The RealMoney contributors are in the business of trading and investing all day on the basis of ongoing news flow. Below, we offer the top five ideas that RealMoney contributors posted today and how they played those ideas.
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1. Why Mine Coal When You Can Mine Data?
By Howard Simons
3:46 PM EST
, known to nearly all of us for its fund ratings, announced on Friday it was acquiring Logical Information Machines for $51.5 million. This is a good and -- dare I say? -- logical strategic fit.
LIM is one of the better platforms for data-mining long-term histories and developing and back-testing trading systems. The proliferation of trading vehicles, ETFs and ETNs included, require such data-management tools.
None of this, incidentally, should be construed as an endoresement of over-fitting back-tested models. No one ever has presented an awful-looking paper-trading record to me and, in my earlier days, I never presented an awful-looking paper-trading record to anyone else. Yet somehow, I have seen awful-looking actual trading records in numbers far exceeding good actual trading records.
Statistical self-delusion is a powerful force, and it fits into my longstanding career advice to others: "Sell hope." You can go broke selling it to asset managers and traders, right after you go broke selling diet plans and beauty creams.
2. A Frank and Useful Exchange of Views
By Howard Simons
2:18 p.m. EST
Whenever I hear a conversation described as "frank and useful," I think of a bar-room brawl wherein participants share their most deeply held views with each other. This is how White House Press Secretary Robert Gibbs described Obama's conference with the nation's banking chiefs.
Let it be said the nation's banking system has done a poor job of converting the Federal Reserve's monetary largesse into credit; the money has gone into financial assets, as opposed to real plants and equipment, some of which might support employment gains.
But the political system should hesitate before pushing bankers to lend just for the sake of lending. Some part of the recent housing debacle can be traced back to the Community Reinvestment Act of 1977, which was interpreted in practice as a lending quota. Credit extended under such circumstances tends to end in default at much higher rates.
Of course, some might suggest that, if banks are not going to engage in such foolishness, then there is no need for quantitative easing, 0% money and all the rest. The Fed could cancel these programs, re-normalize the yield curve and interest-rate structure and allow risk-averse savers to earn something on their savings instead of chasing yield.
Any business that requires a 15-basis-point overnight interest rate to operate is not a business worth preserving, anyway.
3. A Trade Comparison
By Timothy Collins
1:51 p.m. EST
A few readers have asked me how I will decide on a trade from time to time, so here's a real example. In looking at
, I felt like the stock may be capped at $47 on a good earnings announcement, so I immediately thought that a December 45-47 call spread may be a good risk-reward. The price for the spread is around 78 cents, with an upside of $2.00, for a profit of $1.22, if the stock closes Friday at, or above, 47.
In comparing that with a skip-strike butterfly, I found a more intriguing risk-reward. For basically the same cost, I could buy one Dec 45 call, short two Dec 48 calls, and buy one Dec 50 call. If the stock is able to exceed my expectations on a good report and go to $48 instead of $47, then the spread could realize $3.00 instead of $2.00. However, should the stock move all the way through $50, then it would only bring in $1.00, which, although smaller, is still a profit.
There are also a myriad of possibilities between $47 and $50, but for me, the potential for the greater upside and more flexibility is appealing. If I am wrong, and the stock blasts through $50, I am not going to be sad with a smaller profit. After all, it is a profit. Obviously, if you feel the stock will move over $50, then this is not the trade for you. Understand your targets, then design your trade.
4. For-Profit Schools
By Tim Melvin
1:23 p.m. EST
It is nice to see that the for-profit-school stocks are up across the board today.
is up more than 4%, while
is up more than 5.5%. However, as reported in today's
Wall Street Journal
, for-profit schools are showing a student-loan default rate that's three times that of public or nonprofit schools. A government release showed that three-quarters of the 316 schools with loan-default rates over 30% are for-profit schools. Concern over rising default rates has led the Department of Education to put in place a program as early as 2014 that could cause any school with a default rate of more than 30% to lose funding, effectively putting it out of business.
The investing theme that unemployed workers will turn to the online schools for training is probably not going to play out. They can't afford it or qualify for student loans. If they go anywhere, it will be to one of the thousands of community colleges in the U.S.
5. Three Techs Pressured Early
By Ken Shreve
10:45 a.m. EST
Three high-quality tech names were under pressure during the first hour of trading Monday:
. Volume was heavy in all three stocks in the early going.
It's one thing if a stock rallies in heavy volume and falls in light volume -- that's constructive action -- but if price declines occur consistently in above-average volume, it's a sign of at least some institutional selling and worth paying attention to.
Going into Monday, Apple had lost ground in 10 of the past 13 trading sessions, and several declines were in expanding volume. Remember, it's mutual funds and other institutional investors that are generally responsible for big volume spikes in a stock.
Apple and VMware are now trading below their 10-week moving averages, normally an area of support, while Amazon continues to hold above its 10-week line.
This article was written by a staff member of RealMoney.com.