Stocks and Trading Thread - Channeling your inner Mono

[Admiral Yi]

Pearson ADRs dropped 25% yesterday.  What a shit show.

[Tonitrus]

Fortunately, it doesn't appear to have triggered any of the trailing stop losses I set up just yesterday. 

The TSLA I bought a month ago is doing quite well, however. 

[DGuller]

You know, it seems like mini-flash-crashes are a periodic occurrence now.

It's pretty inevitable with algorithms running the show.  One the one hand they legitimately decrease the friction in trading.  However, that's not necessarily a good thing.  Sometimes you need a little friction to keep things stable.

[PJL]

Yeah, it's like earthquakes. The plate borders that produce little earthquakes every so often may be more 'unstable' but are unlikely to produce devastating quakes. On the other hand, the ones that appear stable are more likely to produce a devastating quake when the tension does become too much.

[Phillip V]

Still patiently waiting on a market dip to buy.  75% of my account is cash! 

[MadImmortalMan]

My best investment of 2016 by percentage gain---Bitcoin. 

I put three hundred bucks worth in a flash drive thingie. Now it's worth six. Maybe tomorrow only two. Who knows.

[Admiral Yi]

Executives at some of the biggest Wall Street banks have sold nearly $100 million worth of stock since the presidential election, more than in that same period in any year over the past decade, according to a Wall Street Journal review of securities filings.

The share sales occurred as financial stocks soared since Nov. 9 on expectations of lighter regulation, lower taxes and pro-growth economic policies. The KBW Nasdaq Bank index is up nearly 20% since Donald Trump's victory, about triple the gains notched by the broader market.

In addition to the share sales, bank executives have sold another $350 million worth of stock to cover the cost of exercising options, filings show. That is twice the amount sold for that purpose at big banks in the year leading up to the election.

An added bonus: The postelection run-up in share prices gave value to some options that were likely to expire worthless. At Goldman Sachs Group Inc., for instance, the postelection bounce turned half a billion dollars worth of stock options into winners -- some just days before they were set to expire.

At Morgan Stanley, Chief Executive James Gorman sold shares three days after the presidential election, the first time he has done so in six years.

Mr. Gorman exercised options on 200,000 Morgan Stanley shares and sold them all at an average price of $37.70 each, filings show. He sold another 100,000 shares later the same month as the stock surged on the back of Mr. Trump's victory, and disposed of a further 285,000 late last week. Altogether, the Morgan Stanley boss realized a profit of at least $8.4 million after taking into account the cost of exercising underlying options.

Further selling may be in store, and not all big banks have filed reports on selling by all their top executives.

What's more, bank employees typically can't sell shares or exercise options in the run-up to earnings reports. The big banks finished posting their latest round of earnings last week, meaning employees will now in most cases be free to sell.

Those sales won't be as apparent, though. Banks only have to disclose trades for a handful of top executives, although some rank-and-file employees are paid largely in stock and options.

Share sales by corporate executives are often viewed by investors as a sign that insiders could be growing wary of valuations or be less confident in an increase in share prices. While that may be the case among some bank executives, the sales also follow a multiyear period in which they largely held on to moribund stock.

Some executives even doubled down during the depths of the postcrisis trough. Chief Executive James Dimon bought 500,000 J.P. Morgan Chase shares in 2012 in the wake of the so-called London Whale trading blowup. Mr. Dimon bought another 500,000 shares in early 2016 as bank stocks were sliding. Mr. Gorman bought $2 million in Morgan Stanley shares in 2011, when the stock was at less than half its current price.

Now, with share prices and valuations rising, executives are acting. At Morgan Stanley, whose shares have risen 23% since the election, executives who have to report transactions sold more than $50 million of stock between Nov. 9 and Nov. 30, filings show. Many were the fruit of options granted to executives years ago when shares were trading at half their current value.

Those options allowed their holders to buy shares at big discounts to current prices. Last week, Mr. Gorman exercised options, granted in 2013, on 285,000 shares that allowed him to buy them at $23 apiece, according to filings. He sold the shares for $42.30 each, the filings show.

For options to be worth exercising, the stock must be trading above the so-called strike price, the level at which an option-holder has the right to buy it.

Before the election, Mr. Gorman had only sold shares to cover the cost of exercising his options, holding on to much of his stock in the process. After the latest sales, Mr. Gorman still owns 1.3 million shares, worth about $56 million. He is required by the bank to continue holding 75% of all share awards as long as he is CEO.

When he bought 100,000 shares in 2011 at about $20.62 apiece, Mr. Gorman planned to sell them if and when the share price doubled from that price, which it did just after the election, according to a person familiar with his thinking.

Morgan Stanley shares ended Monday's trading at $41.96, slightly below their postelection peak.

J.P. Morgan executives who have to report the transactions collectively sold $20.5 million worth of shares since the election, filings show. At Goldman Sachs, executives of a similar level let go of nearly $25 million worth oftheir firm's stock.

Some of the selling at these banks has been from executives who have announced their retirements, including Morgan Stanley Chief Operating Officer Jim Rosenthal and Goldman Europe head Michael Sherwood. Other trades are pursuant to prearranged plans that schedule trades for certain times or price triggers. And some have occurred as once-worthless options gained value. In late 2006, Goldman CEO Lloyd Blankfein and other top executives were granted options with a strike price of $199.84 that would expire 10 years later.

