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Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations.

Garbage Time

Posted on 12/26/12 - 09:03 AM EST

From Wikipedia:

Garbage time, also known as "junk time", is a term used to refer to the period at the end of a timed sporting event that has become a blowout when the outcome of the game has already been decided, and the coaches of one or both teams will decide to replace their best players with substitutes.This serves to give those substitutes playing time experience in an actual game situation, as well as to protect the best players from the possibility of injury.

Garbage time owes its name to the fact that that period in a game is frequently marked by a significant drop in the quality of game play. This occurs for two primary reasons. First, the players involved during that time are generally less experienced, having not played nearly as often as the starting players. And second, the fact that seldom-used substitutes usually desire more future playing time means that when those players do play, they are often more concerned with making an individual impression than with executing team play at its best; this is especially true during garbage time because at that point, the matter of which team will win has already been decided anyway.

Tomorrow begins the period of the trading year we refer to as Garbage Time. It can be fun to watch that handful of sub-5 dollar tech stocks and Chinese microcaps get run up into year-end. We've also seen plenty of market-wide meltups during this period historically, as people attempt to position themselves for the "January Effect." Shhh, don't tell anyone that the January Effect now begins sometime around Labor Day.

Anyway, here are the rules of Garbage Time trading, as they've been passed down from trader to trader, desk to desk, for thousands and thousands of years on Wall Street:

1. Anyone who's had a good-to-great year is playing light, their books are closed and the track record is not being put at risk. Profits and losses at these same desks have likely already been harvested as well. So, in general, outsized trades are only being put on for window-dressing, tape-painting or other non-traditional reasons. Basically, this means not to make too much of what you're seeing, stop chasing cars like a cartoon dog with its tongue hanging out.

2. If you're trading seriously or intently this week, you probably blew up this year. The last week or so is like a Hail Mary pass at the buzzer. This is why you normally notice the thinner, higher-beta junk moving. Duh.

3. Garbage Time is a total "amateur hour." Buysiders like myself (especially those who've been on the sell side) know better than to come into this week with any real orders of consequence. The kid who's been left behind to execute trades while the Big Dogs are in Turquoise is probably not your best bet, lol.

4. Real investors have mentally closed the books on 2012 even if they've still got all their positions on. This is a week better spent cleaning out office desk drawers, de-cluttering hard drives and emailing best wishes to colleagues, customers and vendors. And thinking about 2013. I plan to spend most of my week reading all the previews and "look ahead" research reports for some semblance of the consensus view.

Anyway, enjoy the show this week and don't play too hard. You can still get injured or beclowned during Garbage Time after all!

THE BLOG: http://www.thereformedbroker.com/2012/12/25/garbage-time/

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