All Those Earnings and Data and the Market Can't Make Up its Mind

     With all the plethora of earnings, jobless claims, and  other market news, it wasn't the bulls who won today or even the bears-it was the undecideds. Google was knocked down after its earnings miss, and Morgan Stanley rose after its strong beat but the market didn't know what to make of it all and so it barely moved at all. BAC which I continue to go long on basically ran in place-which, of course, eroded the value of all those $17 calls I have on it. With the long weekend, the market hedged its bets

      http://www.thestreet.com/story/12673614/1/market-hustle-stocks-fall-on-mixed-corporate-earnings.html

      So of course, I decided it's not enough to be  long all those BAC calls, now I've gone in for some Citi calls-the May 9 calls with a $50 strike. My reasoning is that many argue that C has a lot more room to run than BAC as it's rallied much less over the last few years and with the strong Monday earnings, this might now convince the bulls that now is the time to own it. 

     I also jumped into the classic 'value' stock-the narrative now is that the Street is jumping out of the 'momentum growth' stocks and into value-so I bought into 20 May 9 calls on JNJ at $101. If all these calls go right-C and JNJ both bounce anywhere near to 2 bucks each in the next few weeks, and BAC can jump just $1 I will be in the sweet spot. If even one of the three happens I'll be in good shape. 

    However, if this is to be the case, I certainly can't afford too many more days like today. When you're playing with options-and I more than play them I nakedly speculate on them-days when the underlying stock doesn't move is not just a wash-if you're not going forward, you're being pushed back by the undertow because time is decidedly not on your side when it comes to options. Everyday closer to expiration and they're worth just that little bit less. 

   I notice my good friend-and former patron, Nanute-came out of semi retirement-from leaving comments here at Diary of a Republican Hater, that is-to raz me on BAC. 

   "This won't help BAC either: "

    http://www.nakedcapitalism.com/2014/04/quelle-surprise-ginnie-mae-says-bank-america-lots-servicing-documents-missing-mers-also-hot-water.html

     http://diaryofarepublicanhater.blogspot.com/2014/04/bank-of-america-sinks-on-earnings-loss.html#comment-form

      Will that prevent the stock from climbing back to $17 in the next few weeks? That's all I care about when I have my investor hat on. 

      I would note though that my entire premise in taking all these market positions is that Sumner is wrong about EMH. 

      "Five years ago I did a post entitled Being There.  I compared Warren Buffett to the character played by Peter Sellers in the famous film.  I pointed out that people tend to be superstitious.  They don’t accept unusual coincidences.  Thus if someone outperforms the market for 20 years in a row, the general view is that it can’t be luck—after all the odds are a million to one against.  People forget that just as someone must win the lottery, in any group of a million investors it is a logical necessity that there has to be one who is luckier that all the others. Here’s a test I proposed back in 2009:

I suppose this should be testable.  If the EMH is correct then the top ten richest Americans should not see out-sized returns, once they have reached that pinnacle of success.  I have no idea whether the data exists to do this test, but is would be a good way of resolving the issue of whether Buffett just got lucky.  When similar tests are done with successful mutual fund managers, it turns out to be merely dumb luck.

    "At the time, many commenters claimed that hedge funds had greatly outperformed the market in recent years, disproving the EMH. It’s well known that hedge funds have since done relatively poorly.  But how about Mr. Buffet?  Here’s the NYT:

A new statistical analysis of Mr. Buffett’s long-term record at Berkshire Hathaway has just been done, and it’s come up with some fascinating insights about his abilities, past and present, and about the chances that the rest of us have for beating the market. Using a series of statistical measures, the study suggests that Mr. Buffett has indeed been blessed with an impressively big dose of alpha over a very long career.

But it also reveals something that isn’t impressive at all: For four of the last five years, Mr. Buffett has been doing worse than the typical, no-frills Standard & Poor’s 500-stock index fund — so much worse that it’s unlikely to be a matter of a string of bad luck. Mr. Buffett has begun to behave like an investor with no alpha at all.

    "Why am I not surprised?  And don’t say, “it’s harder to do well when you are big.” It’s true that it’s harder to do extremely well when you are big, but it’s not hard to outperform the market when you are big, if you truly have “alpha.”  To see why, assume Buffett is only able to find $5 billion in good investments each year, but has $50 billion to manage.  Then put the $5 billion into the good investments, and index fund the other $45 billion.  If he truly had alpha he’d still be outperforming the market

     http://www.themoneyillusion.com/?p=26541

    I don't get it: if Buffett outperforms the market 30 straight years but misses it two years in a row subsequently, this proves it was nothing but dumb luck? If I believed what Sumner believes I wouldn't play at all I guess as basically it would be inevitable that the 'House always wins.' 

      However, what constitutes proof? 

      P.S. Bottom line: Cramer always says 'Bulls make money, bears make money, pigs get slaughtered.' What I say is that bull markets are cool, bear markets are cool-for investing or speculating-but what isn't cool  is one that neither goes up or down. The only people who make money then are the money managers through all the bets that go nowhere.