Stock Market Video
How a Stock Ticker Might Save Your Financial Life
This Weeks Fortune Cookie
In Case You Missed It
In this week's Stock Market Video, I look at the unsettled state of the markets and advise caution. The medium-term trend of the market is still up, but things are unsettled, and not a lot of money is being made. It's a time for caution and picking your bets carefully. I also look at many stocks that are feeling the downward pressure of the market's jumpiness and also at some that are showing strength in spite of the bumpy action. Click below to watch the video.
How a Stock Ticker Might Save Your Financial Life
Technology has been a part of stock investing for as long as anyone now alive can remember, but it wasn't always so. From its informal beginnings in 1792, until the year 1844, when the telegraph was invented, the only way for people to know the prices of stocks on the New York Stock Exchange was to actually be there. Failing that, brokers and investors relied on runners, who sprinted from the trading floor with reports on deals and stock movements for those who employed them.
The first big technological advance in stock trading was the introduction of the telegraph (which was invented in 1844), which allowed the financial district to expand beyond running range. For a long time, including well into the 20th century, having exclusive use of a dedicated telegraph line to a New York brokerage was the height of investing sophistication.
Things changed even more with the introduction of the telephone, which took just two years from its invention in Boston in 1876 until the first phone was installed on the floor of the New York exchange in 1878.
But in many ways, the world of modern investing, including the global spread of brokerages and investment houses, was created in 1867 when the first stock ticker began operating.
Based on a Thomas Edison patent, the stock ticker used telegraph wires to send information about stocks to a dedicated printer that reported five things: the stock being traded, the size of the trade, the price at which the sale was made, whether that price was up or down from the stock's close on the previous day, and how much higher or lower (expressed in eighths of a point).
So if you see a picture of a man who's standing by a little instrument under a glass dome and he's reading a paper tape that's spooling out of this primitive printer, he's using a stock ticker. The sound of a stock ticker can still be heard during the introductions to some cable and online stock commentary shows. And the fact that Mr. Burns (from the Simpsons) is using one shows just how out of date he is.
So, what is Mr. Burns seeing? The text might look like T 10K @ 12 1/2 ^ 1/2, which reports that 10,000 shares of AT&T stock have been sold at $12.50 per share, which is a half point higher than the stock closed on the previous trading day. (Stocks could only be priced in eights of a dollar (12.5 cents), so the information was much less granular than the decimals we enjoy now.)
But at the time, having this level of information revolutionized the investment world, and anyone who was anyone needed to have a ticker. Tickers allowed everyone- traders, manipulators, plungers and speculators-to hone their strategies and run their scams.
But those outside the industry were still limited to checking The Wall Street Journal, which printed closing prices for every stock listed on the NYSE every day. (That practice didn't end until August 2006, although I can't find out exactly when. If you know, I'd be grateful for the information.)
The advent of computers began digging the grave of the stock ticker and the Internet sealed its coffin. But the ticker's heritage lives on as the generic name for any scrolling list of stock trades and prices, in the words "uptick" and "downtick" that still indicate incremental changes, and in the increasingly rare "ticker tape parade," which began as a parade of heroes through (usually) New York streets during which brokerages would empty their baskets of used paper tape onto the streets in celebration.
If you like the idea of having a genuine antique stock ticker machine as a decoration, there are online dealers who will gladly supply one for between $10,000 and $15,000. (Glass domes and authentic pedestals will increase the price.)
There's not much useful investing advice in knowing the ticker's history, but I have one great truth to tack on the end. This is it. It doesn't really matter how investors get their information, as long as they have about the same access as anyone else. The important thing is knowing how to react to the news. If you don't have a stop-loss in mind for every stock you own, you're a sitting duck. No ticker, no alerts on your mobile device and no real-time quotes can save you from yourself if you're not prepared to respond. Owning a stock without without knowing your sell price is like driving a car without wearing a seat belt. Buckle up!
Tim's Comment: I don't remember seeing this before, and I like it a lot. I also like the simple imagery, appropriate for a President who was sworn into office in Vermont by his father by the light of a kerosene lamp.
Paul's Comment: I've been reading dire predictions for stock markets, the U.S. and the world for decades. Sometimes terrible things happen and sometimes they don't. But while there's nothing wrong with a little preparation, taking warnings of catastrophe at face value is a ticket to madness. As Coolidge says, nine out of 10 warnings are wrong, and you can't tell which one is right!
In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
Tim Lutts, chief analyst for Cabot Stock of the Month, writes about revolutionary stocks, how to define them and how to find them. Tim will soon begin a new series featuring a new revolutionary stock each week.
Options master Jacob Mintz, Chief Analyst of Cabot Options Trader, writes about getting the kind of edge that made Ted Williams a .400 hitter. He describes a recent options trade that uses his edge. Option discussed: ON Semiconductor (ONNN).
Nancy Zambell, editor of Investment Digest and Dividend Digest, looks at predictions for stocks in 2015. She also looks at top-performing sectors and their prospects. Stocks discussed: Wal-Mart (WMT), Microsoft (MSFT), TD Ameritrade (AMTD), CoreSite Realty (COR) and Global Partners (GLP).
Chief Analyst, Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory