In the broad category of “trading the markets”, there are basically three types of trading: Discretionary, Technical, and System-based.
Every trader usually starts out as a discretionary trader. The amount of money lost generally determines how long it takes the individual to start using technical indicators to make trading decisions. Eventually, as even employing technical indicators fails to move the trader into profitability, the trader moves into the third stage and starts to write systems based on quantifiable data. It is at this stage that the trader ordinarily starts to make money. Finally, the systems and money management strategies are refined and the individual becomes successful as a system trader.
A discretionary trader uses a combination of intuition, advice and non-quantifiable data to determine when to enter and exit the market.
Discretionary traders are not restricted by a concrete set of rules. If you are a discretionary trader, you can make buy and sell decisions using whatever criteria you deem to be important at the moment. For example, you can use both a combination of hot tips and relevant news stories from The Wall Street Journal, and enter or exit the market based on this information. If you begin to lose money, you can immediately exit the market and change your trading method. You don’t have to use the same techniques day in and day out. It’s a very flexible way to trade that you can customize based on what you think the market is going to do at any given moment.
For the discretionary trader, trades are made using gut instinct and intuition. Unless a computer is generating a buy or sell signal and you actually follow the signal, your emotions will affect your trading. Remember fear and greed? In discretionary trading, technical tools such as indicators are sometimes used; however when they are put to use, they are utilized sporadically as opposed to systematically.
Fascinated by the markets, the discretionary trader is ready to put on a trade at a moments notice. The most uncomfortable part of trading for the discretionary traders is when there is no action. So he will jump on any piece of information, anything that will permit him to stab at the market. Above all, he craves action.
Intuition and Hot Tips
The discretionary trader uses several sources for his trading decisions. One is intuition, for example, "I see a lot of people in stores, so I think the economy is good, and earnings will increase, so the stock market should go up, and I should buy Sears." He/She usually spends a lot of time talking to his broker. "What do you think Joe, isn't Target going to turn around?" Another is reading and watching the news, "Retail sales are looking strong and Target is closing stores to lower their overhead."
Hot tips are a common way that a discretionary trader gets ideas. A call from his broker or good friend, or a tip from a discussion at a cocktail party are all places the discretionary trader gets his trading ideas. "Hey George, Reasearch in Motion is coming out with a hot new blackbarry, hers is a stock you can pick up for cheap." If it gets dry in the summer, our discretionary trader may decide to buy corn beans or wheat. However, when he looks out the window and notces its raining, he immediately sells his position. A news story on the nightly news may cause a discretionary trader to short the airline that has just had a crash.
Craves Excitement
What a discretionary trader loves is the excitement. He/She loves being "in the markets," playing with the big guys. He/She craves the risk, the excitement of trading and gambling rush that he gets from calling his broker and putting in the order to buy. He/She loves being able to sell Eli Lilly due to a news story of the health hazards of one of their new drugs. He/She has a real obsession for buying Cotton based on the hot tip from his/her broker that the upcoming crop report was going to be bullish, and he covets the tip from his friend who called to say that he just bought Intel Corp. because the latest quarterly earnings were going to be to the upside.
Discretionary traders retain the flexibility of changing their buy and sell criteria from moment to moment, and change the way they trade from minute to minute and day by day. "Well, that last trade was a disaster, so tomorrow I will buy McDonald's only if it opens up from yesterday's close." They don't have any discipline, nor do they think they need any. They use their intuition and their gut instinct, and feel justified in doing so. They think "Making money is easy, you just have to be smarter and quicker than the next guy."
I personally don't know anybody who has made money by discretionary trading. They may have been lucky and won a few trades, but overall, over time, discretionary traders always lose money.
It is after money has been lost that the discretionary trader in some way stumbles across technical indicators. It may be from the chart book he just looked at where there was a Stochastic Indicator underneath the chart. Or he may have gone to the latest Make a Million Dollars Trading the Stock Market seminar and found out that using the Relative Strength Indicator is the sure way to stock market profits. He thinks, "So this is how they do it!" These indicators look like magic. They add some rationality to an otherwise irrational trading style. He thinks, "This must be how the big money players make big money--they use technical indicators!"
Discovers Technical Indicators
Once the discretionary trader discovers technical indicators, he or she incorporates some rudimentary ones into trading, usually additional justification for making the trade. "Not only did my broker tell me to buy Intel Corp. but Intel also have great relative strength. Intel's moving averages are bullish and the Stochastics are oversold and giving a buy signal as well."
These newfound technical indicators give the discretionary trader a new lease on trading. Now our trader has a whole new world in front of him/her -- the world of technical trading. For a while, this newfound world combines with the intuition and the discretionary trader views himself as a system trader. He says, "I trade a system using moving averages and stochastics with a dash of daily news a tips from my broker. I am not a real objective systems trader." While the trader may view himself as a systems trader this could not be further from the truth. The discretionary trader's style is still undisciplined, based on newly educated guesses, and he is probably still losing money.
For a moment, these technical tools were thought to be the answer, and while they add a little more rationale to his/her trades, the losses continue to pile up. Despite his continuing angst, our discretionary trader is now on the way to becoming a technical trader.
Thursday, July 2, 2009
Friday, June 26, 2009
Making the Most of Today
By Del Denney
One of my favorite mission statements comes from the Notre Dame locker room. As the players rush onto the field, they have a tradition of touching a sign. It's not just any sign. It's a personal slogan. It's an agenda that reads, "Play like a champion today." I find that so intriguing. While the saying as a whole is quite profound, I want to put emphasis on the word today.
In my investing life, my personal life, and my spiritual life, today is what counts. I cannot count on the good fortune of the past, nor can I hang onto the bad things that happened to me. By the same token, I cannot and will not waste time in anticipation or apprehension of what in the future may affect me. Just as your mother told you when you were younger, "Don't wish your life away." With the current economic turmoil we face, it is all too easy to simply wait to take action until some future date that we have set. However, we need to stay away from the sidelines and get into the game, today.
To illustrate this concept, I would like to share a story. When I first learned to golf, I was so excited to get out on the green every time I played. Each time, I got dressed up in my nice golf shirt and slacks, retrieved my clubs from the garage, and felt absolutely pumped for a day out with the guys. Upon arriving at the first hole, I would get up to tee off, smack the ball, and watch it dart off right into the woods. Upon finding my ball, I would take another mighty whack, typically sending the ball into a sand trap. It was about this time that my buddies would chuckle and tell me that I spent more time in the sand than David Hasselhoff of the TV series Baywatch.
By then, I would be frustrated. Not only had I had two bad hits in a row, but I was then faced with the monumental task of getting the ball out of the sand trap. Did I mention sand traps are my nemesis? I would hit it again, and much to my dismay, the ball would invariably fly over the green and nestle itself in another sand trap. My whole day was often filled with frustration and, quite frankly, I often began to wish that I wasn't playing golf anymore. My whole attitude changed for the worse in a matter of 20 minutes. Isn't life a lot like this?
