The S&P 500 finally reached official correction territory last week after losing more than 10% since its April 23rd peak. There is plenty of bad news to spook investors (European debt problems, Korean tensions, a bear market in China, the Gulf oil spill, etc.), but little will crush optimism as quickly as remembering the feelings we had during the credit crisis of 2008. That was an emotionally and monetarily painful time for many people, and that pain doesn’t just go away. This, however, isn’t 2008. (more…)

As investors, we are told to diversify our portfolios into assets in which the combined risk/return profile is commensurate with our long-term goals. By doing so, we are told that over time we should be able to achieve adequate returns to compensate us for the amount of risk we take. (more…)

“What we’ve got here is failure to communicate.” — Captain, Cool Hand Luke (1967)

If you weren’t paying attention to the markets on Thursday, that was probably a good thing since the Dow Jones Industrial Average lost over 900 points very rapidly before gaining much of it back by the close. While we don’t have any clear-cut answers as to exactly what happened, we know one thing for sure: the market crashed. Thankfully, it “un-crashed” too.

The current story (which in our opinion is questionable) is that a single trader accidentally put in a sell order ending in “B” for billions instead of “M” for millions of shares of Proctor & Gamble (PG). As the story goes, this one bad trade put computer trading programs into overdrive, and they flooded the market with sell orders. Compounding the problems were questionable quotes for certain securities that had them down 99% in mere minutes. Many of those trades have since been reversed. (more…)

According to Wikipedia, “Game theory [made famous in the movie A Beautiful Mind] attempts to mathematically capture behavior in strategic situations, in which an individual’s success in making choices depends on the choices of others.” But if you want to watch game theory in action, skip the economic text books, ignore the math and simply watch the developments in Europe. Over the weekend, the European Union (EU) approved a €110 billion ($146 billion) bailout for Greece after debt-rating agencies and world markets showed a vote of no confidence with debt downgrades and sell-offs. (more…)