how big an APPLE can be?

want to know how much you contribute to apple by buying iphone, ipad and mac air?
read below:

Apple as Big as Europe's 32 Top Banks—Combined

Published: Friday, 19 Aug 2011 | 12:00 PM ET

By: Reuters

Technology giant Apple [AAPL  356.03    -10.02  (-2.74%)   ] is now worth as much as the 32 biggest euro zone banks.

That's the stark result from a steep fall in the share price of banks including Spain's Santander [STD  8.72    -0.37  (-4.07%)   ], France's BNP Paribas [BNP-FR  32.75    -1.46  (-4.27%)   ], Germany's Deutsche Bank [DB  38.44    -1.46  (-3.66%)   ] and Italy's Unicredit [UNCFF  1.32    -0.08  (-5.71%)   ], compared to a steady rise in Apple's valuation, according to Thomson Reuters data.

Earlier on Friday the DJ STOXX euro zone banks index fell 4 percent, valuing its 32 members at $340 billion. That's based on the market capitalization of their free-float shares, which for some French banks in particular is less than 100 percent.

The index has crashed by a third since the start of July, hammered by fears banks will lose billions from their holdings of euro zone government bonds and a failure of policymakers to stop a euro zone debt crisis from spreading.

The euro zone banks have lost three-quarters of their value since peaking in May 2007.

In contrast, Apple's market capitalization has soared to $340 billion on the back of the success of innovative technology products like iPods, iPhones and iPads.

FEAR & possibly Overreaction

another one from CNBC:

What Traders Are Saying: Uncertainty Stalks London

Published: Friday, 19 Aug 2011 | 10:14 AM ET

By: Matthew West and Katy Barnato
Associate Editor and Assistant Editor

Traders in the City of London, one of the financial districts of the UK capital, see a market environment where trust has all but evaporated and the best course of action is often, in the words of many spoken to by CNBC.com, to do absolutely nothing at all.

After three days of relatively slow trade more typical of August, markets plunged on Thursday and again Friday, with European shares suffering their biggest drop in nearly three years, as market volatility across the globe continued to threaten widespread panic.  

A trader who identified himself only as Graham said between sips of beer in a Canary Wharf pub that the prevailing attitude in his workplace is this:

“The best bet right now is to do nothing. Every time you put risk on, you lose money. Every time you take risk off you lose money. You’re better off going away on a nice long holiday and hoping the fuss has died down by the time you come back. You’re also serving your clients better by doing nothing—although they won’t see it like that, and neither will the bank, and it’s not exactly what you get out of bed and go to work for.”

RELATED LINKS

Current DateTime: 10:06:31 19 Aug 2011
LinksList Documentid: 44202297

• When Everyone Is Selling, Is It Time to Buy Stocks?
• 'Unmitigated Bear Market' Will Continue: Dennis Gartman
• US Can Recover 'Extreme Action' Needed In Europe: Economist
• Is This Lehman Again? No, But It Sure Feels Like It

Those sentiments were echoed by other traders who shared their feelings with CNBC.com, including one who suggested he might not re-enter the market this year at all.

“I am biding my time," he said. "I won’t re-enter the market before January or February—maybe March. I don’t have the heart for it, with markets rising and falling 500 basis points at a time. I am superstitious, and after a loss, I need a gain to be double the size of that loss, to maintain mental equilibrium.

“I don’t think there’s any more bad news coming—like the S&P downgrade for example—but I think the bad news we have already had needs time to crystalize. I think things will start to settle down in September or October ... At the moment, I’m sitting with my hands under my thighs [to prevent himself from making trades].

“July and August are always quiet months, with European countries like Italy on holiday for a whole month," he said. "I think markets would be going down anyway, but the lack of liquidity available is exaggerating the downward impact of bad news.”

Other traders told CNBC.com of their fears over what the future would bring, including the threat of a US recession, slowing demand from China or another sovereign debt crisis in Europe.

