Old wisdom on stock market volatility

The markets goes up strong one day, and down strong the next. Volatility is the age-old enemy of rational decision making. The bit of wisdom below has been floating around for decades, yet seems lost on most investors. Days with “good” news has your average investor rushing to buy while days with “bad” news has everyone wanting to sell. The original version of this hangs behind my screens to remind me of these daily emotional swings. It was handed down as a photocopy, having been reproduced time and time again. I suppose it is time for a digital version.

Did you hear? Goldman settles with the SEC

Did you see all the hubbub or did you miss it? It was easy to miss if you weren’t specifically looking at financial news. On Friday, July 16, Goldman and the SEC announced they settled their case. The result? Goldman pays $550 million and does not have to admit fraud.

As I guessed back in may, the SEC’s case was fairly weak. They couldn’t get Goldman for fraud (there wasn’t any), but Goldman was very eager to settle and move on, hence the fine. This came almost simultaneously as passage of the financial reform bill. As soon as passage became clear, the settlement was announced. Was the case a push PR push for more regulation? You be the judge.

Jobs’ antenna mistake

In late May, I wrote about Apple surpassing Microsoft in value for the first time. Heralded as evidence of Apple’s supremacy and future potential, I noted that Apple investors do in fact have things to worry about: namely Steve Jobs. In that post, I wrote:

Apple investors should be careful. Apple shareholders must be sure their company is more than just Steve Jobs’ genius. The company couldn’t survive without him in the past, are we confident it can do so in the future? It is well known that his health is seriously challenged. Can Apple maintain its dominance over a highly competitive consumer electronics space while negotiating the technology challenges? The world is littered with corporate corpses who failed to negotiate such waters.

What I failed to suggest is the other side of Jobs’ despotic genius: what happens when he is wrong. According to the Bloomberg, head antenna engineers warned him of potential problems with the new iPhone 4 antenna design. Bloomberg suggests Jobs decided to go ahead with the design. Apple disputes Bloomberg’s claim, while Bloomberg sticks by its story.

To me, this feels like Apple is covering up Jobs’ mistake. While embarrassing, the mistake hasn’t dented Apple’s sales one bit- which sets the stage for next time. It is very conceivable that the successful sales despite the rather serious flaw only serves to embolden Jobs and Apple that its secretive internal design process is superior. It wouldn’t surprise me if eventually they make a huge mistake eerily similar to this one. I reiterate “the world is littered with corporate corpses who failed to negotiate such waters”. That goes for Apple the first time around for sure; maybe the second time too.

Just what we suspected: China lied

Well, China reneged on its new floating yuan policy. The AP reported today that China will keep its currency “basically stable and reasonable” just a few weeks after saying it would allow the yuan to float. After the June 21 announcement that “People’s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.” we questioned whether the intent was genuine. Less than three weeks later, it is clear China only made that announcement to deflect discussion of the exchange rate policy at the G-20 meeting.

How much did the renminbi appreciate since June 21? A whopping 0.75%.