There are many important things you need to know to trade and invest successfully in the stock market or any other market. 12 of the most important things that I can share with you based on many years of trading experience are enumerated below.
1. Buy low-sell high. As simple as this concept appears to be, the vast majority of investors do the exact opposite. Your ability to consistently buy low and sell high, will determine the success, or failure, of your investments. Your rate of return is determined 100% by when you enter the stock market.
2. The stock market is always right and price is the only reality in trading. If you want to make money in any market, you need to mirror what the market is doing. If the market is going down and you are long, the market is right and you are wrong. If the stock market is going up and you are short, the market is right and you are wrong.
Other things being equal, the longer you stay right with the stock market, the more money you will make. The longer you stay wrong with the stock market, the more money you will lose.
3. Every market or stock that goes up will go down and most markets or stocks that have gone down, will go up. The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as "the trend always changes rule."
4. If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for certain. Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move.
A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. To make a profit trading, it is only necessary to know that markets are moving - not why they are moving. Stock market winners only care about direction and duration, while market losers are obsessed with the whys.
5. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance. If you wait to invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same thing and you may be too late.
You need to get positioned before the largest directional trend move takes place. The market reaction to good or bad news in a bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative more often than not.
6. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make sizeable money. The key is to know when to get aboard a trend and stick with it for a long period of time to maximize profits. Contrary to the short term perspective of most investors today, all the big money is made by catching large market moves - not by day trading or short term stock investing.
7. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. Trading discipline is not a sufficient condition to make money in the markets, but it is a necessary condition. If you do not practice highly disciplined trading, you will not make money over the long term. This is a stock trading “system” in itself.
8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist.
The perfect competition model is not based on anything that exists on this earth. Consistently profitable professional traders simply have better information - and they act on it. Most non-professionals trade strictly on emotion, and lose much more money than they earn.
The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others, creates inefficient markets.
9. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Successful market timing is possible but not with the tools of analysis that most people employ.
If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading ideas are losers.
10. Never trust the advice and/or ideas of trading software vendors, stock trading system sellers, market commentators, financial analysts, brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully for years.
Note those that have traded successfully over very long periods of time are very few in number. Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading decisions based on a rational analysis of all the facts.
11. The worst thing an investor can do is take a large loss on their position or portfolio. Market timing can help avert this much too common experience.
You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only buy when stocks are low and only sell when stocks are high.
Since your starting point is critical in determining your total return, if you buy low, your long term investment results are irrefutably better than someone that bought high.
12. The most successful investing methods should take most individuals no more than four or five hours per week and, for the majority of us, only one or two hours per week with little to no stress involved.
C.C. Collins is a Financial Planning Advisor and Author of “Scientific Wealth Strategies” at http://www.wealthscientist.com Find more information at http://www.stockinfo4u.com
Monday, July 7, 2008
Why the Majority Fail at Stock Investing
The gleam and bright lights of Wall Street lure in many new investors each year, only to send them home crying to their friends and family. Why do so many people fail when it comes to the stock market? The reason is very simple: Hard work! Most people are looking for a quick buck or a fast path to riches. This is not the case when it comes to investing in individual stocks. If you wish to invest in stocks, treat it like a business, NOT A HOBBY. For example: A retail outfit can’t make money if it doesn’t have goods to sell, the same goes for investors, without cash, you can’t invest. What do I mean? All investors need rules and you need to follow these rules or money WILL be LOST. If you lose your initial investment, you are out of business (just like the retail store). I don’t necessarily care what your rules are but they need to be proven and then followed to a "T".
Think about this for a moment: How much time do you spend researching and following up on your investments? Most people will spend more time researching their next car to buy, their next pair of sneakers, the best suit, the best dress, the best pasta sauce, etc. but these same people rarely spend more than 15 minutes a month researching their own stocks. I know of a person that spends hours clipping coupons (saving cents to a few dollars) but just minutes investing thousands in stocks.
This is why the majority of people FAIL at investing, because they don’t know what they are doing, they don’t care to know where their money is and they don’t know who to hire to invest their money. If you are not interested in learning how to invest properly using your OWN system of trial and error over many years, I suggest that you invest in mutual funds or similar diversified vehicles. Over the long run (minimum 20 years), mutual funds and dollar cost averaging will give you favorable results with minimal worries. I will elaborate into methods that can be used to invest successfully in individuals stocks in following articles.