“The second half of the year is going to be awful. I’m actually very positive in general, and never really thought about confidence, but I don’t want to go out and buy anything, because I’m worried about my job,” Siamek, a trader at a large investment bank, explained.

“The way you act is based on how clear the future is to you," he continued. "At the moment, there are too many uncertainties that you don’t really have the confidence to do anything about it.

“The fear factor is definitely there. There’s the S&P downgrade and then there’s China to worry about and what happens if the Chinese economy slows down because that hurts global demand and a slowdown in global demand hurts Germany so that’s something  to worry about as well,” he added.

What also concerned Siamek was the lack of political leadership on issues that were clearly creating much of the volatility. He argued that markets knew Germany could never let the euro fail as a currency, as its own economy’s future was directly tied to the fate of the euro.

“Germany needs the single currency in order to export, so it will do anything to save the euro. Simple as that. Germany will do whatever it takes to save the euro,” he said.

He added the markets needed to see decisive action from northern European nations, but suggested a euro bond was not the answer, preferring a two-tiered Europe over greater fiscal and political union , which he believes would take far longer to achieve.

The level of fear in the markets is such that traders are even asking their fellow bond traders for half a basis point on top of the yield for 20-year German bonds before they're willling to buy, according to one bond trader.

“It’s a nightmare out there at the moment. You have guys that are haggling with you over a 20-year German bond, and they’ll mark the price up half a point from the screen. So you’re looking at the screen and you know the price, but they’re still asking for an extra half a point. That’s how little confidence there is,” he said.

The bond trader, who wished to remain anonymous, added that “across the board” traders were taking risk off. 

“No one is putting risk on, no one is doing anything unless they’re covering a short," he said."People won’t bid on stuff."

“There’s a ton of volatility in the market, and there’s hardly any liquidity, and there’s a bunch of  (junior traders) who are too scared to buy or sell and don’t act because the senior brokers are on holiday and they don’t want to get into trouble for making the wrong decision.

 “When the market is down like today [Thursday] it could be a buying opportunity, but the junior brokers don’t want to get in the market with so little liquidity in case it goes wrong and they lose money,” he added.

What many complained about was also the lack of real information available. Traders told CNBC.com that speculation was being reported by the news media as hard fact, which was only helping to push volatility further. They added that a lack of fundamentals is also hurting market sentiment.

The recent—and as it turned out unfounded—report that French bank Societe Generale was so exposed to Greek sovereign debt that it would need to be rescued by the French government was one particular example that traders repeatedly cited.

“The markets are reliant on the information that they get," one trader said.

“If that information comes from the Financial Times, then it’s already priced in but look at the rumor about Societe Generale that came from the Daily Mail and turned out to be nonsense. That caused chaos, and at first the Daily Mail said they had a source and then had to come out and say, ‘actually we don’t have a source.’”

He added that such was the fear of the next news story and traders' general mistrust of the information they're receiving, that they're turning to Twitter to help them make decisions.

“Traders are using Twitter for information because traders will communicate with each other over Twitter and you can reach a whole group of people with one tweet -- it saves on texts. Work can’t stop you because it’s a private communication. If you look for one of the highest trending topics last week on Twitter one of them was SocGen because all the traders were using Twitter to talk to each other and get their information.,” he said.

However two equities traders who spoke to CNBC.com had a more sanguine view of the markets. “It’s probably just a crazy August. There are a lot of junior traders who can’t make decisions,” one said.

Meanwhile, the other summed up his advice like this: “Hold commodities, gold as a safe haven and invest in emerging markets, but if Chinese demand collapses, then it’s the end for commodities.”

EUROPEAN TURMOIL

a very good article from CNBC:

Europe's Debt Crisis Won't End Until Greece Defaults

Published: Friday, 19 Aug 2011 | 1:42 PM ET

By: Jeff Cox
CNBC.com Staff Writer

Allowing deeply indebted European countries the chance to restructure their obligations seems to be the most direct approach to resolving the problem, yet has been met with resistance that likely will only prolong the crisis.

