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The Oilers have not played a playoff game since they lost game seven to the Carolina Hurricanes in the Stanley Cup Finals on June 19, 2006. Had the Oilers won the Cup, well, I probably would not have to feel like an ashamed fan, but alas, here we are. So, since that day, seven and a half years ago, here are ten things that have happened or could have happened in the same time span.
1. Snow White will have had the opportunity to be impregnated by and give birth to the children of all seven dwarfs.
2. Most of Europe, including the United Kingdom and infamously Italy, has gone through two recessions. One occurring from 2008 to 2009 and a "double dip recession" from 2011 to 2012.
3. If you found a nickel every day since the last playoff appearance to the date of this post, you would have $134.50, still not enough to buy one Oilers ticket closer than row 35.
4. The average American married couple would be filing papers for divorce.
5. Michael Bay has some how been allowed to produce three Transformers movie with one more coming at the end of this hockey campaign.
6. Every cell that comprised you seven years ago has been replaced by daughter cells through mitosis (urban myth).
7. An entire company started from scratch, took over the world, and then collapsed into nothingness with these devices.
8. "New Horizons," a space probe sent to study objects beyond Pluto, has flown from Earth to the middle of Uranus and Neptune's ring of orbit.
9. Your child will have learned what are birds and bees and are now learning about the "birds and the bees."
10. A high school graduate has traveled the world for a year and earned his or her masters in university.
I feel so sad...
Without a doubt, Netflix (NFLX) is one of, if not, the most volatile stocks on the S&P 500 sometimes moving as much as 5 per cent in a single day on zero news. In a good week, a blind and lucky trader can easily beat the average annual return of a mutual fund or broader index. Traders gravitate towards volatile stocks like Netflix for good reason. In the last 365 days, the stock rose from $57.40 to $389.16 - a 578 per cent increase. The stock hit that $389.16 the morning after it posted fourth quarter earnings on October 21, 2013, that beat the estimates. An hour later, the stock crashed and was trading below the previous close of $354.99. And many, many lessons were taught that day.
1. Valuations Matter, Eventually
Along the way up, naysayers claimed the stock would crash. At $100, it was an expensive speculation. At $200, it was overpriced. At $300, it was exponentially absurd. It was $400 that finally raised all eyebrows and got people thinking about valuations. Don't expect shares to fall back to $50 again. It can't be that easy, but the stock has a P/E of 266 compared to an industry average of about 16.4. Value traders would have avoided Netflix entirely with fundamentals and expectations that would never be met, knowing it would one day fall, but while all that happened, the irrational traders booked huge gains.
It is probably a little unfair that those who invested against all logic ended up with the profits. The reality of the market is that a stock price might not make sense based on its fundamentals, but there are so many other factors involved. Back in 2011, the stock also charged to $300 and fell to $50 on, yes, fundamentals. The company's prospects of huge growth became an issue when it decided to split up its DVD-rental and streaming businesses, jacking up prices, and creating turmoil with both traders and customers. What we now understand is that Netflix won't ever be able to raise prices without backlash or the potential for customer cancellations, and that proves bad for Netflix shares in the long-run.
Over the course of a company's public history, share prices will be buoyed or deflated by news and expectations to irrational levels, but over the long haul, valuations and fundamentals will eventually take over. You may argue that an investor missed out on as much as 500 per cent gain, but if you believe in valuations, you won't need to rely on luck and the demand of others to make money.
2. 95% Institutionally Owned
So, how did the shares continue to rise with fundamentals so out of whack? It could have been an issue of supply. At the moment, almost 95 per cent of Netflix shares are owned by some institution held in some fund, not by individual investors. Apple (AAPL), the largest technology company in the world, has just 62 per cent of its shared held by institutions. Based on the latest filing prior to this week, it was known that billionaire Carl Icahn held 9.4 per cent of Netflix shares in one of his funds. So why is this important?
