The Competitive Edge

A New Investing Era - High Frequency Trading 
     Investing has indeed changed from the sites and sounds of the New York Stock Exchange. Instead the mix between home traders, office traders, and high frequency computer specialists have conquered the market place and are here to stay. The average trader sits with two or three computer screens constantly marking tickers or analyzing a chart. For an investor at home, they seem to be largely out of the mix. CBS's 60 Minutes a couple weeks ago had a segment on high frequency trading that caught the attention of most media outlets. The report showed how hundreds of millions of dollars could be moved and traded milliseconds before the average investor could put a stock order in. Thus, the value of a few cents a second could add up to a large profit at the end of a year or so. Investing itself takes time and diligence and to know that after a long heavily thought out decision could get undermined by someone else's click of a button is down right upsetting. Even though the effects of high frequency trading on  the average investor  is debated, it still could be a cause for concern for the average investor. Understandably, high frequency trading accounts for a majority of volume for today's markets, and so it is here to stay.

The New Normal - Earnings vs. Hype 
       The markets have prospered on a long lasting bull run from the 2009 lows, but most analysts have expected a pullback of at least 10%. We still have not gotten that 10% yet. We had a 7% pullback in late January, but other than that this bull market has been excelling. 2014 has so far been a bumpy start especially after such success from the markets last year. The markets have either dipped a little, or just stayed relatively flat for most of 2014 so far. Now, was 2013's market run on hype or on earnings? Well it was a mix of both. But do not get ahead of yourself, the market hype was real. Many stuffed their money into Biotechs or even newer industries like 3D printing. In the great run we had last year it seemed hard to tell when these stocks were going to slow down, they were getting higher and higher and it seemed like the gains on some stocks were outrageous. Celgene, one of my stock picks in the beginning of last year was on fire. Now it seems reality has hit. Many investors realized there gains were to good to be true and sold out at the end of 2013; a smart choice. Celgene now is down 17% this year. This is where the hype ended. In realization, both Biotechs and 3D printing stocks as well as a majority of the market, were trading well above earnings. Sound investors would show you red flags immediately after looking at those companies earnings compared with their share value. This is where the debate comes in.

The Competitive Edge
       The debate of sound tactic investing and hype seems like it would be a no brain solution. When actually looking in depth, both have their advantages and disadvantages. Sound investing tactics, looking through fundamental values, companies balance sheets, and other Benjamin Graham like strategies would be a safe way to invest. But in 2013, this way would not give you certain outrageous gains like in the case of Celgene's 117% gain. In contrast, the major US indexes averaged around a 30% gain for the year. 30% in one year is quite impressive and even sound investments could beat the market, but the investing hype would've gotten you even better gains. So where's the debate? Well the sound investors would look at the certain companies and through fundamentals come to the conclusion that the stock is trading far above its earnings. While the hype of other investors would look at the momentum of the stock and buy it. The new era investor would win round 1. Well what about getting out of the market? Investors should realize that 30% gains in 2014 will not come so easily, instead allocating their money elsewhere will not only provide better gains, depending on where you move it, it will save you from a correction. This is where the growth stocks of 2014, so far, have proven to be wrong. As I said before Celgene is down 17%, as well as other Biotech companies, selling off at the years end would've been the smart choice, and if you stayed in thinking for more gains, you were proven wrong.

      In conclusion, sound investors and investors playing off of momentum both have their advantages as well as their disadvantages. Playing both earnings and momentum is the best decision possible, and fundamentals should always be factored in when making investment choices. Where sound investors win, is when they can realize to go against the public opinion and go off of fundamentals to save their profits, instead of riding the ups and lows of today's markets, they have already moved on to allocating there investments elsewhere to save their money, or gain more profit. In the end, every investor will find their niche, whether it's high frequency trading, small caps vs. large caps, momentum, or following what the experts say, everyone should play there niche to their advantage. Invest with Care.