The reason: What once was thought to be a minor problem involving only some smaller peripheral nations in the European Union is now increasingly being recognized as a global train wreck about to happen.

"The problem in Europe is that the banking and national interests have been uncommonly incestuous over the years with banks in France owning the debts of companies in Spain and Spanish sovereign debt, while the banks in Spain own the debts of French companies and the French sovereign," Dennis Gartman, hedge fund manager and author of The Gartman Letter, wrote Friday. "In that environment, as one area of the economy contracts, others do also in a rush to liquidity and to the detriment of all."

The eurozone debt dilemma has been one of the root causes of market turmoil over the past two months, even though the problems have been known since at least early 2010.

Until recently, the popular narrative was that the debt burdens in smaller nations like Greece and Italy would be contained and not cause widespread contagion. That belief, though, has waned amid revelations that some European Union banks are having trouble raising capital. The ability to raise money would be critical in the event of defaults, as banks holding the restructured debt would have to recapitalize.

Suddenly, a problem that looked small and manageable now has much broader implications.

"We are finding out here that all economic activity requires a leap of faith and a sense of psychological assent that can shred at a moment’s notice, taking the cloth of society and tearing it asunder," Gartman said. "This is the perfect storm of a crisis of confidence and at the moment all confidence is lacking and waning."

Dual reports this week indicating that a European bank had borrowed $500 million from the European Central Bank, and that the Federal Reserve was looking into the stability of the EU financial system, helped shake confidence further.

RELATED LINKS

Current DateTime: 10:44:24 19 Aug 2011
LinksList Documentid: 44205305

• Europe Needs 'Extreme Action'
• Like Lehman Again?
• Euro Debt Roils Markets

The market already had been in the midst of a seven-week rout fueled by the stalemate in Washington over the debt ceiling and concerns that the US was heading back into recession.

The overhang of the eurozone crisis has fueled anticipation that economic problems are accelerating—and is drawing calls from numerous quarters that the EU stop denying the severity of the debt problem and start employing solutions.

The idea is that once Greece defaults the country, and others in the same boat, will be able to restructure their debts in an affordable manner. While the cascading defaults will cause pain, they also will pave a way back to stability for the indebted countries.

"How does this thing end? It ends when the politicians stop kicking the can down the road and they allow Greece to default and they allow Greece to exit the euro," William Browder, CEO of Hermitage Capital Management, told CNBC. "At the end of the day, I don't know how many cans they're going to kick down the road."

The extent of contagion from allowing a default, though, is an unknown, making employing a solution elusive.

One estimate is that the ECB has a 444 billion-euro ($634 billion) total exposure to the peripheral PIIGS—Portugal, Italy, Ireland, Greece and Spain.

On the US side, domestic banks have little direct debt exposure to PIIGS debt but they do have counterparty risk to European banks, which analyst Dick Bove at Rochdale Securities recently put at just over $190 billion, including about $10 billion from Greece.

Greece has gone to the ECB for about 60 billion euros in funding to cover a loss in private-sector deposits. However, Italy also has sought funding even though it has suffered no drop-off in deposits, a move that added to the mystery of how deep the debt problem runs.

"The latter is also the key reason why the Italian crisis has triggered global risk aversion and stressed other markets as well," analysts at Bank of America Merrill Lynch said in a note.

That stress is likely to continue until policymakers are willing to grapple with the difficult decisions that ultimately will have to be made.

"We hear rumors of problems in funding, on the part of various European banks, from the largest to the smallest and we do not doubt that for a moment," Gartman wrote. "Of course some banks are finding it difficult—if not nearly impossible—to fund themselves. We are at that moment in time when the strangest things take place."

Economic Benefits of Intervention and QE3

How do you reap economic benefits for your country? By intervention of the political structures of other countries.

Many totalitarian regimes are backed by US aid or donations if they support US regional policies. Although the USA advocates democracy yet they always turn a blind eye to the governance of such rulers.

