Sunday, January 16, 2011

Twitter Predicts The Stock Market?

There is no longer any need to wonder if the DOW is heading up or down. Investors no longer need to hedge their investment risk with a diversified portfolio, now they need only follow Twitter.

According to Johan Bollen (Indiana University), the direction of the Dow Jones Industrial Average (DJI) can be predicted by following the general "mood" of Tweets on twitter.

He's not talking about tweets of professional stock pickers, or even amateur stock pickers for that matter. In fact, he's talking about just the general mass of tweets. Apparently the method consists of scanning tweets for certain key words or phrases that denote emotional states of happiness or sadness or fear, etc..

Based on the overall consensus of these anonymous tweets, he's able to predict the direction of the Dow within 3 days away. What's more, he claims he's got an 87% accuracy rating with the method!

Here's an interview with Mr. Bollen about a paper he wrote detailing the method.

He has an interesting premise, but there are serious problems with the data. For example, as the interviewer points out, the population of Twitter is demographically skewed to the younger set. Many of that generation are not interested in investing or finance in general. That doesn't matter, according to Bollen. He says that his model is accurate even when using mundane "I did lousy on that calc exam" kind of tweets!

Beside the demographic skew, Twitter has only been in existence since 2006 and through much of that time it was relatively small. It wasn't insanely popular until just a few years ago so the sample set of data and the history of the model's track record is very small - just over 2 years!

87% accuracy in the stock market over the last 2 years is not enough to really prove success, in my opinion.

Wednesday, January 12, 2011

Open An ING IRA and Get $50 - Free!

INGDirect is offering a $50 bonus to new IRA clients from now until February 7th.

Some of the highlights of an ING IRA are:
  • FDIC-insured IRA savings and CDs.
  • No fees
  • No minimums
  • No market risk

Wait, "no market risk"? That sounds too good to be true...

That's what I thought, and it turns out that it is...sort of. Anytime you see an investment advertised as "no risk" or "zero risk", you should be seeing red flags flying all over . But ING Direct is not a scam site, or a fly-by-night operation, so what gives?

Well, it turns out that ING is really selling IRA savings accounts or CDs, not a traditionally investment IRA where you put your money in stocks, bonds, ETF's and mutual funds.

To be honest, I'm a little more than a bit put off by the marketing of an "IRA" with the promise to "Earn a guaranteed return with no market risk"!

I'm just not used to ING Direct using such tricky marketing.

Anyway, slick marketing aside, it's still a good deal if you're looking to stash some cash in an IRA - especially if you're uncomfortable with the stock market but still want some of the tax benefits of an IRA.

Here's how to get the bonus:

  1. Open an FDIC-insured IRA (savings or CD)
  2. Deposit $200 into your account by February 7
  3. Get a $50 bonus (counts toward your 2011 IRA contribution limit)

The IRA savings account currently sports a 1.10% APY, and CD rates are as follows.

Term APY Effective Since
6 Months 0.75% 12/07/2010
9 Months 0.75% 12/07/2010
12 Months 1.00% 12/07/2010
18 Months 1.00% 12/07/2010
24 Months 1.25% 12/07/2010
30 Months 1.25% 12/07/2010
36 Months 1.25% 12/07/2010
48 Months 1.25% 12/07/2010
60 Months 1.25% 12/07/2010

Click here for details

Tuesday, January 4, 2011

Cramer's 10 Best Dow Stocks for 2011.

Cramer's take on 2011's DOW:

I expect the Dow to hit 13,365 next year -- a 16% gain from current levels and a bountiful return -- based on a prognostication of the performance of the individual members of the venerable index.

Here's how he sees that happening...

Alcoa (AA).

Cramer sees Alcoa around $18 and possibly $22 for the year. If it hits $22, he sees it being bought out.

Bank of America (BAC).

Cramer is an optimist. Some would say he's overly optimistic and they may have a point on this one. Cramer sees BofA as getting out from behind its mortgage putback claims and getting out from under its toxic mortgage holdings - all while boosting earnings!

BofA holds about 20% of the mortgage market, and Cramer sees that as an asset when the housing shortage of 2012 comes about. No joke. He says "housing shortage."

Boeing (BA).

Production is key for Boeing, but if it can produce just a few of its "Dreamliner" 787, the stock should soar. Cramer sees Boeing at $85 by the end of 2011. He sees Boeing as the most long term growth potential in the DOW.

Caterpillar (CAT).

Cramer sees Caterpillar at $120 in the next year, do in part to the U.S. coming roaring back as a growth nation.

Chevron (CVX).

He sees oil at $100 per barrel in 2011, and Chevron is more dependent upon the price oil than other energy companies like Exxon. He sees it going to $110.

Coca-Cola (ko).

He sees Coke at about $70 - not the growth stock it once was, but more stable and "safe" than most growth stocks.

Home Depot (HD).

Cramer sees the housing making a comeback, and that will add to Home Depot's 23% return over the past year without a housing comeback. He sees the stock at $45.

JPMorgan Chase (JPM).

The "best run bank in America" is going to come roaring back with a bigger dividend and bigger buyback program. He sees it at $50 in 2011.

3M (MMM).

Cramer sees 3M at ridiculous low PE of 15 given its record of growth and the landscape for global economic growth.

Verizon (VZ).

With the FIOS infrastructure largely paid for and the new iPhone coming out the Q1, Verizon is ready to cash in.

My take.

Cramer has an impressive career as a hedge fund manager and stock picker, and no one can see the future but I am nowhere near as optimistic as Cramer on many points. For one, the housing and mortgage situation is poised to get worse, not better. With talk of a double dip in housing prices and the specter of rising rates, it's hard to make the case for a housing shortage or mortgage boom any time in the next year or more.

JPMorgan may have a case since it's been largely punished for being a bank, while weathering the financial crisis rather well.

Chevron seems plausible to me, especially with oil already flirting with $90 a barrel as I write this. $110 doesn't seem unrealistic.

I'm not sure what the case is for America to make a stunning comeback as a growth economy next year either.

I think he's right about the eventual direction of the economy and housing, I just think he's a couple years premature.


Monday, January 3, 2011

An Easy (and Effective) Way to Time the Market?

There’s a new research story making the rounds lately on many online investing sites. For example, CNBC recently carried a story about the S&P report that states that investors who only bought stocks in the S&P 500 on the last day of the month and sold at the end of the 1st day made 30% more on average (when considering dividends) over the last decade than those who bought S & P 500 stocks on December 31st, 1999 and sold December 1, 2010.

What explanation could there possibly be?

Well, the explanation seems to be that the retirement and pension plan administrators often dump lump sums of investors money (company matches, and that sort of thing) into mutual funds and stocks at the beginning of the month. That, of course has the effect of causing demand - and prices - to surge when compared with other times of the month.

What should investors make of it?

If you ‘re a day trader, you may have just found the easiest day of the month to do your work. But for most small investors, I doubt it really matters much since it would generate excessive trading fees and commissions, and probably create even more work at tax time. But if your in control of when you make contributions to your retirement plan, or investment account then it may make more sense to save up your investment cash until the last day of the month, at least that way you’d capture some of that surge, although you wouldn’t always be able to hang onto the gain the way selling on the 1st would lock in your gain.

On the other hand, will this strategy remain effective once news filters down and more investors start trying to capitalize on it? If enough individual investors start trying to capture these gains, it could alter the system such that the last day of the month would see the surge and anyone buying on that day would start to see diminished returns.