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View Diary: Who is Buying News Corp Stock? (43 comments)

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  •  Traders (4+ / 0-)

    I'm sure you're right that traders are very interested in the stock right now and no doubt that is part of the increased volume. I've done some short-term trading in the past but wouldn't want to risk my capital given the uncertainty over the investigation no matter how good Moody's thinks things look. A new resignation, a new arrest, another body, and you could lose big real quick.

    •  that's why the greater payout (6+ / 0-)

      traders not only take advantage of volatility. they create it!

      so spinning that wheel, faster can produce greater returns and you can also possibly lose your shirt.

      that's the risky part about getting more than 6% returns.  traders look at the risk and gauge it carefully.  they want to make money and the smart ones will hop off before the train is totally derailed.  which leaves the not so smart and slow traders holding the bag.

      •  Traders generally don't create the volatility... (6+ / 0-)

        They tend to mitigate it.

        Here's how traders see things. One month from now regarding News Corp, there are two possible states of the world: either this will have been much to do about nothing, or it was a major catastrophe for the company. There's not a lot of middle ground.

        A trader will place probabilities on those outcomes. For the sake of example, let's say there's a 75% chance this blows over - in which case, the stock will be worth $19. There's also a 25% chance of catastrophe, in which case the stock is worth $5. So, the trader determines the stock price by saying ($19*.75) + ($5*.25) = $15.50 - which is where the stock trades now. Of course, traders are assigning different probability weightings and different values depending on the information they can find, and every new revelation changes these calculations, so there's high volatility.

        Couple that with a quite volatile market. NewsCorp's performance is also dependent on how the overall market performs (the measurement for this is called the stock's beta). NewsCorp's beta is 1.63. In other words, when the stock market goes up 1%, NewsCorp's stock goes up 1.63%. Today, the market is up 1.35% right now, so NewsCorp stock would see an increase of (1.35%*1.63) about 2.2% regardless of anything unique regarding NewsCorp.

        So be aware that it's stuff like this that really drives the market. It's not stock traders just driving prices in this directon or that at the expense of the stupid and slow traders. That's just not the way it really works.

        Try looking at things another way.

        by atheistben on Tue Jul 19, 2011 at 10:40:36 AM PDT

        [ Parent ]

        •  they most certainly do create volatility. (3+ / 0-)
          Recommended by:
          Curt Matlock, vcmvo2, papicek

          they can create wild swings that wouldn't have otherwise occurred.  

          •  I'm not following. Please explain why and how (1+ / 0-)
            Recommended by:
            Curt Matlock

            you think this happens.

            Try looking at things another way.

            by atheistben on Tue Jul 19, 2011 at 11:26:56 AM PDT

            [ Parent ]

            •  seriously? (8+ / 0-)

              http://en.wikipedia.org/...

              According to Ziemba and Ziemba (2007), Keynes risk-taking reached 'cowboy' proportions, i.e. 80% of the maximum rationally justifiable levels (of the so called Kelly criterion), with overall return volatility approximately three times higher than the stock market index benchmark. Such levels of volatility, responsible for his spectacular investment performance, would be achievable today only through the most aggressive instruments (such as 3:1 leveraged exchange-traded funds). He chose modern speculation techniques practiced today by hedge funds, which are quite different from the simple buy-and-hold long-term investing.[9]

              It is a controversial point whether the presence of speculators increases or decreases the short-term volatility in a market. Their provision of capital and information may help stabilize prices closer to their true values. On the other hand, crowd behavior and positive feedback loops in market participants may also increase volatility at times.

        •  statements like this ignore lots of history... (1+ / 0-)
          Recommended by:
          Curt Matlock

          Name any bubble you want - in the last 50 years or so I can hardly think of a three year period in which some kind of bubble wasn't underway. Including now - the S&P PE ratio is about 25-30% above historical norms, and in this economy, mind you.

          M&A madness, housing, the dot-bomb, office automation, computers, electronics, oil, even toys and games.

          In each instance, traders were in the thick of things, driving prices upward - which doesn't ignore the fact that some traders got a haircut when these bubbles burst. Traders come in two varieties, some drive market events and others try to hitch a ride, hoping to get lucky, just like the rest of us in the herd.

          As for your "rational" scenario...there's nothing rational about traders trying to cash in on a perceived profit opportunity, whether it's well-founded or not. They feel they cannot avoid jumping on whatever bandwagon passes by.


          "The cure for bullshit is fieldwork."
          Robert H. Bates, Eaton Professor of the Science of Government, Harvard University.

          by papicek on Wed Jul 20, 2011 at 11:27:42 AM PDT

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