These regimes, many of which, have fallen by the wayside over the years – Shah of Iran, Marcos of Philippines, Noriega of Columbia and Mubarak of Egypt in modern times are good examples. 1973 is the year when oil prize quadrupled to USD34 per barrel, Shah fell in 1976. 2008 is the year of the once a century credit crisis, 2011 is the year when Mubarak fell. Marcos fell in 1986, one year after 1985 [the plaza accord] when USD reached its peak. Each fall happens after the US economy reaches a top, are their falls caused by the tide or by plan? History indicates that it could be both.

After each fall, US assets of these rulers are usually freezed. Although you can say new governments will be formed and will launch their search of state assets siphoned off by these rulers and then put forward such claims to the USA, the US government will send them back without hesitation, the reality is much more complex. How about when one government in the past is now split into two or more governments, do you need agreement between these new governments to launch concerted claims against such assets? Do not forget the US legal system involves considerable costs and also the US government does not volunteer such information. Along the way you need US accountants to forensic track and trace such funds’ whereabouts, draw up the claims list while US lawyers are required to represent the new regime[s] on such claims in courts.

When assets are freezed by US state department, the following parties will benefit:

• Banks or financial instutitions – gets something like interest free bonds or perpetual capital for 10, 20 or 30 years as the amounts banked by these rulers are huge even by bank standards. Depending on when such claims are launched and processed, the assets can only be unfreezed after a long and winding claim process, it’s not easy.
• Law firms – representing the new government(s) on such claims resulting in good honest fees;
• Accountancy firms – draw up the assets list, helps track and trace the funds’ whereabouts charging their clients huge fees along the way.

How much will the US benefit if China falls and split into many countries – HUGE, HUGE!!! China has 1000+ billions invested in US government treasuries and bonds of government sponsored agencies like FREDDIE and FANNIE. Imagine if China does fall, then the deficits or debts of the US government will go away for 10, 20 years at least, this can buy time for the US to recover.

If you are wondering whether QE3 is going to happen, look at what is happening now in Libya, QE2 is suppose to create inflation to avoid the USA falling into deflation [which increases the debt burden while inflation helps alleviate it], getting Libya into chaos has a QE3 effect, crude prices have shot up USD20 from about USD90 to what is now USD110+. Such policy drives up a lot of activities to explore and dig up crude oil, USA will hit the bottom faster, after the USD devalues so much, goods from the USA become much more competitive. Higher crude prices is the policy against China as it will hinder fast development in this emerging country and also generates a lot of social unrest within China.

2011 and US HOME PRICES

2011 maybe prosperous, but behind you must beware of both europe and us malaises.

read this article and you know where to search for the end of us troubles.

December 30, 2010

U.S. Home Prices Are Still Too High.

Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today's already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders "underwater." As a result, the trajectory of home prices has tremendous economic significance.

Earlier this year market observers breathed easier when national prices stabilized. But the "robo-signing"-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.

Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.

By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that mandated loans to marginal borrowers, and set off a national mania for real-estate wealth and a torrent of temporarily easy credit.

If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book "Irrational Exuberance," Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and '60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late '90s.

In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.

How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer's tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.

Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.

With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.

From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.

In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.

Related stocks: Lennar Corporation (NYSE:LEN) , D.R. Horton, Inc. (NYSE:DHI) , PulteGroup, Inc. (NYSE:PHM) , Toll Brothers, Inc. (NYSE:TOL) , Bank of America Corporation (NYSE:BAC) , Citigroup Inc. (NYSE:C) , Wells Fargo & Company (NYSE:WFC) , Morgan Stanley (NYSE:MS), Fifth Third Bancorp (NASDAQ:FITB), SunTrust Banks, Inc. (NYSE:STI), iShares Dow Jones US Home Const. (ETF) (NYSE:ITB)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

Trading strategies

other good articles:

Combining Trend-Following and Countertrend Indicators

http://www.investopedia.com/articles/trading/10/trend-following-countertrend.asp

Profit Without Predicting The Market 

http://www.investopedia.com/articles/trading/10/profit-without-predicting.asp

Stop Hunting With The Big Players

http://www.investopedia.com/articles/forex/06/StopHunting.asp

Trading referee to improve your performance

a good article from investopedia.