About the Author:
Chris Perruna
http://www.marketstockwatch.com
Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
Think about this for a moment: How much time do you spend researching and following up on your investments? Most people will spend more time researching their next car to buy, their next pair of sneakers, the best suit, the best dress, the best pasta sauce, etc. but these same people rarely spend more than 15 minutes a month researching their own stocks. I know of a person that spends hours clipping coupons (saving cents to a few dollars) but just minutes investing thousands in stocks.
This is why the majority of people FAIL at investing, because they don’t know what they are doing, they don’t care to know where their money is and they don’t know who to hire to invest their money. If you are not interested in learning how to invest properly using your OWN system of trial and error over many years, I suggest that you invest in mutual funds or similar diversified vehicles. Over the long run (minimum 20 years), mutual funds and dollar cost averaging will give you favorable results with minimal worries. I will elaborate into methods that can be used to invest successfully in individuals stocks in following articles.
About the Author:
Chris Perruna
http://www.marketstockwatch.com
Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
Play another Day
Money management starts with protecting your capital, realizing profits and cutting losses. As I have stated in the past, without cash, you can’t invest. Cash is king and learning to manage your money is the most important aspect to investing in stocks. The game is won by lowering your risk by properly turning the numbers in your favor. Cutting losses is the best insurance to keeping your cash.
Emotions fuel the decisions of many investors; leading the pack is hope, fear and greed. In order to control these emotions, proper money management skills must be developed through a defined set of rules. How do you know if an investment is working and moving in the right direction? If it shows a profit, you are correct, if it shows a loss, something is wrong and it may be time to protect your capital.
Most investors develop the emotion of hope after a stock has declined from the initial purchase price. They hope that it will rebound and make promises to themselves that they will sell at breakeven. If and when the stock rebounds, they break the promise and become greedy and decide to hold on for a profit instead of selling. Typically, the stock will start to decline and the investor will start to accumulate losses. Investors are full of pride and will not admit that their judgment is wrong, so instead, they decide to hold on and accumulate additional losses.
When a stock is purchased and starts to decline, especially on heavy volume, it is time to admit that you may be wrong and sell before the loss is too steep. If the stock rebounds after you sell, you can always re-enter your position. Cutting losses is the best insurance an investor can have in their portfolio. By developing rules and eliminating emotion, investors can start selecting high quality stocks and buying them at their proper purchase points. This will lower your risk and help prevent you from using insurance. In my previous post, I explained how to develop a watch list of high quality stocks using fundamental and technical analysis.
About the Author
Chris Perruna
http://www.marketstockwatch.com
Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
Stock Market Strategies Comments Off
Making a Stock Watch List
Posted on Mar 13th, 2008I am taking the time to help others learn the basics in evaluating stocks for investment using both fundamental and technical analysis. Both tools are equally important in making serious decisions with your hard earned CASH!
If you wish to invest in stocks, treat it like a business, NOT A HOBBY. (ex: a retail outfit can’t make money if it doesn’t have goods to sell; the same goes for investors, without cash, you can’t invest). You need rules and you need to follow these rules or money WILL be LOST. Once proven rules have been established, they cannot be broke or you will lose money. Everyone loses money in investing but we must learn to cut losses quick and allow gains to develop. Small losses are acceptable because they teach us lessons that allow us to win big!
Start your search by looking for stocks with superior fundamentals. After fundamentals are established, look to see if this particular stock is in good company, by this I mean a strong industry group - similar stocks, historically move in the same direction (this is fact not opinion). This is not to say every stock in the industry group will move higher or lower because a sister stock is going in that direction (this is a generalization rule). After the industry group has been confirmed strong, determine if overall market is in a specific trend (up, down or sideways).
If you are long a stock, the market must be in a confirmed up-trend, if you are short a stock, confirm a down trend. Note that 75% of all stocks will follow in the direction of the overall market. Don’t fight the trend, the market is always RIGHT.
Let the market and the stock dictate how long you will be in a position. Don’t worry about time frames; price and volume will tell you when to exit the position as long as you follow rules.
After fundamental have been established, you must study the technical side of each individual stock, the specific industry group and the general market trends. Record if the stock is forming a proper base, if it’s about to break out of a base, if it’s extended or if it’s pulling back to a key support line.