The moral of the story is this: Do not let your bad shots affect your current shot; do not let your future swings affect your current swing.
Focus on right now! Just as a golfer must focus on his or her current swing, we all need to focus on the current day. Erase from your mind what has happened in the past. Cross the bridge of your "next shot" when you get there. Success is about staying in the moment. In other words, think about the shot you are taking right now. Look around you. What are your opportunities? What are the dangers? How can you improve your current position?
Here are some suggestions to make today more productive:
1. Your Past
Learn from the past, but don't dwell on it. Today, you can move farther than any accomplishments of yesterday. Upon winning a third world championship in bull riding, Tuff Hedman soon began training for his next rodeo. He spent little time celebrating his victory; instead, he began preparing himself for the next season. Someone took notice of this, and questioned him about his routine. He simply said, "The bull won't care what I did last week." The same rings true for our lives. Life doesn't care about our past victories, or even our past failures. Each day we have an opportunity to move forward, no matter where we are in life.
2. Your Future
Set your priorities straight today. As the classic quote says, "A goal not written down is merely a wish." It's important to dream, but you must have your goals in place in order to achieve those dreams. What do you want to achieve? How will you get there? Set a large goal, then break it into smaller goals in order to accomplish the bigger picture. When you wake up in the morning, make a list of everything you want to achieve for that day.
3. The Present
Start your day with an uplifting book. It will help set the tone for the rest of the day. Many people report experiencing great results when they set aside a part of their morning for religious or spiritual devotion or meditation. If you lack time in the morning, audio books are great for your morning commute to work.
Something that I have found helpful is keeping a personal journal. Every night, take the time to write in your journal what happened that day. You may be surprised at all you have accomplished. If you're trading in the stock market, write down your trades. Write down why you are in the trade and what it was that triggered you into the trade. If you are investing in real estate, write down how many offers you have made. Write down the description of the experiences you had with the people with whom you networked. The next day, push yourself to be better than the day before. If you are actively involved with keeping a good journal, you may find yourself thinking during the day about what you are going to put in your journal for that night. I've even found myself going the extra mile just so I could have a good journal entry. Your journal will also be a valuable legacy to leave behind to your loved ones. It may help inspire them one day to live to their fullest potential.
In conclusion, the greatest gift that we have is the opportunities that avail themselves to us everyday. Make the most of the day no matter how mundane or busy it might be. In your work ethic, remember the adage, "Do today what others won't so you can live tomorrow like others can't." This is a new day; what are you going to do with it?
One of my favorite mission statements comes from the Notre Dame locker room. As the players rush onto the field, they have a tradition of touching a sign. It's not just any sign. It's a personal slogan. It's an agenda that reads, "Play like a champion today." I find that so intriguing. While the saying as a whole is quite profound, I want to put emphasis on the word today.
In my investing life, my personal life, and my spiritual life, today is what counts. I cannot count on the good fortune of the past, nor can I hang onto the bad things that happened to me. By the same token, I cannot and will not waste time in anticipation or apprehension of what in the future may affect me. Just as your mother told you when you were younger, "Don't wish your life away." With the current economic turmoil we face, it is all too easy to simply wait to take action until some future date that we have set. However, we need to stay away from the sidelines and get into the game, today.
To illustrate this concept, I would like to share a story. When I first learned to golf, I was so excited to get out on the green every time I played. Each time, I got dressed up in my nice golf shirt and slacks, retrieved my clubs from the garage, and felt absolutely pumped for a day out with the guys. Upon arriving at the first hole, I would get up to tee off, smack the ball, and watch it dart off right into the woods. Upon finding my ball, I would take another mighty whack, typically sending the ball into a sand trap. It was about this time that my buddies would chuckle and tell me that I spent more time in the sand than David Hasselhoff of the TV series Baywatch.
By then, I would be frustrated. Not only had I had two bad hits in a row, but I was then faced with the monumental task of getting the ball out of the sand trap. Did I mention sand traps are my nemesis? I would hit it again, and much to my dismay, the ball would invariably fly over the green and nestle itself in another sand trap. My whole day was often filled with frustration and, quite frankly, I often began to wish that I wasn't playing golf anymore. My whole attitude changed for the worse in a matter of 20 minutes. Isn't life a lot like this?
The moral of the story is this: Do not let your bad shots affect your current shot; do not let your future swings affect your current swing.
Focus on right now! Just as a golfer must focus on his or her current swing, we all need to focus on the current day. Erase from your mind what has happened in the past. Cross the bridge of your "next shot" when you get there. Success is about staying in the moment. In other words, think about the shot you are taking right now. Look around you. What are your opportunities? What are the dangers? How can you improve your current position?
Here are some suggestions to make today more productive:
1. Your Past
Learn from the past, but don't dwell on it. Today, you can move farther than any accomplishments of yesterday. Upon winning a third world championship in bull riding, Tuff Hedman soon began training for his next rodeo. He spent little time celebrating his victory; instead, he began preparing himself for the next season. Someone took notice of this, and questioned him about his routine. He simply said, "The bull won't care what I did last week." The same rings true for our lives. Life doesn't care about our past victories, or even our past failures. Each day we have an opportunity to move forward, no matter where we are in life.
2. Your Future
Set your priorities straight today. As the classic quote says, "A goal not written down is merely a wish." It's important to dream, but you must have your goals in place in order to achieve those dreams. What do you want to achieve? How will you get there? Set a large goal, then break it into smaller goals in order to accomplish the bigger picture. When you wake up in the morning, make a list of everything you want to achieve for that day.
3. The Present
Start your day with an uplifting book. It will help set the tone for the rest of the day. Many people report experiencing great results when they set aside a part of their morning for religious or spiritual devotion or meditation. If you lack time in the morning, audio books are great for your morning commute to work.
Something that I have found helpful is keeping a personal journal. Every night, take the time to write in your journal what happened that day. You may be surprised at all you have accomplished. If you're trading in the stock market, write down your trades. Write down why you are in the trade and what it was that triggered you into the trade. If you are investing in real estate, write down how many offers you have made. Write down the description of the experiences you had with the people with whom you networked. The next day, push yourself to be better than the day before. If you are actively involved with keeping a good journal, you may find yourself thinking during the day about what you are going to put in your journal for that night. I've even found myself going the extra mile just so I could have a good journal entry. Your journal will also be a valuable legacy to leave behind to your loved ones. It may help inspire them one day to live to their fullest potential.
In conclusion, the greatest gift that we have is the opportunities that avail themselves to us everyday. Make the most of the day no matter how mundane or busy it might be. In your work ethic, remember the adage, "Do today what others won't so you can live tomorrow like others can't." This is a new day; what are you going to do with it?
