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Connections The study of interrelations between markets, and between trading and other fields, may lead to fruitful inquiries. Our efforts along these lines are memorialized in "Education of a Speculator" (Niederhoffer, 1997) and "Practical Speculation" (Niederhoffer and Kenner, 2003). We continue to explore such interrelations in our own work and with members of the Old Speculators' Association, and are pleased to present a selection here. |
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9/11/2005
Preliminary Thoughts on a Periodic Table of Stocks, by Victor Niederhoffer
Could a periodic table of stocks be developed to provide insights on the behavior of stocks in the same way that the periodic table of elements does for the behavior of electrons?
Chemists classify elements in groups according to their degree of reactivity, based on the number of electrons in the outer shell, and into periods based on weight. A good first step might be to classify stocks in groups according to their reactivity in percentage price change and in periods relative to their market value. The degree of reactivity would seem to depend on debt relative to cash in the ownership equity part of the balance sheet, the kinds of customers and the mix of tangible versus intangible assets. Periods of stocks might be classified according to the weight of market value. (Unlike periods of elements, which are grouped in ascending values starting with hydrogen and oxygen and proceeding upward to heavier elements, it would seem that stocks should be grouped in descending values, starting with stocks like Intel and GE.)
A good way to start is to look at the similarities of movements in individual stocks, e.g., the most active on Friday, Sept. 9. Six of the 25 most active were down: Intel, Microsoft, RF Micro Devices, Oracle, Texas Instruments and Pfizer. These seem to share an affinity in exposure to usage of semiconductors, except for Pfizer, which somehow has developed a covalent bond with Intel based on the nearness of their price, never straying by more than 2 points from each other.
Four stocks gained more than 1%: Albertson's, Exxon, Apple and Qualcomm. The latter three are in the middle of the price spectrum at 63, 51 and 43.
Five of the 25 most active stocks rose within a 0.05 % range between 0.18% and 0.23 %.. Cisco, Sirius, Time Warner, EMC, and Motorola. This seems anomalous on a day when the market itself was up about 1%.
In addition to being grouped by their debt equity and business plan, companies fall into categories of price. Furthermore, stocks seem to change groups based on "psychology."
Efforts at finding pure forms of stocks -- basic market building blocks, like hydrogen and oxygen in chemistry -- have been made by grouping stocks into by profit-maximizing units such as SPDRs, Diamonds, QQQs and iShares. These already show up in most-active compilations with, for example, Nasdaq 100 index units trading 75 million shares on Sept. 9.
Someone's going to tell me as usual that I am a useless idiot with no knowledge of the real factors and differences involved, and, as usual, I agree. But certainly some further pursuits in this direction would seem to be more useful than classifying stocks by industry or SIC.
Allen Gillespie responds:
Interesting when one considers the pressure to compare oneself against one's peers (particularly for pay and bonuses) may lead not only the financials but the actual prices of companies to conform.
Oil Weight Crude $64.2 CVX $63.81 XOM $63.2 HAL $66.1 BHI $59.31 PBR $67.3 COP $69.15 OIH $121.27 (2*60) VLO $115.43 NBR $69.53 DVN $64.33 MRO $67.65 RIG $60.58 NOV $65.25 APA $61.86 Natural Gas Weight $11.23 Crude + Gas = $75.43 BR $76.28 EOG $70.51 SUN $79.65 NE $71.65 WMB $23.49 (2 * 11.23) BJS $32.19 (3 * 11.23) PC Weight (x 100 Cost of PC?) MSFT $26.58 INTC $25.25 DELL $34.65 (Dell Precision M70 $2694) HPQ $27.81 Pharma Weight (Cost of a pill?) PFE $26.33 (avg sex per week (2.6 * $10 per Viagra pill) SGP $22.28 (Vytorin $2.34 a pill) MRK $29.31 BMY $25.11 BVF $22.58 IVX $26.29 FRX $44.8 ABT $45.57 WYE $45.83 GSK $50.55 LLY $56.72 (Zyprexa $5.43/pill) KG $15.81 MYL $18.61 Brokers (% of par) GS $116.17 LEH $110.97 BSC $104.66 Half-Size Brokers (Divide by 100 cents/share?) MER $59.71 MWD $52.52 Banks Fed fund 3.5%, 10 Year Note 4.12%, 30 Yr Note 4.402% Major (10- to 30-Year Note) C $44.61 BAC $42.95 STT $49.48 WM $42.13 Regional (Fed Funds) JPM $34.82 NCC $36.66 BBT $40.58 RF $32.56 BK $30.66 KEY $33.46 USB $29.88 SuperRegional - Prime Rate (6.5%) GDW $61.48 WB $50.38 STI $70.80 WFC $59.82
James Lackey adds:
I would think that the elements are the building blocks of business. Stocks are a future on the prospects and "how predictive" that future is certain types of investors buy and sell these stocks based on certainty. The higher the certainty the lower the premium. One of the beautiful things about this list is we strive for predictive value. Science is about discovery of what in nature is predictive. Even in the natural sciences there is many unanswered questions. Yet with science we can with near perfect certainty predict the future.
With that the periodic table for stocks should be the building blocks for business and speculation. I would be the first to place hydrogen with the speculator, Very powerful fuel, yet explosive. Helium with the altruist, good for lifting spirits with colorful baloons. Carbon with human labor. On the bottom of the table would be what is certain in science, commodities that are business building blocks.
All business is compounds and or mixtures. If a business is built on uranium and is split it might set of a chain reaction. However depleted uranium is the best known metal for sabot rounds for war. That said one must base their business on a firm foundation. Human capital or skill would be at many levels of the table. These could be very stable bonds or simple mixtures that can easily become saturated as in too much middle management. Even at the top of the table, a speculator must rely on gold for capital, carbon for clearing trades and other elements if one wishes to grow into a self sustaining life form.