At this point, add any qualifying stock to your watch list or buy the stock according to the technical entry signals (remember the fundamentals have been established earlier).
Key numbers to use in fundamentals:
Earnings (current, past: quarterly, yearly and future estimates)
Sales (current, past: quarterly, yearly and future estimates)
Return on Equity (ROE)
Price/Earnings Growth (PEG)
Price/Earnings Ratio (rise over time of base)
Debt/Equity
Assets, Liabilities
Accumulation/Distribution ratio
Up/Down Volume over past several months
Number of Institutional Holders (is this increasing or decreasing recently)
Key things to use for technical analysis:
Look at the 1 year daily chart
The 1 year weekly chart
Check volume action when bases are formed
Look at Point & Figure charts for support and resistance lines
Look for new 52-week highs
About the Author
Chris Perruna
http://www.marketstockwatch.com
Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
Emotions fuel the decisions of many investors; leading the pack is hope, fear and greed. In order to control these emotions, proper money management skills must be developed through a defined set of rules. How do you know if an investment is working and moving in the right direction? If it shows a profit, you are correct, if it shows a loss, something is wrong and it may be time to protect your capital.
Most investors develop the emotion of hope after a stock has declined from the initial purchase price. They hope that it will rebound and make promises to themselves that they will sell at breakeven. If and when the stock rebounds, they break the promise and become greedy and decide to hold on for a profit instead of selling. Typically, the stock will start to decline and the investor will start to accumulate losses. Investors are full of pride and will not admit that their judgment is wrong, so instead, they decide to hold on and accumulate additional losses.
When a stock is purchased and starts to decline, especially on heavy volume, it is time to admit that you may be wrong and sell before the loss is too steep. If the stock rebounds after you sell, you can always re-enter your position. Cutting losses is the best insurance an investor can have in their portfolio. By developing rules and eliminating emotion, investors can start selecting high quality stocks and buying them at their proper purchase points. This will lower your risk and help prevent you from using insurance. In my previous post, I explained how to develop a watch list of high quality stocks using fundamental and technical analysis.
About the Author
Chris Perruna
http://www.marketstockwatch.com
Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
Stock Market Strategies Comments Off
Making a Stock Watch List
Posted on Mar 13th, 2008I am taking the time to help others learn the basics in evaluating stocks for investment using both fundamental and technical analysis. Both tools are equally important in making serious decisions with your hard earned CASH!
If you wish to invest in stocks, treat it like a business, NOT A HOBBY. (ex: a retail outfit can’t make money if it doesn’t have goods to sell; the same goes for investors, without cash, you can’t invest). You need rules and you need to follow these rules or money WILL be LOST. Once proven rules have been established, they cannot be broke or you will lose money. Everyone loses money in investing but we must learn to cut losses quick and allow gains to develop. Small losses are acceptable because they teach us lessons that allow us to win big!
Start your search by looking for stocks with superior fundamentals. After fundamentals are established, look to see if this particular stock is in good company, by this I mean a strong industry group - similar stocks, historically move in the same direction (this is fact not opinion). This is not to say every stock in the industry group will move higher or lower because a sister stock is going in that direction (this is a generalization rule). After the industry group has been confirmed strong, determine if overall market is in a specific trend (up, down or sideways).
If you are long a stock, the market must be in a confirmed up-trend, if you are short a stock, confirm a down trend. Note that 75% of all stocks will follow in the direction of the overall market. Don’t fight the trend, the market is always RIGHT.
Let the market and the stock dictate how long you will be in a position. Don’t worry about time frames; price and volume will tell you when to exit the position as long as you follow rules.
After fundamental have been established, you must study the technical side of each individual stock, the specific industry group and the general market trends. Record if the stock is forming a proper base, if it’s about to break out of a base, if it’s extended or if it’s pulling back to a key support line.
At this point, add any qualifying stock to your watch list or buy the stock according to the technical entry signals (remember the fundamentals have been established earlier).