Monday, June 22, 2009
BUILDING YOUR CREDIBILITY USING THE POWER OF THE INTERNET
By Spencer Hamilton
For a real estate investor one of the most important steps in establishing credibility is to carve out a niche as the local "go-to" person for real estate problem solving. You must gain people's trust by teaching them, not by "pitching" them. There are many traditional ways to teach and educate people. You can provide information through letters, postcards, fliers, newsletters, press releases, articles, and speaking engagements at civic clubs, real estate investment clubs, real estate company meetings, and educational seminars. You can also educate people through paid advertisements, TV infomercials, press releases, and radio talk shows. All of these are venues by which you can educate people, thereby establishing yourself as the local real estate expert.
But in today's fast-paced world, nothing beats the amazing power and speed of the Internet for rapidly building your credibility. By using the Internet, an anonymous real estate investor can become a highly respected authority almost overnight!
Let's take a look at the Internet and see why it should be one of the main tools you use to quickly create your credibility.
Timothy Berners-Lee, inventor of the world wide web (no, it wasn't Al Gore who invented the Internet) recently said in an interview with BBC News (April 2008), "The Internet is still in its infancy." Bill Gates of Microsoft said, "If your business is not on the Internet, then your business will be out of business."
Did you know that more people are now getting their information from the Internet than from newspapers? Newspaper subscriptions, for the most part, are falling, while Internet usage is skyrocketing. We are even at a point where more people are using the Internet to entertain themselves than are watching TV. Can you see the trends? If you want to get information out to people as fast as possible, the Internet is the obvious choice.
There are numerous ways to use the Internet to get your educational and business information out to the world. And with continually improving technology and software programs, using the Internet has never been easier, even for those of us who, by our own admission, are Internet-impaired. Let's review some of the ways one can use the world wide web to make his or her information available for the world to see:
Create a Website
This is the traditional way of gaining a presence on the web, and is one of the best ways to promote yourself and your business. Your site doesn't have to be expensive or fancy, but it should have lots of good educational content. If the information you provide on your website is relevant and useful to your visitors, they will keep coming back for more. You will be positioning yourself as a real estate problem-solving expert, and will gain the trust of your visitors. Many of those visitors will become clients who will sell you their home, buy a home from you, or refer business to you.
Setting up a website is really not that hard. There are numerous companies that will create a website for you, as well as services that will help you create your own website. Your budget and time constraints will dictate which option is best for you. A search for "website development" using Google or another search engine will aid you in finding the help you need for developing your website. There are many good sites, so do a search and choose a service that meets your needs and is within your desired price range.
Create a Blog
What is a blog? Blogging is contributing content to a web log (blog) that is published online. The fact that the information is published to the Internet means it is accessible to millions upon millions of Internet users worldwide. Blogs can be as simple as a page of someone's thoughts, or as complicated as a large, interactive resource provider. While blogging used to be dominated by individuals with some web knowledge, it is now being used by the masses. Even large corporations such as Ford, McDonalds, Time Warner, Wal-Mart, and Nike maintain company blogs; if you become a blogger, you are in good company.
Don't worry; you don't have to know a lot about computer languages and programming. You don't even need to have a website, although if you do, you can use your blog to drive traffic to your website, where you can have more information and good content for your visitors. Setting up a blog is very easy. There are a large variety of blogging platforms that exist to help individuals and businesses establish and run their own blogs. Some of the most well-known blogging platforms are:
www.blogger.com
www.geeklog.com
www.blogdrive.com
www.wordpress.org
www.livejournal.com
www.typepad.com
www.b2evolution.net
There are many other blogging platforms out there; do a search and find the system that works best for you. There is one thing to keep in mind if you become a blogger. You need to post new and relevant information on your blog as often as possible; it doesn't have to be a lot of material, just good material. Some people post everyday, but posting once a week should keep your visitors happy and coming back for more information. The whole idea is to get (and keep) as many visitors as possible coming to your blog. Consistently posting good content on your blog will help you accomplish this goal, although this is only part of the formula.
Once your blog is up and running, you will want to make sure your blog is listed with as many blog directories and communities as possible. This will drive more traffic to your blog site. Here are a few blog directories; do a search for a more complete list:
www.bloguniverse.com www.blogtoplist.com
www.blogarama.com www.blogrush.com
Join Social Networking Sites
Social networking sites have become very popular in recent years, and it seems that new sites are being developed every few months. Some of the most popular sites are YouTube, MySpace, Facebook, Twitter, and Squidoo. Social networking sites are no longer just for your teenagers to post a few pictures (or a lot of pictures) and a personal profile. These social networking sites are really, really, really big business. In fact, one company that tracks website traffic, Comscore, indicates that in March 2008, 84.8 million viewers watched videos on YouTube. Facebook had more than 73 million visitors in January 2009, MySpace had more than 53 million, and Squidoo had close to 5 million visitors. And yes, in the news just this last week was an article on how some in the U.S. Congress were using Twitter to communicate (only on critical issues, of course).
So what does this mean to you? It means that social networking sites can be
very effective in driving traffic to your blogs and/or websites. So get with
your teenagers and have them help you set up your profile on Facebook and
MySpace, or even put a video on YouTube! You don't need expensive video equipment anymore. An inexpensive flip camera can do an excellent job.
Utilize Social Bookmarking Sites
Social bookmarking sites are another way to promote blog sites and get the attention of new readers and potential clients. These sites can be used to increase the number of other blogs and sites that link to your own blog, thus increasing traffic. A few of the many social bookmarking sites are:
www.stumbleupon.com www.linkroll.com
www.feedmelinks.com/portal www.digg.com
Create and Use a Signature
Whenever you send an Email, be sure to add your signature box to the end of the Email. In the signature box, along with other contact information, you can put a link to your blog or website. This is powerful! It gives people a chance to go to your blog or website without you having to give them a sales pitch about visiting your sites. It is amazing how many people who receive your Emails will click on your link just out of curiosity. Once they are on your blogs and/or websites, they will find all sorts of quality educational material that will benefit them. Also, if you participate in any of the many online message board communities that allow posters to have signatures, you can add your link there as well.
As you can see, there are many ways for a person to gain a presence on the Internet. If you don't have a presence on the Internet, you become invisible. One of the first things people do nowadays when they are introduced to a professional or a business is to Google or similarly research the individual or company. If they can't find you or your business online, they may think you are not serious about your business or qualified to help them. Creating this reaction in your clientele pool will cost you credibility, and without credibility, you won't have much business.
With Web 2.0, you don't have to know anything about programming or programming languages to gain a presence on the Internet. All the work is pretty much done for you, as when one paints by numbers. When you log onto almost any of these sites, you will be walked through the steps needed to get you started. If you can click the mouse, you can successfully build a blog or a website. And if you run into trouble, just ask your 10-year-old for help. He or she can have you up and running in no time.
