Five years after the flash crash that sent the Dow Jones Industrial Average down 9 percent in several minutes, the government must have implemented changes to make sure the market is safe, right?
Not exactly, says USA Today
writer Matt Krantz. He identifies three risks. They include:
- "'Painting the tape' with bogus orders," he writes. "A related technique is now better known as 'spoofing—and it’s the core of what regulators are investigating." Spoofing consists of a trader placing massive orders to buy or sell a security only to withdraw the order before it is executed. The trader profits on the move created in the market with his/her fake order.
- "Flooding the market with trades." As the phrase suggests, this consists of traders overwhelming the market with large trades. That can obviously lead to extreme volatility and a market meltdown.
On a more cheery note, related to stocks, have you ever thought about which stocks legendary investor Warren Buffett would purchase if he was starting his career now and focusing on a 50-year time horizon?
If so, MarketWatch
columnist Mark Hulbert has some answers for you.
He made some selections based on a recent study by the National Bureau of Economic Research and AQR Capital Management. They came up with a formula to find stocks that could replicate Buffett’s returns of the past 50 years.
Three key elements include "safety, as measured by low historical volatility and low beta; cheap, as measured by low price-to-book ratios, and high quality," measured by profits, stability, growth and dividends, Hulbert writes.
And don't overlook leverage. The study states that Buffett utilizes a leverage factor of about 1.6-to-1. So you'd have to copy that to match his performance, Hulbert says.
He came up with 12 stocks, including:
- American Eagle Outfitters
- Haverty Furniture
- Kohl’s
- Owens & Minor
- Rent-A-Center
- Scholastic
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