Key numbers to use in fundamentals:
Earnings (current, past: quarterly, yearly and future estimates)
Sales (current, past: quarterly, yearly and future estimates)
Return on Equity (ROE)
Price/Earnings Growth (PEG)
Price/Earnings Ratio (rise over time of base)
Debt/Equity
Assets, Liabilities
Accumulation/Distribution ratio
Up/Down Volume over past several months
Number of Institutional Holders (is this increasing or decreasing recently)
Key things to use for technical analysis:
Look at the 1 year daily chart
The 1 year weekly chart
Check volume action when bases are formed
Look at Point & Figure charts for support and resistance lines
Look for new 52-week highs
About the Author
Chris Perruna
http://www.marketstockwatch.com
Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
3 Components Needed for Beating the Market
This is time to seriously look at performance of your personal investment, such as mutual fund, or individual stocks holdings, etc. Does your fund beat index last year? Does it beat index over past many years? How are you doing with your own stock investment comparing to SP&500 index?
If the answer is "great", well congratulations. You have your own way of beating market and making big money already.
If the answer is "not so great", or "failed to beat index". You have got a problem. You need to look deeper into the investment strategy you used or your fund used. You can not pretend that there is no problem when in fact there IS a problem. I know there are just so many people out there that can not face this. Let’s face it, Almost everyone, include myself have ego that we JUST do not want to admit failure or mistake or any hint of it. Here comes the 1st Component below.
Component # 1 - ego, gut, perseverance
Value investing or investing in general is all about psychology, ego, attitude, and gut.
Investing is serious business. It is our money, our life savings at stake. Sometimes biting the bullet with pain to trash the ego is worth the pain if that makes you more money. Ego is one thing that we must avoid in stock market investing business in order to make big money ahead. You can not hide, you have to compare your own performance of past many years to SP&500 index. Of course, I am not saying that you should be comparing every month. It is OK to make some mistakes, here and there for certain months. However, it is NOT ok if the performance year over year has been bad. You have got to change if that is the case.
Although ego is something you should all avoid, perseverance is something you must treasure if you want to be that marathon winner. When you finished your due diligence and you have calculated your risk reward ratio and intrinsic value, go for it and stick with it. Do not be scared of negative comments or negative press, even if the source is from a famous author or from your close family. Value investing is lonely business. I know this for years. I have been criticized over past many years for numerous reasons, for not beeing able to sell at top, for not beeing able to buy at bottom, for picking a risky bankruptcy related stock, or for buying a low float small cap stock , blah blah. You know what? in the end, my investment performance is better than most of folks out there in the market, including those "pro" mutual fund managers.
I have got comments like this before: "Blast, I like your method, I know you are making big money. But, I can not do as you are doing. I can not hold. Especially bad news hit, I just have to sell, and my performance sucks".
Well, if he/she do not have gut to hold like I hold during bad time, she/he can not make big money with value investing. One can be all right in paper, right with value calculation, right with timing of purchase. However, if you can not fight against panic during minor negative news, you are out in the investing marathon.
Component # 2 - right method
Many investment methods are flawed, period. This is especially true for many short term oriented trading methods. Many mutual funds preach long term holding for their fund investors, but the fund managers themself engage in short-term trading like mad men. Performance of many momentum based growth funds or tech funds looked horrible for past 5 years. The reason for that is very simple: the investing method itself. Growth investing or short term trading sometimes can be very speculative and dangerous.
Wall street has famous theory that "the more risk, the more reward". Therefore, yeah, growth funds are risky, but if you want to have more reward, you have to chase risky stuff.
Wrong. The truth actually is "the more risk, the less reward".
I know I am going to be hammered by saying above non-conventional statement. I put out below example to back up my point.
Las Vegas is world famous place for gambling. As an average investor, you visit Las Vegas looking for opportunities to make big money with $50,000 investing capital. Let’s assume the theory "the more risk, the more reward" is correct. Where are the riskiest opportunities out there in LV? Of course, Gambling. The potential reward can be astonishingly high. Black jacket, slot machine all have huge potential with 1000% or even more within minutes. You can make millions if you are lucky with your $50,000 principal at slot machine. Actually, it is FACT there are small group of gamblers who made millions in gambling in LV.
However, If you are sensible person, you know the answer. As high as the potential reward can be, the most likely result from gambling with $50,000 principal at LV is WIPEOUT. You lose all your hard-earned money.