By November 2016, with the expiration date approaching, Goldman shares were nowhere near $199.84. The week after the election, though, Goldman shares jumped above $210. The bank's shares ended Monday's trading at $232.67.

Six current Goldman Sachs executives, as well as board member and ex-finance chief David Viniar, exercised 983,000 options, filings show. That represented about $200 million worth of shares.

Without the Trump boost, those options likely would have expired worthless.

Another chunk of options set to expire later this year also have been pushed "into the money." All told, since the election, Goldman executives became eligible to buy at least $500 million worth of stock at below-market prices after a 33% rise in the share price.

There is one potential downside to the bank-stock rally: Firms recently awarded 2016 compensation based on stock that is suddenly higher in value, meaning employees received fewer shares or options that have higher exercise prices.

[MadImmortalMan]

Jan 24, 2017    25.59 estimate
Jan 1, 2017    25.54
Jan 1, 2016    22.18
Jan 1, 2015    20.02
Jan 1, 2014    18.15
Jan 1, 2013    17.03
Jan 1, 2012    14.87
Jan 1, 2011    16.30
Jan 1, 2010    20.70
Jan 1, 2009    70.91
Jan 1, 2008    21.46
Jan 1, 2007    17.36
Jan 1, 2006    18.07
Jan 1, 2005    19.99
Jan 1, 2004    22.73
Jan 1, 2003    31.43
Jan 1, 2002    46.17
Jan 1, 2001    27.55
Jan 1, 2000    29.04
Jan 1, 1999    32.92
Jan 1, 1998    24.29
Jan 1, 1997    19.53
Jan 1, 1996    18.08
Jan 1, 1995    14.89
Jan 1, 1994    21.34
Jan 1, 1993    22.50
Jan 1, 1992    25.93
Jan 1, 1991    15.35
Jan 1, 1990    15.13
Jan 1, 1989    11.82
Jan 1, 1988    14.03
Jan 1, 1987    18.01
Jan 1, 1986    14.28
Jan 1, 1985    10.36
Jan 1, 1984    11.52
Jan 1, 1983    11.48
Jan 1, 1982    7.73
Jan 1, 1981    9.02
Jan 1, 1980    7.39
Jan 1, 1979    7.88
Jan 1, 1978    8.28
Jan 1, 1977    10.41
Jan 1, 1976    11.83
Jan 1, 1975    8.30
Jan 1, 1974    11.68
Jan 1, 1973    18.08
Jan 1, 1972    18.00
Jan 1, 1971    18.12
Jan 1, 1970    15.76
Jan 1, 1969    17.65
Jan 1, 1968    17.70
Jan 1, 1967    15.30
Jan 1, 1966    17.81
Jan 1, 1965    18.76
Jan 1, 1964    18.78
Jan 1, 1963    17.68
Jan 1, 1962    21.25
Jan 1, 1961    18.60
Jan 1, 1960    17.12

The really high numbers in the crash years must be from earnings cratering faster than the market. Tends to peak in the high 20s otherwise. Stocks are not a bargain right now.

[Admiral Yi]

I wonder if some of that is explained by the high valuations of start ups with zero earnings.

I'm also curious if losses get included in the denominator or they're just zeroed out.

[Phillip V]

I wonder if some of that is explained by the high valuations of start ups with zero earnings.

I'm also curious if losses get included in the denominator or they're just zeroed out.

The latest rally has been based on Trump winning, not any fundamental revenue and earnings growth.

[Admiral Yi]

The latest rally has been based on Trump winning, not any fundamental revenue and earnings growth.

It has been based on the expectation of future earnings growth in certain industries that could benefit from reduced regulation and the expectation of increased demand from deficit spending.

[alfred russel]

The really high numbers in the crash years must be from earnings cratering faster than the market. Tends to peak in the high 20s otherwise. Stocks are not a bargain right now.

You are going back to 1960. There is no reason to believe that PE ratios should be all that comparable.

-interest rates are considerably lower they they have been over the bulk of the period, and that results in naturally lower discount rates and higher valuations.
-We have shifted away from a manufacturing and brick and mortar retail based economy. In those types of industries, investments tend to be capitalized and don't depress earnings until future years. For service oriented companies, investments are often immediately expensed or only can be capitalized for short periods. Thus even with the same growth projections and cash flows - and hence valuations - the service oriented company will likely end up with a higher PE ratio.

[DGuller]

Are P/E ratios adjusted for dividends in any way?  And does it matter, or does the math somehow wash?

[Admiral Yi]

Are P/E ratios adjusted for dividends in any way?  And does it matter, or does the math somehow wash?

What do you mean?  Earnings are divided into retained earnings and dividends.  Dividends are a subset of earnings.

[DGuller]

Are P/E ratios adjusted for dividends in any way?  And does it matter, or does the math somehow wash?

What do you mean?  Earnings are divided into retained earnings and dividends.  Dividends are a subset of earnings.

I'm thinking about their effect on the P part.  When you pay out dividends, your P goes down.