One of the most talked about traits that traders need is discipline. Discipline is a quality that can be created by the individual internally, but can also be fostered by an external source. All traders will benefit from increased discipline, as being able to stick to a profitable strategy is what will allow them to be successful over the long term.

Also, being disciplined in following a particular method of trading will allow the trader to know when a method of trading is or isn't working. Every investor must follow their specific trading strategy rather than just speculating without a solid basis. If a trader lacks discipline and consistently flip-flops between methods, it is very hard to isolate which methods are successful and which aren't. This is where the "trading referee" comes in. The referee is an external entity that forces us to comply with our methods. This makes us more accountable to our own system, and does not require the hard internal work which may be needed in order to change our normal personality. (Do-it-yourself trading can be very rewarding - both psychologically and for your wallet. For more information, see Create Your Own Trading Strategy.)
What is a Trading Referee?It can be anyone in our life whom we trust and whom will hold us accountable for our actions. This person needs to be someone who will not accept excuses for us not following the determined approach. In other words, a referee cannot be someone who is a push over, will be biased or always agree with you, or someone who is not responsible enough to check on your trading. Essentially, the referee serves as system of checks and balances for our strategy.
The referee's aim is to make sure that you, the trader, are following your trading plan. Your trading plan should be a method of trading which is tested, consistent and proven to be profitable over the long run. Therefore, it is a referee's goal to make you follow that system, thus helping ensure your long-term profitability. It is a requirement that the person be able to see you trade (or have access to your trading records). Going through results should be done together; this again will require trust on the part of the trader.
A referee, whether it is a friend, a spouse, colleague or girlfriend/boyfriend, will make you answer for the decisions you are making. They will force to answer why you are taking certain actions, and how those actions relate to your trading plan. When you stop following your trading plan under your own will, this person is there to give you support and make sure that you do not deviate from the initial goal. After all, this is not about the trader proving he or she is right, it is about being profitable. (From picking the right type of stock to setting stop-losses, learn how to trade wisely. Read, Day Trading Strategies For Beginners.)
"Create" Your Trading RefereeIt is important that this individual understands capital markets and the basics of investing. As well, your trading referee will need to know about your methods for trading. Here are some steps to follow to make sure your referee will actually make you follow through with your trading plan. (A successful trading referee must be familiar with concepts such as risk. To learn more, refer to Matching Investing Risk Tolerance To Personality.)

• Approach or ask someone you think will be a suitable candidate. This should be someone you see regularly, preferably while you are trading, or who you can sit down with on a regular basis to go over your trades. You can also serve as the referee for your overseer - such a method ensures constant interaction and proper process evaluation.
  
  
• Make sure that person knows that it is imperative for him to question you on your trades and to ask why certain actions are being taken. This makes another person feel responsible, therefore it does help if this person has an interest in your success.
  
  
• Fill in the referee on your trading method and why it works. Simplify your methods for them so that they can see how the method works, the logic behind it and the sequence of events that must unfold for you to enter, set stops, take profit and then exit.
  
  
• Take a proactive approach and share your trading time with your referee. Having the person review your trades with you afterwards is more reactive and, while effective, does not prevent the deviations from the trading plan at the time they are occurring.
  
  
• Set up a rewards and punishment. Having someone look over your shoulder may be motivation enough to follow your own trading rules, but sometimes a little extra incentive may do the trick. Often, the incentive for following a plan is the money made; therefore, we need to be creative in finding ways to punish ourselves for not following the plan. One idea is that you need to give the money you make on winning trades, which were not based on your plan, to your referee. This works because you should have never been in the trade in the first place, and it takes away the incentive for making trades which are not included in your desired strategy. Be creative and come up with a structure for dealing with all contingencies.