If you are a rich investor with multi-million dollar capital looking for investment opportunities in Las Vegas. Certainly casino company stocks and bonds or private offering might be worth looking. However, the sad news is that no matter for stocks or bonds or private offerings, the investment reward is only around 10% to 20% yearly. Well, maybe it is not so sad at all. 10% or 20% of return is certainly a lot safer than gambling. Which reward is better, 10% - 20% return or wipeout?
Well, I know you may want to protest against my above example. Stock market can not be as bad as Casino, right?
It depends. Although casino gambling does not provide real investment opportunities as stock market provides, sometimes stock market can be even worse than casino due to insider manipulation, cheating books, etc. Over the past couple of years, I have heard so many negative news from stock market: Enron, Worldcom, mutual fund scandals, market timing, etc. But I have not heard of news of slot machine cheating by Las Vegas Casino company. Casino does not need to cheat to make money, the odds are against gamblers. Although stock market does offer real investment opportunities for businessman-like investors, stock market is also a place for gamblers to place their bet just like a Casino.
In stock market, the odds are against speculators.
Well, I know you may have more questions. Why Casino bonds or stock offerings or even private offering is only offering 10% to 20% returns?
Casino business is just another business. Numerous academic study has shown that in US history of past many decades, majority of companies can not maintain more than 20% of return on equity over the long run. Many companies are operating under loss, a negative return on equity. If you read books on Warren Buffet method of Philip Fisher method, you will know that they are experts in identifying those small group of high return on equity stocks. But for most companies, they are not as good as the stocks in which Buffet or Fisher invested.
Competitive economics is also at play here. If a company can make more than 20% of return consistently, the competition will heat up and more smart businessmen will enter this field to drive down the return.
If you think of value investing as special kind of business, you will realize how hard it is to maintain 20% return for the long run, as Warren Buffet achieved over past 50 years. Very few investors can do that. Value investing business is just as competitive as other business. Let’s face it, if value investing is not competitive and easy to make big money consistently, many smart business guys out there in US will liquidate their own company and start their investment firm instead.
Component # 3 - right tools - new way to find great picks
Peter Lynch mentioned many methods to get the stock leads and identify the big winners in his book "One up in Wall Street". Tips from wife, tips from friends can land you the great stock idea. Although his methods are very valid, there are new ways to find that great pick in this internet stage: Software Data Mining.
It is quite fortunate that I am a data mining expert myself. If you are good at data mining, you can do yourself well too. You can design and fine-tune your data mining tools to get the leads you want and make big money by getting ahead of crowds.
A successful value investor really has to find great pick ahead of big guys and move fast in order to make big money. In this internet stage, big guys such as mutual funds or hedge funds really have no advantage over small guys or small firms such as BlastInvest. At BlastInvest, we do stock data mining with our in-house software just as good as those big guys, if not better. Sarbane Oxley new law also helped individual investors and small firms like BlastInvest a lot because most of public companies now disclose information to public and to big institutions simultaneously through conference calls or press releases. Insiders now also have to report insider buying and selling within couple of days of transaction instead of several months before. Whenever insiders buy or sell, You need to know that immediately within a few days. You want to buy when insiders buy and you may want to sell when insiders are selling too.
Don’t despair if you do not know how to program software yourself. There are lots of tools and services out there to help you out. Here I want to talk about the most useful tools out there.
(1) Valuation screening tool. You need at least one tool for screening against value metrics for you. Yahoo stock screening is very useful tool and it is free.
(2) Insider buying tool. This is must-have tool to get you the latest insider buying stocks. There are many offering there, fee-based or free. We offer free insider-buying weekly service as well at BlastInvest.
(3) Strategy screen. Validea.com offers an interesting stock screening tool that can screen based on methods of Ben Graham, Warren Buffet, or Peter Lynch. It has limitations too. I have used it and found that its Warren Buffet tool is not working well and its Ben Graham strategy screening is only looking for "defensive" type of stocks, not the "enterprising investor" type of stocks. My BIRTP newsletter is really geared toward "enterprising investor" type of stocks rather than "defensive investor" type of stocks. Heck, still Validea is best kind of tool available at affordable price in this category.
Final thought
If you follow up with my above 3 components of value investing, you are on your path for financial freedom.
However, if you can not do as I stated above, do not naively believe that you can make big money alone in stock market mainly by hunch. Buy the stock screening tools if necessary, get the professional help from real experts and consider my newsletter BIRTP as well.