"Technology is like a steamroller. If you’re not on the steamroller, then you are destined to become part of the road." ~ Unknown
For a real estate investor one of the most important steps in establishing credibility is to carve out a niche as the local "go-to" person for real estate problem solving. You must gain people's trust by teaching them, not by "pitching" them. There are many traditional ways to teach and educate people. You can provide information through letters, postcards, fliers, newsletters, press releases, articles, and speaking engagements at civic clubs, real estate investment clubs, real estate company meetings, and educational seminars. You can also educate people through paid advertisements, TV infomercials, press releases, and radio talk shows. All of these are venues by which you can educate people, thereby establishing yourself as the local real estate expert.
But in today's fast-paced world, nothing beats the amazing power and speed of the Internet for rapidly building your credibility. By using the Internet, an anonymous real estate investor can become a highly respected authority almost overnight!
Let's take a look at the Internet and see why it should be one of the main tools you use to quickly create your credibility.
Timothy Berners-Lee, inventor of the world wide web (no, it wasn't Al Gore who invented the Internet) recently said in an interview with BBC News (April 2008), "The Internet is still in its infancy." Bill Gates of Microsoft said, "If your business is not on the Internet, then your business will be out of business."
Did you know that more people are now getting their information from the Internet than from newspapers? Newspaper subscriptions, for the most part, are falling, while Internet usage is skyrocketing. We are even at a point where more people are using the Internet to entertain themselves than are watching TV. Can you see the trends? If you want to get information out to people as fast as possible, the Internet is the obvious choice.
There are numerous ways to use the Internet to get your educational and business information out to the world. And with continually improving technology and software programs, using the Internet has never been easier, even for those of us who, by our own admission, are Internet-impaired. Let's review some of the ways one can use the world wide web to make his or her information available for the world to see:
Create a Website
This is the traditional way of gaining a presence on the web, and is one of the best ways to promote yourself and your business. Your site doesn't have to be expensive or fancy, but it should have lots of good educational content. If the information you provide on your website is relevant and useful to your visitors, they will keep coming back for more. You will be positioning yourself as a real estate problem-solving expert, and will gain the trust of your visitors. Many of those visitors will become clients who will sell you their home, buy a home from you, or refer business to you.
Setting up a website is really not that hard. There are numerous companies that will create a website for you, as well as services that will help you create your own website. Your budget and time constraints will dictate which option is best for you. A search for "website development" using Google or another search engine will aid you in finding the help you need for developing your website. There are many good sites, so do a search and choose a service that meets your needs and is within your desired price range.
Create a Blog
What is a blog? Blogging is contributing content to a web log (blog) that is published online. The fact that the information is published to the Internet means it is accessible to millions upon millions of Internet users worldwide. Blogs can be as simple as a page of someone's thoughts, or as complicated as a large, interactive resource provider. While blogging used to be dominated by individuals with some web knowledge, it is now being used by the masses. Even large corporations such as Ford, McDonalds, Time Warner, Wal-Mart, and Nike maintain company blogs; if you become a blogger, you are in good company.
Don't worry; you don't have to know a lot about computer languages and programming. You don't even need to have a website, although if you do, you can use your blog to drive traffic to your website, where you can have more information and good content for your visitors. Setting up a blog is very easy. There are a large variety of blogging platforms that exist to help individuals and businesses establish and run their own blogs. Some of the most well-known blogging platforms are:
www.blogger.com
www.geeklog.com
www.blogdrive.com
www.wordpress.org
www.livejournal.com
www.typepad.com
www.b2evolution.net
There are many other blogging platforms out there; do a search and find the system that works best for you. There is one thing to keep in mind if you become a blogger. You need to post new and relevant information on your blog as often as possible; it doesn't have to be a lot of material, just good material. Some people post everyday, but posting once a week should keep your visitors happy and coming back for more information. The whole idea is to get (and keep) as many visitors as possible coming to your blog. Consistently posting good content on your blog will help you accomplish this goal, although this is only part of the formula.
Once your blog is up and running, you will want to make sure your blog is listed with as many blog directories and communities as possible. This will drive more traffic to your blog site. Here are a few blog directories; do a search for a more complete list:
www.bloguniverse.com www.blogtoplist.com
www.blogarama.com www.blogrush.com
Join Social Networking Sites
Social networking sites have become very popular in recent years, and it seems that new sites are being developed every few months. Some of the most popular sites are YouTube, MySpace, Facebook, Twitter, and Squidoo. Social networking sites are no longer just for your teenagers to post a few pictures (or a lot of pictures) and a personal profile. These social networking sites are really, really, really big business. In fact, one company that tracks website traffic, Comscore, indicates that in March 2008, 84.8 million viewers watched videos on YouTube. Facebook had more than 73 million visitors in January 2009, MySpace had more than 53 million, and Squidoo had close to 5 million visitors. And yes, in the news just this last week was an article on how some in the U.S. Congress were using Twitter to communicate (only on critical issues, of course).
So what does this mean to you? It means that social networking sites can be
very effective in driving traffic to your blogs and/or websites. So get with
your teenagers and have them help you set up your profile on Facebook and
MySpace, or even put a video on YouTube! You don't need expensive video equipment anymore. An inexpensive flip camera can do an excellent job.
Utilize Social Bookmarking Sites
Social bookmarking sites are another way to promote blog sites and get the attention of new readers and potential clients. These sites can be used to increase the number of other blogs and sites that link to your own blog, thus increasing traffic. A few of the many social bookmarking sites are:
www.stumbleupon.com www.linkroll.com
www.feedmelinks.com/portal www.digg.com
Create and Use a Signature
Whenever you send an Email, be sure to add your signature box to the end of the Email. In the signature box, along with other contact information, you can put a link to your blog or website. This is powerful! It gives people a chance to go to your blog or website without you having to give them a sales pitch about visiting your sites. It is amazing how many people who receive your Emails will click on your link just out of curiosity. Once they are on your blogs and/or websites, they will find all sorts of quality educational material that will benefit them. Also, if you participate in any of the many online message board communities that allow posters to have signatures, you can add your link there as well.
As you can see, there are many ways for a person to gain a presence on the Internet. If you don't have a presence on the Internet, you become invisible. One of the first things people do nowadays when they are introduced to a professional or a business is to Google or similarly research the individual or company. If they can't find you or your business online, they may think you are not serious about your business or qualified to help them. Creating this reaction in your clientele pool will cost you credibility, and without credibility, you won't have much business.
With Web 2.0, you don't have to know anything about programming or programming languages to gain a presence on the Internet. All the work is pretty much done for you, as when one paints by numbers. When you log onto almost any of these sites, you will be walked through the steps needed to get you started. If you can click the mouse, you can successfully build a blog or a website. And if you run into trouble, just ask your 10-year-old for help. He or she can have you up and running in no time.