Professional traders are forced to answer to other traders and superiors for the actions they take. This results in a much more disciplined environment. It is the responsibility of the firm (and the trader) to make sure that traders are following the methods outlined. When traders deviate, there are consequences. For individual traders, having a referee simply allows performance with the same discipline promoted in successful trading firms.
ConclusionTrading is a tough game, especially when we go at it completely alone. It can be of benefit to invite someone else into our trading experience who will force us to comply with our own methods. The benefits are numerous, not the least of which is the proper execution of a profitable trading plan we took the time to research and develop. (This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation. See 4 Steps To Building A Profitable Portfolio.)

Young chaps must read

http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf

this is a very good ebook for young chaps.

Why Investors Stick With Failing Stocks

this is one good article about sticking with failing stocks.

For many investors, nothing is stronger than the stubbornness that emerges when making a new decision means admitting that an earlier one was a mistake. Such an admission comes at a high psychological cost in terms of self-image. As a result, many people avoid disappointment and regret by clinging to the wrong decision. 

Of course, this only makes things worse financially, but the investor gets to delude himself that the disaster is not really so bad or will come right over time. Such behavior is referred to as "negative perseverance" or "regret avoidance", and is also likened to "effort justification". Whatever the name, this behavior needs to be avoided. The concept of cognitive dissonance will be familiar to those who have studied marketing. Buyers often rationalize that they bought the right product after all, even when, deep down, they know it was a mistake. For instance, a buyer may seriously regret buying a manual car, but kid himself that it was great idea because of the lower gas bill.
The field of investment is particularly prone to this kind of mind game. (To learn more, check out our Behavioral Finance Tutorial.)
Why Do People Behave This Way?
Basically, the investor unwittingly has a greater fear of admitting to himself and perhaps to others, that he made a mistake, than of the consequences of keeping a bad investment. This very dysfunctional form of behavior, caused largely by pride or stubbornness, leads either to total passivity or to selling too late.
Individuals strive for harmony and consistency, hence the notion "if I just leave it alone, it’ll be ok". The problem is that when investments go wrong, particularly horribly wrong, radical and above all rapid action is generally essential. Taking losses or a major portfolio restructuring often causes the mental conflict of cognitive dissonance. This is a singularly unpleasant state of mind and can be resolved very unsatisfactorily, by collecting arguments to justify the original mistake that has now manifested itself in the form of big losses. (For more, see Words From The Wise On Active Management.)
With respect to investment, this means, for instance, clinging to an all-equity portfolio which is in the process of plummeting, rather than selling out in order to minimize losses and putting the money into something else that is likely to go up right now. Or at least, something that is likely to rise a lot sooner than the bear market turning bullish.
The Nature of Cognitive Dissonance
On the buyer side, what makes the process particularly problematic in the investment field, is that there is a lot one can regret. You can fret and sweat over losses caused by taking excessive risk, or lost opportunities caused by not buying a great asset in time. You can also torture yourself about selling too late or not buying enough, or listening to your advisor or friends, or indeed not listening to them. In short, you can be sorry about so many things in so many ways.
On the selling side, people who do not treat their customers well still generally want to believe that they are honest. But at the same time, they want to make the sale. So they solve the contradiction with self delusion along the lines of "I have no choice, I will lose my job if I don’t make the sales quota" or "if he agrees to it, it's his decision and his problem". Or "it’s a perfectly standard portfolio", even when it is totally unsuitable for the investor in question and/or the timing is inappropriate.
In extreme cases, the Bernie Madoffs of this world get accused of suppressing their emotions and ethics altogether. Indeed, this is how many intrinsically honest people cope with dishonest environments. (Learn more in How To Avoid Falling Prey To The Next Madoff Scam.)
Preventing Cognitive Dissonance
A sensible, diversified portfolio is a great way to prevent this problem. If you do not have too much or too little of anything, the odds are you will feel all right about your investments. Of course, if you take big gamble and it pays off, you will feel wonderful, but if it goes sour on you, there will be a lot of misery and rationalizing, which is just not worth it for most people. Balance, prudence and a good mix is the only sensible approach for the average investor. And as always, shop around and inform yourself fully before you buy. Do not rely more on other people than you have to. (For more on this topic, see Diversification: Protecting Portfolios From Mass Destruction.)
Be sure that you understand what you are doing and why. No self-delusion up front will help prevent the "need" for it later on. Never try to fool yourself or anyone else. We all make mistakes and the only thing to do is get them right. The worst thing you can do is pursue a lost cause, to continue flogging the proverbial dead horse. It is important to take a step back and consider the whole process objectively.
On the selling side, the same basic principles apply. Resist the temptation to sell things that should not be sold. It may be a good idea to offer a fee-only service, which yields no commission at all. Your customers will be grateful and there will be no nasty comebacks and complaints. Everyone will sleep better, the world will be a better place and over time, this will surely pay off financially as well. (For more, see Paying Your Investment Advisor – Fees Or Commissions?)

