The Online Investing AI Blog

I think Warren Buffett is an interesting guy.

I admire him. I read a few books that were written by him or about him. I believe–at least for my long-term holdings in my portfolio–that the Intelligent Investor, written by Buffett’s mentor, Benajamin Graham, is a must-read.

Over the years, I’ve had some disagreements with Buffett, but nothing to stop me from sitting down and having steak with him.

But there’s one thing that would: paying a million dollars for that steak.

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According to the Wall Street Journal, the government is considering a tax on financial transactions that could raise $100 billion for the government coffers.

This week, the left-leaning Economic Policy Institute floated the idea of a national transaction tax that would raise $100 billion to $150 billion a year. The tax, at a rate of 0.1% to 0.25% of the value of the trade, would be levied on all financial transactions such as stock trades, but not on consumer transactions such as with credit cards.

This will include a tax on your stock purchases. And your stock sales. (In addition to capital gains tax.)

Using a little math, that would mean that there’s $100 trillion in transactions each year. It sounds like another cash cow for the bureaucratic milking. Who will miss a couple hundred billion here or there?

But, as with most things, the law of unintended consequences rules and the question remains, what effect will this have on investors?

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Business Strategy, Investing, Money, Online Investing AI, US Economy economy, government, Investing, investors, overseas, tax

What do you invest in?

Stocks?

Bonds?

Options and futures?

Forex?

Actually, you don’t invest in assets; you invest in yourself. All those assets are just tools to accomplish that. Here are some web sites and blogs that will help you learn about investing and learn how you can create your own investment style and philosophy.

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Business Strategy, Internet, Investing, Money, Online Investing AI, US Economy Investing, investors, week, wisdom, wrap-up

Jenny Downing-Creative Commons

As we develop Automated Trading systems, one of the criticisms I hear frequently is: “Automated Trading will never replace traditional human trading.”

To which I respond, “We’re not trying to replace human trading.”

Trading is more than a way to make money. A lot of people enjoy it, just like people like riding bulls, putting together jigsaw puzzles, playing contact sports, strumming the guitar, and a gazillion other ways to work, play, and create.

Automated Trading can actually augment a traders’ activity. Here’s how:

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Accelerating Technology, Automated Trading, Business Strategy, Investing, Money, Online Investing AI, US Economy Automated Trading, hedge, investors, traders, trading systems

As Automated Trading become more and more popular, it’s interesting to hear people’s ideas and opinions on the matter. Some people think that they have to be perfect in order to be useful. Or, they think that they have to make money on every trade to create value for it’s owner. Or, the Automated Trading systems must correctly determine the direction of the market on a consistent basis.

That kind of thinking is silly when you take a moment to consider it. What trader makes money on every trade? Is it possible to have more losing trades than winning trades and still make money? Absolutely. If your winning trades make more money on an average per trade basis, then it is possible to have more losing trades and still make a profit.

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Everyone thinks you invest in a company, or a commodity, or an options contract, or a piece of real estate, or any of the hundreds of other types of investments.

You’re really not. You’re investing in yourself. You’re just using those assets as vehicles to generate wealth. Wealth that can then be used to improve your life.

In order to make the transition from a wage-earner to someone who is financially free, you have to recognize the power of investing. Investing, when done properly and without emotion, can lead to exponential returns and increased wealth.

Each dollar invested, earns a percentage. Which is then reinvested. And reinvested. Until you have enough money that you no longer have to rely on an outside income. You may not quit your job; but, you know you can.

So what are the keys to investing in yourself?

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A good portion of independent investors are drawn to trading and the market, in general, because they enjoy it. It’s a hobby for many.

But, a vast group of potential investors are left on the doorstep of financial freedom because they believe that it takes special skills and a whole lot of time and effort to become a “trader.” They may invest in a few stocks, but rumors that they will be forced to spend hours locked away with a copy of Value Line and research earnings reports keeps them from actively trading and investing.

With a full-time job and family commitments, time is a commodity they can’t trade.

So, they need someone else to mind their money, they decide.

The financial industry reinforces this stereotype, making it clear that only financial analysts with 120-hour work weeks can understand the market.

But is this true?

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Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI financial industry, financial wizards, investment, investors, Money, technology, trade, traders, trading

It was once true that the only people who made money trading stocks and assets were brokers. There weren’t such things as daytraders and independent investors.

Only brokers had access to the market. And, better yet for them, they had access to your money. Brokers could make money no matter what way the trade was executed. Commissions and fees saw to that.

Then came the internet. And the stock market’s barrier to entry crumbled drastically. Anyone could trade and as the 24-7 approach to the market became more common, people could trade any time they wanted to. Then, new markets opened. Independent investors and traders could trade currencies. They could trade commodities. They could trade foreign desks. They could trade derivatives.

All these worlds opened up. And some traders made a lot of money. But other traders went broke.

Despite the accessibility, traders still had trouble researching and monitoring the all-day, all-night markets. Yet, the myth still persists that only full-time traders have any chance of making money in the market. Here’s why that myth will crumble.

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Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI advanced technology, Automated Trading, investors, traders, trading, trading systems

According to a Northwestern University study, the ability to “buy” contracts on candidates Barack Obama and John McCain led to the correct prediction that Obama would win the presidency.

Here it is:

Political prediction markets — in which participants buy and sell “contracts” based on who they think will win an election — accurately predicted Barack Obama’s 2008 victory. Now Northwestern University researchers have determined that these markets behave similar to financial markets.

However, a problem arises when strong partisanship arises. In the 2000 election, for instance, there was such strong partisan rancor that flawed the prediction model, said Daniel Diermeier, the IBM Distinguished Professor of Regulation and Competitive Practice at the Kellogg School of Management.

“I was happy that we could find an account for this abnormality, given that it made sense in the market,” Diermeier says. “You are trading in a market where you may have a very vested interest in the outcome, which is unlike financial markets, where traders probably don’t have an emotional attachment to the price of gold. In political prediction markets, there can be room for wishful thinking.”

But could this behavior point out a bias in the financial market. A trader may not have an emotional attachment to gold, but may have a dislike of Walmart, let’s say. Or, a trader may not like his or her current financial state, causing the trader to bet negatively. Likewise, a confident trader may bet into a bubble.

Our feeling is that emotions and bias should be understood as factors in price movements, but that an unbiased investment system, if properly trained, could better trade these choppy markets without getting caught up in the wrong positions that are based on the two main biases of investors: fear and greed.

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With the rest of the world and country panicking about the stock market crash and credit crunch, Warren Buffet, the Oracle of Omaha, isn’t.

In fact, in a recent Op-Ed in the New York Times, Buffet says he’s buying stocks. He’s switching his portfolio from holding all Treasuries into American stocks, adding that he expects new profit records to be set in five to ten years.

Why would someone do this? We’re facing a financial “nuclear winter,” as it’s been described.

Because Buffet follows a tenet that Online Investing AI is intrigued by: You don’t follow the crowd to make money, you lead them. Or, as Buffet says:

 ”A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”

This is the ultimate way to hedge: you hedge pyschologically.

Business Strategy, Investing Investing, investor, investors, warren buffet