"Technology is like a steamroller. If you’re not on the steamroller, then you are destined to become part of the road." ~ Unknown
Monday, June 8, 2009
Building a Business from the Ground Up
By Grace Cuollo (Columnist for Wealth Intelligence Academy)
So you have this great idea, and you're thinking of going into business to capitalize on it. You are pretty sure that all you need now is a little guidance on how to get started. Starting a business is never easy, and you want to be as prepared as you can possibly be for what may be lurking ahead. With that said, let us do a little litmus test to see if you really want to choose the entrepreneur path.
The first thing you must understand and accept is that in order to get things up and running, there may be times that you will need to dedicate extra time and energy to your business. These longer hours may cut into what would typically be personal or family time. Are you willing to make that sacrifice?
The second thing you must ask yourself is if you are willing and able to leave your ego at the door. Are you willing to seek out the advice of those who have been in your shoes and succeeded in doing what you are working to achieve, and are you willing to take that advice? Are you aware of your strengths and your weaknesses, and are you willing to bring on board others who have skills that complement yours?
How much do you truly desire this? Are you ready to commit to what you are beginning, and see it through to the end? It is here that you will find yourself most greatly challenged. It may challenge everything that you thought you knew about yourself, and then some. Do you have what it takes to absorb the highs and lows of building a business, and do you truly possess the unmitigated drive to succeed?
If you doubt yourself, then do not get started until the time comes that you have the confidence to do what is necessary to prevail. If you can honestly answer yes to all of these questions, then forge onward with my blessings.
The Business Plan
The first thing that a business needs is a good, solid business plan. A business plan is your road map to your final vision. It will help you to focus on exactly what it is that you are trying to accomplish, and how you plan to get there.
It is also crucial to have this plan written when presenting your ideas to others. The ability to visually see your proposed road to success will allow friends, family, and potential partners and investors the chance to develop confidence in your vision, and hopefully, will inspire them to support and help you.
Funding
Generally speaking, the bigger the business, the larger the overhead. Understand where your capital is coming from. If you are starting on a smaller budget, then you may want to consider starting out of your home and expanding as finances allow. You may later be presented with an opportunity in which it makes sense to borrow money to grow your business. Because of this, your credit score is important. Banks will rely heavily on your credit score when deciding to loan you money. Be sure you know what your score is and, if needed, work toward improving your score as much as possible.
Entity
You must decide on the type of entity your business will be. Will you be a sole proprietor, or do you want to enter into a partnership? Depending on your situation and your business idea, perhaps a corporation or limited liability company would be a better choice. This decision is an immensely important one, and it may behoove you to seek the advice of a professional or professional organization, such as a CPA or an attorney specializing in the development of professional entities.
You will also want to consider the fiscal year of your business. Depending on your circumstances, you may want to use the regular calendar year as a start and end date, or it may be beneficial to use different months as start and end dates.
These decisions will have an impact on your tax filings at the end of the year, so choosing the most appropriate entity and fiscal year for your situation will both be very important decisions.
Federal Identification Number
A federal tax identification number, also referred to as an Employer Identification Number (EIN) is given to you by the IRS as a means to identify your business for tax reporting purposes. If you form a business entity, you will certainly need a federal identification number. It is easy to get an EIN, and you can set one up by contacting the IRS. If you decide to establish a professional entity through the means of an outside resource, they will probably get the EIN for you.
Accounting
The method for keeping accounting records will be another choice that you will have to make. There is a variety of accounting software that is available on the market these days that does a very nice job of keeping the books organized. You will want to do some research in this area, since some software will be more user-friendly than others, and you want to purchase a software package that will be most appropriate for your situation. It is possible, however, to keep records without software, and if you feel that your situation lends itself to a non-computerized method of accounting, then there is nothing wrong with going that route.
Contracts
If you will be presenting contracts or are presented with contracts as a part of your business model, than you may want to discuss them with a licensed professional before implementing them. Make sure they meet your requirements for personal and professional protection, and, if applicable, that they meet any federal, state, or local regulations as well.
You want to start your business the right way, and taking the proper initial steps will go a long way in helping you to do that. There have been countless unfortunate situations in which people tried to cut corners when first starting out, only to learn too late that doing something differently in the beginning would have meant success and not failure.
Starting a business may feel a little overwhelming in the beginning, especially if you have never done it before, but with guidance from the appropriate professionals and by following a few carefully plotted initial steps, much of the fear and uncertainty should be lifted, leaving you free to begin your new adventure toward achieving your dreams.
So you have this great idea, and you're thinking of going into business to capitalize on it. You are pretty sure that all you need now is a little guidance on how to get started. Starting a business is never easy, and you want to be as prepared as you can possibly be for what may be lurking ahead. With that said, let us do a little litmus test to see if you really want to choose the entrepreneur path.
The first thing you must understand and accept is that in order to get things up and running, there may be times that you will need to dedicate extra time and energy to your business. These longer hours may cut into what would typically be personal or family time. Are you willing to make that sacrifice?
The second thing you must ask yourself is if you are willing and able to leave your ego at the door. Are you willing to seek out the advice of those who have been in your shoes and succeeded in doing what you are working to achieve, and are you willing to take that advice? Are you aware of your strengths and your weaknesses, and are you willing to bring on board others who have skills that complement yours?
How much do you truly desire this? Are you ready to commit to what you are beginning, and see it through to the end? It is here that you will find yourself most greatly challenged. It may challenge everything that you thought you knew about yourself, and then some. Do you have what it takes to absorb the highs and lows of building a business, and do you truly possess the unmitigated drive to succeed?
If you doubt yourself, then do not get started until the time comes that you have the confidence to do what is necessary to prevail. If you can honestly answer yes to all of these questions, then forge onward with my blessings.
The Business Plan
The first thing that a business needs is a good, solid business plan. A business plan is your road map to your final vision. It will help you to focus on exactly what it is that you are trying to accomplish, and how you plan to get there.
It is also crucial to have this plan written when presenting your ideas to others. The ability to visually see your proposed road to success will allow friends, family, and potential partners and investors the chance to develop confidence in your vision, and hopefully, will inspire them to support and help you.
Funding
Generally speaking, the bigger the business, the larger the overhead. Understand where your capital is coming from. If you are starting on a smaller budget, then you may want to consider starting out of your home and expanding as finances allow. You may later be presented with an opportunity in which it makes sense to borrow money to grow your business. Because of this, your credit score is important. Banks will rely heavily on your credit score when deciding to loan you money. Be sure you know what your score is and, if needed, work toward improving your score as much as possible.
Entity
You must decide on the type of entity your business will be. Will you be a sole proprietor, or do you want to enter into a partnership? Depending on your situation and your business idea, perhaps a corporation or limited liability company would be a better choice. This decision is an immensely important one, and it may behoove you to seek the advice of a professional or professional organization, such as a CPA or an attorney specializing in the development of professional entities.
You will also want to consider the fiscal year of your business. Depending on your circumstances, you may want to use the regular calendar year as a start and end date, or it may be beneficial to use different months as start and end dates.