by Brian Bloch (Contact Author | Biography)

Causes of FLASH CRASH - May 2010

For those of you who wanted to understand how hedge funds or ibanks manipulate markets, read article below:

"Quote stuffing" a focus in flash crash probe

WASHINGTON/NEW YORK (Reuters) – U.S. regulators probing the May flash crash are focusing on a trading practice known as "quote stuffing", in which large numbers of rapid-fire orders to buy or sell stocks are placed and canceled almost immediately.
CFTC commissioner Scott O'Malia told Reuters on Thursday that the futures regulator was reviewing data from Nanex LLC, a trade database developer that issued a study suggesting that computer algorithms used quote stuffing to gain an edge during the May 6 crash.
The U.S. Securities and Exchange Commission, which is investigating the crash jointly with the Commodity Futures Trading Commission, is looking at quote stuffing and something called "sub-penny pricing", a person familiar with the flash crash probe said.
The Nanex study uses market graphics and playful names to illustrate quote stuffing, arguing that high-frequency trading firms do this to flood the marketplace with bogus orders to distract rival trading firms.
Investors could make trades under the false impression that those orders were legitimate, only to see liquidity disappear and the market move against them when the orders are canceled -- all in the blink of an eye.
"If traders are flooding the market with orders with the intention of slowing other traders down, then we should consider addressing this under new disruptive trading practices authority," O'Malia said.
O'Malia serves as head of the CFTC's technology advisory committee, which in July raised concerns about what effect quote stuffing has on investors and prices.
"I don't see how quote stuffing as a trading practice benefits futures markets," O'Malia said.
The SEC and the CFTC have yet to explain what caused the crash that drove the Dow Jones industrial average down some 700 points in minutes, before sharply rebounding. The SEC still is requesting "a huge amount of general data" from exchanges and other trading venues, a second person familiar with the investigation said.
Quote stuffing happens regularly, causing the prices of stocks that appear to have a deep order book of interest to move very quickly, a third source familiar with the investigation said.
Nanex has supplied the SEC with its computer programing application, which in combination with other data, can allow authorities to identify who is behind the disruptive trades, Nanex founder Eric Hunsader said on Thursday.
"This whole business of sending in 5,000 quotes in one second to one stock is usually confined to half a dozen stocks at any given moment. If it happened in 50 stocks in the same second, it would overwhelm the system," Hunsader said.
The SEC is also looking at "sub-penny pricing" in the wide-ranging investigation, the first source said.
In sub-penny pricing, non-exchange venues including anonymous dark pools quote and execute orders priced in increments as small as one-tenth of a cent. Exchanges are not allowed to do this, but have considered asking regulators for permission.
A sub-penny order sitting in a dark pool, where prices are not publicly displayed, can trade before orders in displayed markets, possibly giving a false impression of the degree of buying or selling demand.
An SEC spokesman declined to comment.
Regulators plan to issue a follow-up report on the flash crash this month.