is to die from heart disease, car accidents and other common causes of death than from terrorism:

– You are 17,600 times more likely to die from heart disease than from a terrorist attack
– You are 12,571 times more likely to die from cancer than from a terrorist attack
— You are 11,000 times more likely to die in an airplane accident than from a terrorist plot involving an airplane
— You are 1048 times more likely to die from a car accident than from a terrorist attack

Now ask yourself, how much has the United States government spent on combating terrorism compared to heart disease, cancer and automobile accidents? If this had been academic finance literature, then these mis-pricing or mis-allocation of resources would be termed an anomaly, much like low P/E or small capitalization were deemed to be market anomalies in the 1970’s.

Here’s another thought from the Chicago school: If the world needed to be rid of terrorism, or __________ [insert the dictator of your choice], wouldn’t the market have done it?

In praise of behavioral finance
Behavioral finance is the school of thought that tries to understand human behavior in the context of what “should” be rational expectations. I have long believed that technical analysis is a branch of behavioral finance.

I recently wrote an essay about the evolution of thinking about technical analysis and why it works. You can read it here.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

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UpWest Labs’ Fourth Batch Of Israeli Startups Look To Go Big In The U.S. By Taking The B2B Approach


TechCrunch

In January of last year, Gil Ben-Artzy and Shuly Galili launched a startup accelerator with the intent to expose Silicon Valley to the next generation of hot Israeli tech companies — and vice versa. While Israel has long been a hotbed for innovation and is home to the R&D labs of many of the world’s biggest tech companies, the founders saw an opportunity to create a more fluid connection between Israeli startups and the Valley.

Through its three month program, UpWest Labs selects five to seven promising Israeli startup and brings them to Palo Alto to live together in one house — an experience fit for reality TV. Unlike other American accelerators, UpWest typically likes to keep its batches small, focusing on companies that have already built some traction in Israel but are looking for exposure to American investors and customers.

UpWest’s job, Galili says, is to help facilitate that…

View original post 955 more words

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Payments Startups Take The Data, Design And Development Route To Reengineer The Credit-Card Business


TechCrunch

Editor’s note: Steve Patterson is a writer who has covered Boston and San Francisco Bay Area startups for 20 years. Follow him on Twitter @stevep2007.

Braintree, Square and fellow disruptors are applying web and mobile technologies to overhaul the economic model of the payment industry. In the next chapter of the Internet’s disintermediation of large markets, payments are shifting to be efficient and pervasive over-the-top (OTP) mobile services.

Understandably these companies are attracting a lot of money from top-tier VCs, as well as a lot of media attention. Visa has invested in Square and American Express has invested in Square competitor Izettle presumably to buy a ring-side seat to look through the “door to disruptive innovation at the bottom of the market,” which Clay Christensen describes in “The Innovator’s Dilemma.”

These startups enable online and brick-and-mortar merchants to use credit- and debit-card payments in ways that, until now…

View original post 1,359 more words

How To Make A Million Dollars With A Hot Dog Cart


TechCrunch

Editor’s note: James Altucher is an investor, programmer, author, and entrepreneur. He has started and sold several companies, run a VC fund, and is an active investor in many private companies. His latest books are I Was Blind But Now I See and 40 Alternatives to College. You can follow him on Twitter @jaltucher.

My wife, Claudia was upset with me. She said, “I didn’t shower! I haven’t left the house. I’m having coffee in the afternoon. I feel like I’m turning into you!” And quite frankly, she looked sort of disgusting while she was saying this to me at 3 in the afternoon.

“You realize that everything you say to me right now is potential material for a blog post.”

“Oh wait. No. I’m fucked! That’s it, I’m not going to say anything to you,” she said. She poured herself the coffee and left the room. I…

View original post 1,816 more words

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All Told, Nokia Owes $650M More To Microsoft In Their Long-Term Platform Deal, Says Nokia


TechCrunch

Nokia today filed its 20-F financial report for the last fiscal year, in which it reiterated its projections for the next year ahead on device sales and margins for both devices and services, as well as for its Nokia Siemens Networks division. Perhaps more interestingly, it also spelled out some more detail on how much Nokia stands to gain this year in its Microsoft partnership to develop Lumia devices based on Windows Phone, Redmond’s flagship mobile operating system, but pay out more overall.

It notes that the remaining minimum software royalty commitment payments from Nokia to Microsoft are expected to exceed the remaining platform support payments from Microsoft to Nokia by a total of approximately €500 million over the remaining life of the agreement. At the same time, though in 2013 Microsoft will be the net gainer with its platform support payments from Microsoft to Nokia will slightly exceed those…

View original post 487 more words

Want To Build A $1B Consumer Company? Look For Long-Haul Founders And Don’t Fear Incumbents


TechCrunch

Editor’s note:Jacob Mullins is a VC at Shasta Ventures who primarily focuses on consumer web and mobile companies. Follow him on Twitter @jacob

With the recent talk about the growing “billion-dollar club” in startups, I’ve been wondering, as a Series A investor, what characteristics a $1 billion consumer tech company has. I examined the pool of consumer companies that have had exits over $100 million within the current era of consumer tech, which I consider to be post-recession 2008. I wanted to see what I could learn and ideally reverse-engineer common characteristics that would help me identify the next big winners when I see them today or in the future.

I created a dataset pulling from a number of venture capital data sources, including CrunchBase, and narrowed it down to my own specifics: U.S., venture-backed companies that have had realized outcomes, both IPO and M&A, over $100 million since…

View original post 1,009 more words

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