Today is the day of the Kentucky Derby. Back in the day, horse racing was a popular middle class sport. Boxing has experienced a similar decline in popularity. So has stock picking. When I was new to the stock market in 1987, it seemed a popular past time for young educated men.
Readers of this blog can observe a change here. I rarely venture into individual stocks any more. One huge reason is that in options, the spreads on the big indexes such as SPY, GLD, tends to be penny-wide or at most a few cents wide. On a few stocks that is also true, but it is a very short list. On many popular stocks, the bid/ask spread might be ten cents. Over time that adds a lot of friction and reduces returns. Especially as I venture more into spreads where it may take four transactions to complete a trade, an extra ten cents adds up over the course of a year.
As an aside, I was having breakfast with a stock picking buddy and another stranger over heard the conversation. The woman said, "I think the stock market is fixed." That is a popular feeling out there, and in some ways accurate.
Speaking of fixed, I posted a poll on the PCGS precious metals forum, asking when silver will see $50 again (link). After 80 or so responses, about half expect $50 to come before 2011 ends. Another 35% expect it within three years. As I wrote on that thread, that is disappointing after a down 38% week. More pain in the form of lower prices may be needed to dampen the enthusiasm.
Compare this to the mood at the March 2009 bottom in the stock market. Many pundits, me included thought that 3000 Dow might be in the cards. That is the kind of mood at major bottoms, not a calm optimism about the long term up trend. That said, a good many pundits called the top at $50, so who knows. I would be more optimistic, if there were more pessimists. It is a conundrum of the markets.
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