Webmasters and Ezine Publishers: Free professional content - pre-licensed to you..
You are invited to use any or all of these value investing articles in your publication or website. The only requirement is the inclusion of the following, after each article…
* Article by Henry Lu of BlastInvest LLC, a premium investment newsletter publisher in Connecticut. Visit http://www.BlastInvest.com for FREE "how-to" investing assistance, web services and more.
Stock Market Strategies Comments Off
Can’t Stand The Heat
Posted on Mar 10th, 2008It seems that every day I turn on the TV and find a Poker game. Texas No Limit seems to be all the rage these days. I love watching it. When I discuss this with others, their response is always the same, “You should play.” Ah, but what they don’t know is I stay out of the kitchen. As far as risk to reward ratio. That’s a gamble I’m not willing to take. I prefer to invest my money. Sometimes I gamble in the stock market, but as long as I stay within my comfort zone (long term), I don’t mind.
Tolerable risk should be the goal of every investor. Know your limits! Here are my big three don’ts:
Don’t invest more than 30% of your portfolio in risky ventures;
Don’t let your broker/advisor talk you into an investment;
Don’t gamble with money you’re not ready to loose.
Here’s a poem I wrote about a real person.
There once was a man from the North East Who thought he could tame the great beast Money in hand, he headed to Wall Street A Bull market it was, an IPO investment he couldn’t beat The morning bell rang and he started to buy…
Drug store, MP3, Martha Stewart, and Be Free, Flashnet, Redhat, Eloan, and Goldman Sachs, Foundry Networks, Agilent, NextCard, and JNI corp, Goto, PCOrder, Free Markets, and Intertrust technologies, Ivillages, Keynote Systems, Radware, and Women, Kana, The Street, Internet Initiative, and Insweb, WWE, TicketMaster, CitySearch, and Ziff Davis.
He felt so good, like a young man and spry The days rolled along and the market did swell Up 80% by the close of the bell.
It was over the next few days that reality hit home The stocks started to plummet like the downfall of Rome A huge loss was incurred, sell everything without care Along with riding the bull you get tamed by the bear!
This real man I’m speaking of has class action law suits against every one of these companies and the underwriters of the IPO. Here’s a link to the law firm, Lovell Stewart Halebian LLP http://www.lshllp.com/homejump.ihtml?page=classaction.ihtml that happens to be representing this man in all these cases. To this gentlemen I have 6 words…if you can’t stand the heat.
About The Author
Brian Weiss is owner operator of www.InvestmentRunner.com a specialty search engine with free investors software, spread sheets, investors dictionary, and financial weblog.
admin@investmentrunner.com
If the answer is "great", well congratulations. You have your own way of beating market and making big money already.
If the answer is "not so great", or "failed to beat index". You have got a problem. You need to look deeper into the investment strategy you used or your fund used. You can not pretend that there is no problem when in fact there IS a problem. I know there are just so many people out there that can not face this. Let’s face it, Almost everyone, include myself have ego that we JUST do not want to admit failure or mistake or any hint of it. Here comes the 1st Component below.
Component # 1 - ego, gut, perseverance
Value investing or investing in general is all about psychology, ego, attitude, and gut.
Investing is serious business. It is our money, our life savings at stake. Sometimes biting the bullet with pain to trash the ego is worth the pain if that makes you more money. Ego is one thing that we must avoid in stock market investing business in order to make big money ahead. You can not hide, you have to compare your own performance of past many years to SP&500 index. Of course, I am not saying that you should be comparing every month. It is OK to make some mistakes, here and there for certain months. However, it is NOT ok if the performance year over year has been bad. You have got to change if that is the case.
Although ego is something you should all avoid, perseverance is something you must treasure if you want to be that marathon winner. When you finished your due diligence and you have calculated your risk reward ratio and intrinsic value, go for it and stick with it. Do not be scared of negative comments or negative press, even if the source is from a famous author or from your close family. Value investing is lonely business. I know this for years. I have been criticized over past many years for numerous reasons, for not beeing able to sell at top, for not beeing able to buy at bottom, for picking a risky bankruptcy related stock, or for buying a low float small cap stock , blah blah. You know what? in the end, my investment performance is better than most of folks out there in the market, including those "pro" mutual fund managers.