These decisions will have an impact on your tax filings at the end of the year, so choosing the most appropriate entity and fiscal year for your situation will both be very important decisions.
Federal Identification Number
A federal tax identification number, also referred to as an Employer Identification Number (EIN) is given to you by the IRS as a means to identify your business for tax reporting purposes. If you form a business entity, you will certainly need a federal identification number. It is easy to get an EIN, and you can set one up by contacting the IRS. If you decide to establish a professional entity through the means of an outside resource, they will probably get the EIN for you.
Accounting
The method for keeping accounting records will be another choice that you will have to make. There is a variety of accounting software that is available on the market these days that does a very nice job of keeping the books organized. You will want to do some research in this area, since some software will be more user-friendly than others, and you want to purchase a software package that will be most appropriate for your situation. It is possible, however, to keep records without software, and if you feel that your situation lends itself to a non-computerized method of accounting, then there is nothing wrong with going that route.
Contracts
If you will be presenting contracts or are presented with contracts as a part of your business model, than you may want to discuss them with a licensed professional before implementing them. Make sure they meet your requirements for personal and professional protection, and, if applicable, that they meet any federal, state, or local regulations as well.
You want to start your business the right way, and taking the proper initial steps will go a long way in helping you to do that. There have been countless unfortunate situations in which people tried to cut corners when first starting out, only to learn too late that doing something differently in the beginning would have meant success and not failure.
Starting a business may feel a little overwhelming in the beginning, especially if you have never done it before, but with guidance from the appropriate professionals and by following a few carefully plotted initial steps, much of the fear and uncertainty should be lifted, leaving you free to begin your new adventure toward achieving your dreams.
Thursday, April 16, 2009
Why the Cheap Will Never Get Rich
By: Robert Kiyosaki
Columnist for Yahoo! Finance and Author of Rich Dad Poor Dad
The other day a friend of mine approached me excitedly, saying, "I found the house of my dreams. It's in foreclosure and the bank will sell it to me for a great price."
"How good is the price?" I asked.
"Just before the real estate market crashed, the seller was asking $780,000 for the property. Today, I can buy it from the bank for $215,000. What do you think?" she asked.
"How would I know?" I replied. "All you've given me is the price."
"Yes!" she squealed. "Now my husband and I can afford it."
"Only cheap people buy on price," I replied. "Just because something is cheap doesn't mean it's worth the cost."
I then explained to her one of my most basic money principles: I buy value. I will pay more for value. If I don't like the price, I simply pass. If the seller wants to sell, he will come back with a better price. I let him tell me what he will accept. I know some people love to haggle; personally, I don't. If a person wants to sell, they will sell. If I feel what I am buying is of value, I'll pay the price. Value rather than price has made me rich.
Against my advice, my friend sought financing for her "dream" home.
Fortunately, the bank turned her down. The house was on a busy street in a deteriorating neighborhood. The high school four blocks away was one of the most dangerous schools in the city. Her son and daughter would either have to go to private school or take karate lessons. She is now looking for a cheaper house to buy and has asked her father, who is retired, for help with the down payment. If her past is a crystal ball to her future, she will likely always be cheap and poor, even though she is a good, kind, educated, hard-working person.
My Point of View
What follows are some thoughts on why my friend will probably never get ahead financially -- especially in this market.
1. She and her husband have college degrees but zero financial education. Even worse, neither plans to attend any investment classes. Choosing to remain financially uneducated has caused them to miss out on the greatest bull and bear markets in history. As my rich dad often said, "What you don't know keeps you poor."
2. She is too emotional. In the world of money and investing, you must learn to control your emotions. When you think about it, three of our biggest financial decisions in life are made at times of peak emotional excitement: deciding to get married, buying a home, and having kids.
My dad often said, "High emotions, low intelligence." To be rich, you need to see the good and the bad, the short- and long-term consequences of your decisions. Obviously, this is easier said than done, but it's key to building wealth.
3. She doesn't know the difference between advice from rich people and advice from sales people. Most people get their financial advice from the latter -- people who profit even if you lose. One reason why financial education is so important is because it helps you know the difference between good and bad advice.
As the current crisis demonstrates, our schools teach very little about money management. Millions of people are living in fear because they followed conventional wisdom: Go to school, get a job, work hard, save money, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. Many people who followed this financial prescription are not sleeping at night. They need a new plan. Had they sought out a little financial education, they might not be entangled in this mess.
A Thank You to Jon Stewart
Speaking of finance experts, I personally want to thank Jon Stewart of 'The Daily Show' for taking on Jim Cramer and CNBC. Jon Stewart did an incredible job of representing the millions of people all over the world who have lost their savings in the market. He was right in saying he thought it "disingenuous" to advise people to invest for the long term through their retirement plans while knowing full well that traders could steal Americans' retirement money by trading in and out of the market. Most traders like Cramer realize that investing in mutual funds for the long term is financial suicide. Cramer should have spoken up, but we all know why CNBC won't let him tell the truth. If he did, the station's advertisers would leave.
While I applaud Cramer for going on 'The Daily Show' and facing the music, I'm afraid he was marginalized by Stewart -- certainly outgunned -- and he has lost his credibility. He may pay an even bigger price if the SEC decides to dig deeper.
Jim Cramer is a very smart man. I watch his show. I just do not follow his advice.
In closing, I will say what I have said for years: We need financial education in our schools. Without it, we cannot tell the good advice from the bad.
Columnist for Yahoo! Finance and Author of Rich Dad Poor Dad
The other day a friend of mine approached me excitedly, saying, "I found the house of my dreams. It's in foreclosure and the bank will sell it to me for a great price."
"How good is the price?" I asked.
"Just before the real estate market crashed, the seller was asking $780,000 for the property. Today, I can buy it from the bank for $215,000. What do you think?" she asked.
"How would I know?" I replied. "All you've given me is the price."
"Yes!" she squealed. "Now my husband and I can afford it."
"Only cheap people buy on price," I replied. "Just because something is cheap doesn't mean it's worth the cost."
I then explained to her one of my most basic money principles: I buy value. I will pay more for value. If I don't like the price, I simply pass. If the seller wants to sell, he will come back with a better price. I let him tell me what he will accept. I know some people love to haggle; personally, I don't. If a person wants to sell, they will sell. If I feel what I am buying is of value, I'll pay the price. Value rather than price has made me rich.
Against my advice, my friend sought financing for her "dream" home.
Fortunately, the bank turned her down. The house was on a busy street in a deteriorating neighborhood. The high school four blocks away was one of the most dangerous schools in the city. Her son and daughter would either have to go to private school or take karate lessons. She is now looking for a cheaper house to buy and has asked her father, who is retired, for help with the down payment. If her past is a crystal ball to her future, she will likely always be cheap and poor, even though she is a good, kind, educated, hard-working person.
My Point of View
What follows are some thoughts on why my friend will probably never get ahead financially -- especially in this market.
