There are many different methods to try to make money on the stock markets, this blog believes investing in the best companies that are profitable and pay a dividend particularly when they are lower in value and holding them as their rise back to normal and beyond EPS multiple is one of the easiest and best methods. However, the most profitable stocks means a concentration on a narrow minority of the stocks traded on the exchange. There are a wide range of ideas and theories how to capture those capital gains which are offered. One example is book written by Edgar Perez called The Speed Traders published by McGraw Hill, NY, 2011. The Speed Traders help add volume to the total number of shares traded and if they computer programs are near correct – they will have bought and sold the shares on the same day and tried to make a penny or two or three on each trade. The idea is to start each day fresh or with a clean slate – if they make a little money and have very low commission rates then doing thousands of trades on a daily basis adds up to profitable days. The High Speed Traders constantly influence the market but are no means the biggest players or the most influential, however the operators of the exchanges which make money based on the number of shares traded, need to constantly upgrade for the needs of high speed traders. The belief is the faster the trade reaches the market, there is a slightly pause where money can be made and is made, which is why their operations tend to be near the data centers of the exchanges. If you are an average person, you do not compete with the high speed traders because your connection to the market is slightly slower and for only a few cents on low volume it does not make any material difference. If you have thousands of trades the connection does make a difference. All of the players of the firms interviewed noted whatever advantage you think you have, you better believe the competition has the same advantage. This means while it is possible to build programs which are successful, there are more variables in the market to take into consideration which means the program needs to be constantly tweaked to stay  successful. That said, there is money to be made but it is not as simple as noting the statistical inefficiencies in the market, it is finding methods to make money from them.

Linking to dividend paying stocks, when you look at the owners of the stock many have different reasons for owning it which is why there is a the market. Someone will buy and hold; someone is looking for a quick buck; someone will buy because they like the name; or it is recommended; or it is part of the hot part of the market; or it is not part of the hot part of the market; it is being hedged; it is not being hedged. The only common thread is the idea the stock may or should go higher. The multiple reasons for holding means it is possible for statistical inefficiencies to result. If you pick a profitable company which is trading less than its peers, the stock should trade similar to its peers, of course there are likely reasons why it is not. One method to get around it is see if there is a dividend being paid, at least you will receive income as the stock slowly or quickly moves to where it should or is expected to be trading at.

There are more questions than answers, till the next time – to raising questions.