I have got comments like this before: "Blast, I like your method, I know you are making big money. But, I can not do as you are doing. I can not hold. Especially bad news hit, I just have to sell, and my performance sucks".
Well, if he/she do not have gut to hold like I hold during bad time, she/he can not make big money with value investing. One can be all right in paper, right with value calculation, right with timing of purchase. However, if you can not fight against panic during minor negative news, you are out in the investing marathon.
Component # 2 - right method
Many investment methods are flawed, period. This is especially true for many short term oriented trading methods. Many mutual funds preach long term holding for their fund investors, but the fund managers themself engage in short-term trading like mad men. Performance of many momentum based growth funds or tech funds looked horrible for past 5 years. The reason for that is very simple: the investing method itself. Growth investing or short term trading sometimes can be very speculative and dangerous.
Wall street has famous theory that "the more risk, the more reward". Therefore, yeah, growth funds are risky, but if you want to have more reward, you have to chase risky stuff.
Wrong. The truth actually is "the more risk, the less reward".
I know I am going to be hammered by saying above non-conventional statement. I put out below example to back up my point.
Las Vegas is world famous place for gambling. As an average investor, you visit Las Vegas looking for opportunities to make big money with $50,000 investing capital. Let’s assume the theory "the more risk, the more reward" is correct. Where are the riskiest opportunities out there in LV? Of course, Gambling. The potential reward can be astonishingly high. Black jacket, slot machine all have huge potential with 1000% or even more within minutes. You can make millions if you are lucky with your $50,000 principal at slot machine. Actually, it is FACT there are small group of gamblers who made millions in gambling in LV.
However, If you are sensible person, you know the answer. As high as the potential reward can be, the most likely result from gambling with $50,000 principal at LV is WIPEOUT. You lose all your hard-earned money.
If you are a rich investor with multi-million dollar capital looking for investment opportunities in Las Vegas. Certainly casino company stocks and bonds or private offering might be worth looking. However, the sad news is that no matter for stocks or bonds or private offerings, the investment reward is only around 10% to 20% yearly. Well, maybe it is not so sad at all. 10% or 20% of return is certainly a lot safer than gambling. Which reward is better, 10% - 20% return or wipeout?
Well, I know you may want to protest against my above example. Stock market can not be as bad as Casino, right?
It depends. Although casino gambling does not provide real investment opportunities as stock market provides, sometimes stock market can be even worse than casino due to insider manipulation, cheating books, etc. Over the past couple of years, I have heard so many negative news from stock market: Enron, Worldcom, mutual fund scandals, market timing, etc. But I have not heard of news of slot machine cheating by Las Vegas Casino company. Casino does not need to cheat to make money, the odds are against gamblers. Although stock market does offer real investment opportunities for businessman-like investors, stock market is also a place for gamblers to place their bet just like a Casino.
In stock market, the odds are against speculators.
Well, I know you may have more questions. Why Casino bonds or stock offerings or even private offering is only offering 10% to 20% returns?
Casino business is just another business. Numerous academic study has shown that in US history of past many decades, majority of companies can not maintain more than 20% of return on equity over the long run. Many companies are operating under loss, a negative return on equity. If you read books on Warren Buffet method of Philip Fisher method, you will know that they are experts in identifying those small group of high return on equity stocks. But for most companies, they are not as good as the stocks in which Buffet or Fisher invested.
Competitive economics is also at play here. If a company can make more than 20% of return consistently, the competition will heat up and more smart businessmen will enter this field to drive down the return.
If you think of value investing as special kind of business, you will realize how hard it is to maintain 20% return for the long run, as Warren Buffet achieved over past 50 years. Very few investors can do that. Value investing business is just as competitive as other business. Let’s face it, if value investing is not competitive and easy to make big money consistently, many smart business guys out there in US will liquidate their own company and start their investment firm instead.
Component # 3 - right tools - new way to find great picks
Peter Lynch mentioned many methods to get the stock leads and identify the big winners in his book "One up in Wall Street". Tips from wife, tips from friends can land you the great stock idea. Although his methods are very valid, there are new ways to find that great pick in this internet stage: Software Data Mining.
It is quite fortunate that I am a data mining expert myself. If you are good at data mining, you can do yourself well too. You can design and fine-tune your data mining tools to get the leads you want and make big money by getting ahead of crowds.