1. She and her husband have college degrees but zero financial education. Even worse, neither plans to attend any investment classes. Choosing to remain financially uneducated has caused them to miss out on the greatest bull and bear markets in history. As my rich dad often said, "What you don't know keeps you poor."
2. She is too emotional. In the world of money and investing, you must learn to control your emotions. When you think about it, three of our biggest financial decisions in life are made at times of peak emotional excitement: deciding to get married, buying a home, and having kids.
My dad often said, "High emotions, low intelligence." To be rich, you need to see the good and the bad, the short- and long-term consequences of your decisions. Obviously, this is easier said than done, but it's key to building wealth.
3. She doesn't know the difference between advice from rich people and advice from sales people. Most people get their financial advice from the latter -- people who profit even if you lose. One reason why financial education is so important is because it helps you know the difference between good and bad advice.
As the current crisis demonstrates, our schools teach very little about money management. Millions of people are living in fear because they followed conventional wisdom: Go to school, get a job, work hard, save money, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. Many people who followed this financial prescription are not sleeping at night. They need a new plan. Had they sought out a little financial education, they might not be entangled in this mess.
A Thank You to Jon Stewart
Speaking of finance experts, I personally want to thank Jon Stewart of 'The Daily Show' for taking on Jim Cramer and CNBC. Jon Stewart did an incredible job of representing the millions of people all over the world who have lost their savings in the market. He was right in saying he thought it "disingenuous" to advise people to invest for the long term through their retirement plans while knowing full well that traders could steal Americans' retirement money by trading in and out of the market. Most traders like Cramer realize that investing in mutual funds for the long term is financial suicide. Cramer should have spoken up, but we all know why CNBC won't let him tell the truth. If he did, the station's advertisers would leave.
While I applaud Cramer for going on 'The Daily Show' and facing the music, I'm afraid he was marginalized by Stewart -- certainly outgunned -- and he has lost his credibility. He may pay an even bigger price if the SEC decides to dig deeper.
Jim Cramer is a very smart man. I watch his show. I just do not follow his advice.
In closing, I will say what I have said for years: We need financial education in our schools. Without it, we cannot tell the good advice from the bad.
Friday, March 27, 2009
4 Skills Every Trader Must Know
Article By: Austin Passamonte (Yahoo! Finance)
The mental (emotional) aspect of trading is hands down the toughest hurdle between aspiring traders and consistent success. For sure our technical nuts & bolts portion is vital. It goes without saying that we need some type of method, system or approach for trade entry, management and exit parameters that create a defined edge. The truth is there are countless ways to create such a viable "edge" over the long-term, but human management of such is the weakest link in that chain.
Out there in the real world we are taught to set tangible goals. Timelines, limits, targets and objectives are all part of the path to success. Need a roadmap to get where you're going in order to get there, right? At some point in our career we realize trading is a whole lot different than any other mainstream profession. Most of the rules that apply elsewhere are null & void in our world. Fiscal goal-setting is one of those. It's natural for traders in general and day traders in particular to set structured daily goals. We work a defined set of hours in our given shift... our time is exchanged for monetary reward expected. The people that we know have similar expectations. "How much did you make today?" "How were the markets today?" I see on the news that stocks went up (down) big... how did you do today?"
The word "today" is sprinkled into every question we hear. Yesterday is history, tomorrow remains a mystery. The only measurement of success is today... one day at a time. But in reality our profession is nothing more than a series of wins and losses strung together over (hopefully) long periods of time. There is no way to eliminate risk or loss, because risk is an equal part to reward in our equation. Focus on keeping loss controlled is a very different aspect than fixation on avoiding all losses, period. One is a normal part of operation, the other is a path to failure.
Many times we'll read somewhere and/or hear about traders who never have a losing day. It is said they string together weeks, months or years worth of stretches with nothing but wins in the end. We've also heard about bigfoot sightings all over the world for over a hundred years now. To my knowledge no one has ever produced a physical specimen of the latter or real-money proof of the former. Perhaps traders who never lose and sasquatch each exist, I wouldn't rule either completely out. A little bit of solid evidence would be nice.
Meanwhile, those of us in the real world approach each trading day with one overall goal in mind: perform our functions correctly, follow our script and let the law of large numbers work our mathematical edge in favor. That includes taking valid trade signals after a string of losses. That includes letting the fourth trade work towards its intended profit objective following three straight controlled losses prior. That includes trading through some adverse sessions where nothing we can do results in net-profit for the day.
Punching Clocks Thru Wins And Losses
Just because markets are open at a set time every day does not mean similar opportunities for profit and loss exist. Some sessions make it seem like money falls from the sky between both bells. Other times the morning or the afternoon is generous while the other half is stingy. There are days, sometimes several of them in succession where it appears the market is closed for business. Price action goes nowhere, there is nil chance to make money and nothing can be done about that fact.
Traders revel in those single days where favorable price movement results in profits that would normally reflect an entire week or even month's worth of effort. With the human-nature outlook of exchanging time for reward, we readily accept those occasions without a second thought. Such windfall but infrequent sessions are outside the norm, just like a true choppy or whipsaw congested session where it's all but impossible to avoid stiff losses let alone make two dimes of profit. But we view those impossible-to-profit event differently. Whereas investing one day's worth of effort for a week's average profit result is just fine, investing a second day's worth of effort for one day's average net loss is not fine. To some it is downright terrible.
Patience & Discipline
The worst trading sessions are often followed by the best. Dull, flat, volume-less sessions usually lead to high volume and range expansion the next day. If there are two or three dead sessions back to back, that period usually resolves with several days of hyper-active price movement. Stored energy is released, released energy eventually exhausts movement. It's a fundamental part of financial market behavior. Knowing this cycle exists and expecting it to repeat as usual is important. When we struggle to make headway for a day or two, better get ready for some very active tapes ahead. It's coming.
Obviously we'd all love to have every trading day result in new all-time high profits. None of us would ever opt to experience a net-loss session again. That's just one of numerous human emotions in the mix. Reality is, wins and losses distributed intraday and likewise day to day are all part of the natural course. Traders with gambling tendencies or ultra-competitive personalities tend to struggle with accepting loss as part of our profession. They take various small to extreme measures in fighting the natural process. Sometimes the result is benign, other times career ending.
Personal Pursuit
There are four segments one needs to harness = master before consistent success is possible. They are:
#1 - Ability to read charts/markets and determine whether price is more probable to go up, down or continue sideways from any bar forward. We need to know whether visible clues give odds of probability for pending direction, or not. We need to know this information inside all market conditions: low volatility, normal volatility and high volatility. Intraday traders will commonly face all three varied conditions one or more times daily. We especially need to know when we cannot know what is probable to happen next. When price movement goes from favorable to unfavorable per your method or approach, we need to know that through the shift of change.
