Investor Brain

Thursday, May 15, 2008

Schwab's Active Trader survey Overlaps with TradeKing's

It’s a trend—active traders think the market is going to go sideways, but believe the worst of the bear attack is over.  The following is a press release I received yesterday from Schwab.

Oh and the Electronic Investor written by Yrs Trly is finally back in print this week.  The text will be posted here on Saturday though it can be seen now on the Barron’s Online site even if you are not a subscriber.

SCHWAB STUDY FINDS ACTIVE TRADERS ARE OPTIMISTIC ABOUT THE MARKET DESPITE RECENT VOLATILITY

SAN FRANCISCO, May 14, 2008 – After one of the most volatile quarters in recent history, Charles Schwab today released details of the Charles Schwab Active Trader Sentiment Survey designed to take the pulse of nearly 500 individual investors who trade frequently. Among the findings: 

- Nearly half of the respondents (49 percent) were 55 years or older.
- 76 percent expect the S&P 500 to rise or trade sideways in the next six months.
- Eight-in-ten respondents intend to maintain or increase the number of trades they make in the next six months.
- Four out of ten traders surveyed now regularly trade options, 95 percent of which expect to maintain or increase their options trading during the next six months.
- Half of the respondents view volatility as an opportunity in the marketplace.

“Traders are still very engaged with the market and are finding opportunities despite a difficult environment so far this year,” said Richard Levine, vice president of Schwab Active Trader. “These sophisticated, experienced investors have the ability to trade in up and down markets.  We remain committed to helping traders be successful in all market environments by offering powerful trading tools, knowledgeable trading specialists and educational seminars on everything from stock selection to risk management.”

Trader education has become particularly relevant with the growing popularity of options trading among active investors seeking out more sophisticated options strategies.

In fact, the Schwab survey showed that 75 percent of traders who incorporate options in their portfolio do so with the goal of generating income or hedging for risk management. Only one-in-four traders indicated that market speculation was the leading reason to trade options.

“The findings of the survey reveal that investors are starting to embrace options as a way to help protect their investments and potentially profit in an unstable market,” said Randy Frederick, Director of Derivatives at Charles Schwab.  “Active traders are taking the right steps to become informed investors, and they are taking advantage of more advanced tools and strategies.”

Survey Methodology

Survey data were derived from nearly 500 active traders and investors based on responses collected during February and March of this year. The data was analyzed by Directive Analytics and has a statistical accuracy of + or – 4.4 percent at 95 percent confidence level.

Wednesday, April 30, 2008

Survey Says: Bearishness Subsiding, Uncertainty Increasing

According to a press release issued today by TradeKing, a late April survey of 3,000 equities and options traders that they conducted indicates that bearish sentiment is receding. Just 23.9 percent of active traders described themselves as either “bearish” or “very bearish”, down significantly from 48.3 percent in January.  At the same time, 46 percent of surveyed investors (42.9 percent of options traders (OT), 50 percent of equities traders (ET)) indicated a “neutral/not sure” position in their market outlook for the next three months, the highest level of uncertainty reported in the past four quarters.

(The following is a blatant rip-off of the TradeKing press release.)

The survey also showed that oil prices, the U.S. dollar and interest rate changes persist as top market triggers investors are watching. However, nearly 38 percent of OT and 40.7 percent of ET listed oil as their number one “potential trade trigger” to be watched “intently”, ranking it the top concern among investors.

The in-house survey was conducted April 22-25, 2008, via email to 3,000 TradeKing clients, with an estimated 95% confidence level.  The survey results were segmented into two client groups: those who trade “options only” with TradeKing and those who trade “equities only.”

“The results from our April survey seem to indicate that, although investors remain cautious, they feel the worst developments in some areas of the economy may have passed,” said Don Montanaro, CEO of TradeKing. “TradeKing investors are starting to move on from the subprime mortgage woes and focus on how oil prices might impact industry and consumer spending over the next few months. With a surprising number of clients reporting ‘better than expected’ investment returns this past quarter, they see there are still opportunities to win in a volatile market.”

On the personal finance front, active investors indicated they are responding to the current volatility in the market by adjusting investment strategies, trimming energy costs and household budgets, and considering more foreign investments.

—Twenty-nine percent of OT, 34.7 percent of ET reported adjusting to the new economic conditions by “trimming ... energy consumption”;

—Thirty percent of OT, 21.3 percent of ET are “switching investment strategies to respond to recent market volatility more effectively”;

—Twenty-one percent of OT, 21.8 percent of ET are “considering foreign investments to balance out the falling dollar”;

—Twenty-one percent of OT, 21.3 percent of ET are “trimming ... household budget spending”;(2)

—Twenty-two percent of ET respondents also favored “‘buying on the dips’ to lower my cost basis on some long-term holdings.”

In addition, the majority of respondents who will be receiving the one- time economic stimulus tax rebate said they plan to use the funds to either pay down personal debt (credit card, mortgage, student loans, etc.), or invest in the market.

(1) The Reuters/University of Michigan consumer sentiment index, April 2008.

(2) See recent New York Times article reporting on how consumers are cutting household costs, http://www.nytimes.com/2008/04/27/business/27spend.html?_r=1&scp=1&sq=recession+diet&st=nyt&oref=slogin
(Due to length of URL, please copy and paste into your browser)

Friday, March 21, 2008

S&P Says CAPCO is OK

In the wake of the Bear Stearns collapse, industry analysts grew concerned over the financial stability of the Customer Assets Protection Company (CAPCO), which carries their excess SIPC coverage.  (Please See “Are You Covered If Your Broker Fails?” and “If Your Broker Goes Belly Up, Part II” for an in-depth explanation.)

Yesterday, Standard and Poor’s issued a rare bulletin in which they said that CAPCO is maintaining its A+/Stable rating in spite of the claims that may ensue in a post-Bear Stearns universe.  Of interest in their bulletin is the assertion that “In the event of an excess SIPC claim related to Bear Stearns, CAPCO should benefit from a guarantee provided by JP Morgan Chase for Bear Stearns’s obligations.  In addition, clients withdrawing funds from their personal accounts actually reduces CAPCO’s potential maximum loss.” (Italics are mine.)

As the S&P bulletin spells out, for an excess SIPC claim to occur, all of the following must happen: client assets must be found to be missing, lost or stolen, and customer property, SIPC advances, fidelity bond proceeds, if any, and distributions from the general estate of the member, if any, to customers are insufficient to satisfy customer account obligations. Neither SIPC nor excess SIPC cover a decline in the market value of a client’s investments.  Clearly the Bear Stearns collapse is not due to missing, lost or stolen customer assets. 

We’re looking at a problem related to market value, which is due to some management choices that turned out to be inappropriate, rather than outright theft. 

Too bad there’s no insurance that protects against inappropriate choices.