When a stock has just 5 per cent of its shares being traded by retail investors like you and me, it means that there can be a liquidity problem. If supply is limited and demand is hot, then we see rises like Netflix that become irrational and alluring to trade. So, when news came out on October 22 that Icahn sold half his holdings or about 3 million shares over the last week, it meant that there was a sudden explosion of supply. And when 3 million shares hit the market at once, the price goes down. Of course, no fund manager would allow a price shock like this, so he could either purchase put options or sell them in chunks to allow the share price to withstand massive volatility. The news of the sale triggered more selling after hours. It told people that big money is leaving the proverbial table, and rich people do not like to lose money, so follow suit.
An investor should be diversified in their stocks, but stocks also need a diversified number of investors as well. Warren Buffet, considered the most successful investor ever, has his own general rule of thumb and invests in companies where institutions own under 30 per cent of the float.
3. Chasing Momentum is a Gamble
The rise that we saw, that conflicted with valuations and defied logic, is known as momentum and can be chased in either direction. Traders chase momentum hoping to catch any energy that is left in the direction of the stock's movement. When you chase momentum, you are always late to the party. But like a real party, you hope that there's some dancing, drinking, and socializing left. Of course, the club eventually closes and the window of opportunity shrinks every second. Momentum trading is a calculated risk - a gamble not on the prospects of the company's profitability, but on the belief that there are enough people out there that still want to buy. And unless your school replaced history with mind-reading, your speculations might be a shot in the dark.
Nobody buying after a rise of 450 per cent justifies their decision with "This stock is so undervalued." They are what we call the envious trader, trying to make a fraction of what the others made before the move. But timing is so important. There is a saying that the stock market "rises like an escalator, but falls like an elevator" so being wrong is a very distinct, painful event that unfolds in a short period of time. So for the trader that was the last to enter the club or forgot to leave altogether, they should learn the fourth lesson of trading.
4. Always Take Your Profits
If Icahn perfected his trade, he would have sold after hours on the day of the earnings report. The stock had traded above $394 in the after-hours market. Of course, nobody is perfect, and when he learned that he quintupled his money in a year, it was probably time to get out. In a situation like Netflix, where prices rise exponentially, become irrationally valued, and look unstoppable, then it's time to take your profits even if it is just 5 per cent of the 578. The point is that prices fall faster than you can make the order to sell when things finally turn. In this example, Netflix actually fell hard, but was still worth more than it was at any time prior to last week, but that is not the point. The issue here is that there were millions of people that also bought it at $390 after hours and the open, then saw their investment fall by 15 per cent the next day. Can you afford to lose that?
On October 21 at 1 PM, stock at $348, I "knew" the stock would fall so I did a debit put spread costing me just over $1000. At 4:05 PM, stock at $385, I "knew" my $1000 was gone. I wrote it off as a gamble worth taking. The profit was $1,500 if it fell 8 per cent or more. But I chose the wrong direction. Then I woke up and saw the stock at $345 and by day's end, $322. My friend asked me if I sold, to which I answered no but I realized that if I wait to try and make the full $1,500, I risk losing my original investment. So, on Wednesday, after seeing the shares were revived and up to $328, I closed both legs and made $330. That worked out to a 30 per cent gain in two days. Yes, if the stock stays at $328, I would have made more money by Friday, but that was not the point. The biggest lesson I learned from years of trading is always take profits. You can not predict the price of a stock so easily and with it being so volatile, there's a chance that for a brief moment which can occur on a Friday afternoon, the stock could be at a price unsuitable for profitability, and I will tell you that too many times I have become greedy and tried to make an extra dime or nickle and it has backfired.
5. Forget The Stock, Don't Be An Envy Trader
I was taught the moment you sell a stock, delete it off your screen. Nobody ever buys at the low or sells at the high. So when you remove it from your watch list, you extinguish the potential for the "I knew I should have waited" and "Why did I sell so soon?" statements. I heard it all the time working at the investment firm when my clients or colleagues traded and I would remind them they made more than a day's pay. Whether you are a trader finding opportunities or just a regular investor, get those names off your list when you are done.