A successful value investor really has to find great pick ahead of big guys and move fast in order to make big money. In this internet stage, big guys such as mutual funds or hedge funds really have no advantage over small guys or small firms such as BlastInvest. At BlastInvest, we do stock data mining with our in-house software just as good as those big guys, if not better. Sarbane Oxley new law also helped individual investors and small firms like BlastInvest a lot because most of public companies now disclose information to public and to big institutions simultaneously through conference calls or press releases. Insiders now also have to report insider buying and selling within couple of days of transaction instead of several months before. Whenever insiders buy or sell, You need to know that immediately within a few days. You want to buy when insiders buy and you may want to sell when insiders are selling too.
Don’t despair if you do not know how to program software yourself. There are lots of tools and services out there to help you out. Here I want to talk about the most useful tools out there.
(1) Valuation screening tool. You need at least one tool for screening against value metrics for you. Yahoo stock screening is very useful tool and it is free.
(2) Insider buying tool. This is must-have tool to get you the latest insider buying stocks. There are many offering there, fee-based or free. We offer free insider-buying weekly service as well at BlastInvest.
(3) Strategy screen. Validea.com offers an interesting stock screening tool that can screen based on methods of Ben Graham, Warren Buffet, or Peter Lynch. It has limitations too. I have used it and found that its Warren Buffet tool is not working well and its Ben Graham strategy screening is only looking for "defensive" type of stocks, not the "enterprising investor" type of stocks. My BIRTP newsletter is really geared toward "enterprising investor" type of stocks rather than "defensive investor" type of stocks. Heck, still Validea is best kind of tool available at affordable price in this category.
Final thought
If you follow up with my above 3 components of value investing, you are on your path for financial freedom.
However, if you can not do as I stated above, do not naively believe that you can make big money alone in stock market mainly by hunch. Buy the stock screening tools if necessary, get the professional help from real experts and consider my newsletter BIRTP as well.
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* Article by Henry Lu of BlastInvest LLC, a premium investment newsletter publisher in Connecticut. Visit http://www.BlastInvest.com for FREE "how-to" investing assistance, web services and more.
Stock Market Strategies Comments Off
Can’t Stand The Heat
Posted on Mar 10th, 2008It seems that every day I turn on the TV and find a Poker game. Texas No Limit seems to be all the rage these days. I love watching it. When I discuss this with others, their response is always the same, “You should play.” Ah, but what they don’t know is I stay out of the kitchen. As far as risk to reward ratio. That’s a gamble I’m not willing to take. I prefer to invest my money. Sometimes I gamble in the stock market, but as long as I stay within my comfort zone (long term), I don’t mind.
Tolerable risk should be the goal of every investor. Know your limits! Here are my big three don’ts:
Don’t invest more than 30% of your portfolio in risky ventures;
Don’t let your broker/advisor talk you into an investment;
Don’t gamble with money you’re not ready to loose.
Here’s a poem I wrote about a real person.
There once was a man from the North East Who thought he could tame the great beast Money in hand, he headed to Wall Street A Bull market it was, an IPO investment he couldn’t beat The morning bell rang and he started to buy…
Drug store, MP3, Martha Stewart, and Be Free, Flashnet, Redhat, Eloan, and Goldman Sachs, Foundry Networks, Agilent, NextCard, and JNI corp, Goto, PCOrder, Free Markets, and Intertrust technologies, Ivillages, Keynote Systems, Radware, and Women, Kana, The Street, Internet Initiative, and Insweb, WWE, TicketMaster, CitySearch, and Ziff Davis.
He felt so good, like a young man and spry The days rolled along and the market did swell Up 80% by the close of the bell.
It was over the next few days that reality hit home The stocks started to plummet like the downfall of Rome A huge loss was incurred, sell everything without care Along with riding the bull you get tamed by the bear!
This real man I’m speaking of has class action law suits against every one of these companies and the underwriters of the IPO. Here’s a link to the law firm, Lovell Stewart Halebian LLP http://www.lshllp.com/homejump.ihtml?page=classaction.ihtml that happens to be representing this man in all these cases. To this gentlemen I have 6 words…if you can’t stand the heat.
About The Author
Brian Weiss is owner operator of www.InvestmentRunner.com a specialty search engine with free investors software, spread sheets, investors dictionary, and financial weblog.
admin@investmentrunner.com
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