When Netflix posted earnings, the uncertainty of the financials were no more, then it fell hard an hour after the open the next day. So what happened? Prior to the earnings, an institution knew it was time to sell as valuations became the correct rationale. He booked his profits and announced, required by law, that he sold a large chunk of his holdings in the first 12 days of October. Those that bought after the earnings in the after-hours market were clearly gambling the momentum. In fact, if you had tracked the trades, you would have seen it go from $380 to $394 rising ever so steadily. But who were those people? Nobody in their right mind would buy their first share of Netflix near $400, so it was definitely former Netflix traders still clinging to the stock envious of the gains others had made. In less than 24 hours, these five huge lessons were learned by anyone that lost any money on Netflix this week. And I'm sure there will be more lessons learned tomorrow.
If you fell into a coma in August of 2011 and woke up last night just before midnight in the East Coast, you would have seen the same images on television. That's because the debt ceiling was a major topic as America reached its borrowing limits again twice in the last two years and 18 times in the last two decades. And unless all Americans become billionaires over night and fork over half their income via taxes to the government, the debt ceiling will once again be a topic of discussion in January or February 2014 - just a few months away.
Just think about the resolution for a moment. A government was shut down for over two weeks, putting 800,000 government employees temporarily out of work, created massive uncertainty in the financial markets, triggered potential downgrades which would have raised interests for all, delayed discussions of potentially more important issues, decreased their GDP by an estimated one per cent, and put the nation on the brink of default just so they could fund the operations of its nation for an estimated twelve weeks. It is a joke of efficiency and policy that hampers America and the rest of the world.
Aside from Denmark, America is the only nation with a debt ceiling. It was created in 1917 to help fund efforts in World War One, and was set at double the national debt. Conversely, Denmark's debt limit policy started in the 1990's and was set at triple the national debt. It was reached in 2008. After a short, quick discussion, the country's politicians doubled the limit. Why? Because the limit was a stagnant line that did not take into account for inflation and raised it incredibly higher to make sure it was not an issue for decades.
A survey done by the University of Chicago back in January 2013 showed 84 per cent of economists agree or strongly agree that "a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse financial outcomes." Only three per cent expressed disagreement.
In fact, the debt ceiling is often considered the laughing stock of America, aside from all its other follies we love to poke fun. What's unusual about the debt ceiling is that the limit has a few loopholes, it should never become an issue. America actually borrowed $16.669 trillion back in May and has tapped into its safety valve using extreme measures to fund its country. But that sink is about to run out of cash. The quick and easiest way was to simply print money, literally, and some asked the government to print a $1 trillion coin, kind of like the Simpsons fictional trillion dollar bill.
However, such a maneuver would in theory devalue the dollar and raise inflation so high that it would cause more harm than good, but then again, it seems every economic theory in the book has been throw out the window over the last decade. Obama has said he is completely against the idea of printing money. You may argue that during his reign as the Chief, the Fed has always printed money, but this is inaccurate. The Federal Reserve purchases U.S. Treasury Bills, a debt-instrument, from its member banks using credit, not printed money, it created out of thin air. This helps spark demand for U.S. debt keeping interest rates in the nation low. As a result, the Federal Reserve, a part of America, owns $1.794 T of U.S. debt, and this leads us into the next topic.
There is a common saying that China owns America. Now, of course, nobody actually thinks China literally owns the country and all its land, but it stems from the notion that China has a lot of U.S. bonds on its books. But if we're using the logic of some radical political satire, then the real owner of America is Americans. Mind-blowing.
American government branches own about 25 per cent of U.S. bonds, Social Security owns $2.764 of that. China, just 7 per cent or $1.3T, less than the $1.794 owned by America's central bank. And Japan holds $1.1T of U.S. bonds and it is expected with the selling by the Chinese government, Japan will reclaim its spot as the number own foreign debt holder.
With America and SS holding so much of the bonds, this is why Obama nor any Republican would allow the nation to default, as it would hurt millions of Americans retired or ready to retire, and of course, those in office looking for re-election. So of course we all knew the bill would pass at the 11th hour. But why did it take so long? And why did 144 politicians publicly vote against a bill that would save the nation from default potentially creating a catastrophic economic collapse? Are they "mad like a hatter?" Maybe they know something we don't and are the most honourable warriors on Capitol Hill...
The political games brought on by the debt ceiling actually become popular when in 1995, Newt Gingrich, then the Republican leader of the House, repealed the Gephardt Rule, which granted the ceiling to be raised any time a bill was passed based on the spending that was authorized. But Gingrich realized it could be used as a "whip" to persuade politicians to make deals. And with Clinton at the helm of America, it could be used by a Republican House leader to bully a Democrat President. Enter the twilight zone.
Imagine this for a moment. From the dry plains of Africa to the urban neighbourhood across the proverbial train track, not a single child is hungry. The abundance of food used to feed our agricultural needs are sent in boat loads to the poorest of the poor. The pain of war and genocide exist in the virtual world of video games where injuries are healed by a floating health pack. Disease is part of a fable that exists as an invisible foe alongside witches and vampires. And children, once illiterate and devoid of the simplest calculator, are now capable of communicating their thoughts through Tweets and possess in their palm access to the collective information of human history.
This is the goal of humanity - a perfect world where human rights and needs are fulfilled; individuals can pursue dreams without the distraction of poverty or sickness. It sounds lovely, but perfection is a deceiving concept. Without the hardships that entertain us everyday, we lack character, integrity, and wisdom. The essential tools for moving forward become suppressed. For a child that grew up in the ghetto having to face drugs, violence, and poverty daily, he earns a badge of honour by surviving the ordeal. And every so often, one of these children makes wishes and finds strength to explore and overcome the world, discovering it is much easier for him than his wealthier peers.
So, how does this relate to my usual business-like posts? We are now living in one of the greatest recessions in the past two generations, worse than the 1980's crisis as described by many. For those of us living in the first world, we have been blessed with economic recoveries recession after recession. But because of such prosperity, we have forgotten how to save and our children are never taught the value of a dollar. And good-paying jobs once a dime a dozen are now a needle in a haystack. It is an adversity many have never encountered and it is visible through their ill-actions towards others and themselves. We are witnessing people strategically file for bankruptcy to avoid paying their mortgages - lack of integrity. Other well-educated souls unwilling to take on a simple job such as a cashier or custodian to pay their piling debts - hubris. And some blaming the government for its ineptitude when the real problem and solution rests in their hands - lack of accountability and responsibility.
Okay, well we are not technically in a recession, but whatever we shall call it, this session of tepid growth is just what the doctor ordered. For most of us, the economy's slow-witted pace feels much like a recession. Ideas are crushed, finances require frugality, goals are harder to reach, and promotions more than a stone's throw away. However, the greatest amount of millionaires were made after the end of The Great Depression. Whether it was from asset investments or identifying demands and needs, those that succeeded were tenacious risk-takers willing to be positive and creative when worldwide sentiment was melancholy.
Think of it like a stock market correction. Sentiment is fairly bearish; fear and uncertainty outweigh the greedy. Those that panic sell when the market is falling are less likely to be profitable. Market corrections are important as it is an opportune time for big traders and big money to re-enter the market. Corrections execute the weak and provide lessons too. Historically, stock markets bounce strongly after a correction yielding big profits to those that bought on the quick down-turn. When sentiment was weak, they made an opportunity in a bad situation. In a perfect world, we say the market will always go up, but in such a scenario, the market would lack liquidity. Those wanting to buy would find no sellers and there would actually be less prosperity. Prices would be artificially high and its value essentially meaningless.
We do need recessions. We need people to learn how to endure adversity and allow the emergence of leaders, create entrepreneurs, and eliminate weakness. We need people to educate themselves on the value of a hard-earned dollar and be grateful for what they own. Harsh times, yeah, it builds character, integrity, and honour, something this society has lacked for quite some time. This is when you need strength and courage to take risks and build your businesses when costs for assets and expenses are relatively cheap. Or perhaps make investments with money sidelined for years. Maybe fulfill some travel goals as prices are dirt cheap. There is less to lose when things are at the bottom. And for those that are skilled, motivated, charismatic, and creative, you easily stand out as an asset to a company or against your competition.
Would I rather see every starving child fed, disease wiped out, and education for all? Absolutely! But to never face life-altering adversities, our society would never have an underdog story nor would we learn to fight for what we believed in nor become stronger. We ask for perfection in so many aspects of our lives that we are blind in seeing our chaotic, sometimes unjust world is as good as it gets.