#2 - Ability to determine where high-odds trade entry locations exist. Mastery of step #1 makes this process possible. There are no shortcuts... no red arrow/green arrow, no automated systems, no blind following dual indicators, no shortcuts exist to overcome ignorance of reading market action. Everything the market knows at any moment in time is reflected in its chart(s). The ability to weigh = measure = read that collective information determines our ability to identify exactly where long or short entry signal locations with greater than 50% odds to succeed exist in front of us.
#3 - Ability to determine your own method of trade management. I can promise you this: no one on earth can teach you how to manage your trades when your real money is live in the market. When your real money is ebbing & flowing in your account, anything else that anyone tells you will be forgotten. The only thing that will matter to you is making yourself feel good about the end results of that individual trade. That is not an opinion... it is an absolute law of human-nature fact.
#4 - Ability to manage yourself through all aspects of reading market action, determining trade entry and managing live trades from entry through execution to exit. That includes self-honesty of admitting when price action appears measured and predictable versus unruly. Honoring and acting on trade entry signals when confirmed, instead of succumbing to trigger-shy hesitation and/or chasing trade fills well past ideal entry locations due to fears of loss on both counts. Holding stop-loss orders to contain risk at predetermined levels based on logic and reason rather than crowded too close or pulled to avoid loss out of emotional fear.
Those are the four separate legs of our profession that overlap but stand apart. The first two aspects can be taught by someone to others. Managing live trades and managing ourselves through the entire process are learned on your own, because they can't be taught by anyone else.
Survival Instincts
The very moment someone places a live trade in their account, mental = emotional mode shifts from objective gathering of information to tunnel-vision focus on outcome results of the trade. All else ceases to matter from there as survival mode instincts kick in. Voices are tuned out, text is ignored and advice doesn't even almost begin to reach closed minds. The only thing that trader cares about then is exiting this trade in a manner which makes him (her) feel good about the whole experience. That's it... all about the feelings. Any type of profit beats any type of loss, obviously. The measures a trader will take in managing or mismanaging their trade is directly related to emotional comfort needs at that stage of their development.
For these core human instincts, any attempts for one trader to follow another through the process of trade management and exit verbatim will always fail to meet the objective. No two traders, let alone any group of traders will ever hold all of their trades through the same curve of stop management and exit for profit or loss result. Never has happened, never will happen, cannot happen until nature repeals the human nature of survival instincts.
Summation
Too many traders never get past the shallower thinking levels from the point where beginners begin. Yes the technical nuts & bolts aspect of trading is important. Fancy charts filled with arrows, pointers and text instructing someone on where to get in a trade and why always hold everyone's attention. And for good reason. But then what? What do you do once that trade, the next trade and the next ninety-eight to follow all behave somewhat differently from one another? That is where the real measure of success or failure begins to unfold.
The mental (emotional) aspect of trading is hands down the toughest hurdle between aspiring traders and consistent success. For sure our technical nuts & bolts portion is vital. It goes without saying that we need some type of method, system or approach for trade entry, management and exit parameters that create a defined edge. The truth is there are countless ways to create such a viable "edge" over the long-term, but human management of such is the weakest link in that chain.
Out there in the real world we are taught to set tangible goals. Timelines, limits, targets and objectives are all part of the path to success. Need a roadmap to get where you're going in order to get there, right? At some point in our career we realize trading is a whole lot different than any other mainstream profession. Most of the rules that apply elsewhere are null & void in our world. Fiscal goal-setting is one of those. It's natural for traders in general and day traders in particular to set structured daily goals. We work a defined set of hours in our given shift... our time is exchanged for monetary reward expected. The people that we know have similar expectations. "How much did you make today?" "How were the markets today?" I see on the news that stocks went up (down) big... how did you do today?"
The word "today" is sprinkled into every question we hear. Yesterday is history, tomorrow remains a mystery. The only measurement of success is today... one day at a time. But in reality our profession is nothing more than a series of wins and losses strung together over (hopefully) long periods of time. There is no way to eliminate risk or loss, because risk is an equal part to reward in our equation. Focus on keeping loss controlled is a very different aspect than fixation on avoiding all losses, period. One is a normal part of operation, the other is a path to failure.
Many times we'll read somewhere and/or hear about traders who never have a losing day. It is said they string together weeks, months or years worth of stretches with nothing but wins in the end. We've also heard about bigfoot sightings all over the world for over a hundred years now. To my knowledge no one has ever produced a physical specimen of the latter or real-money proof of the former. Perhaps traders who never lose and sasquatch each exist, I wouldn't rule either completely out. A little bit of solid evidence would be nice.
Meanwhile, those of us in the real world approach each trading day with one overall goal in mind: perform our functions correctly, follow our script and let the law of large numbers work our mathematical edge in favor. That includes taking valid trade signals after a string of losses. That includes letting the fourth trade work towards its intended profit objective following three straight controlled losses prior. That includes trading through some adverse sessions where nothing we can do results in net-profit for the day.
Punching Clocks Thru Wins And Losses
Just because markets are open at a set time every day does not mean similar opportunities for profit and loss exist. Some sessions make it seem like money falls from the sky between both bells. Other times the morning or the afternoon is generous while the other half is stingy. There are days, sometimes several of them in succession where it appears the market is closed for business. Price action goes nowhere, there is nil chance to make money and nothing can be done about that fact.
Traders revel in those single days where favorable price movement results in profits that would normally reflect an entire week or even month's worth of effort. With the human-nature outlook of exchanging time for reward, we readily accept those occasions without a second thought. Such windfall but infrequent sessions are outside the norm, just like a true choppy or whipsaw congested session where it's all but impossible to avoid stiff losses let alone make two dimes of profit. But we view those impossible-to-profit event differently. Whereas investing one day's worth of effort for a week's average profit result is just fine, investing a second day's worth of effort for one day's average net loss is not fine. To some it is downright terrible.
Patience & Discipline
The worst trading sessions are often followed by the best. Dull, flat, volume-less sessions usually lead to high volume and range expansion the next day. If there are two or three dead sessions back to back, that period usually resolves with several days of hyper-active price movement. Stored energy is released, released energy eventually exhausts movement. It's a fundamental part of financial market behavior. Knowing this cycle exists and expecting it to repeat as usual is important. When we struggle to make headway for a day or two, better get ready for some very active tapes ahead. It's coming.
Obviously we'd all love to have every trading day result in new all-time high profits. None of us would ever opt to experience a net-loss session again. That's just one of numerous human emotions in the mix. Reality is, wins and losses distributed intraday and likewise day to day are all part of the natural course. Traders with gambling tendencies or ultra-competitive personalities tend to struggle with accepting loss as part of our profession. They take various small to extreme measures in fighting the natural process. Sometimes the result is benign, other times career ending.
Personal Pursuit
There are four segments one needs to harness = master before consistent success is possible. They are:
#1 - Ability to read charts/markets and determine whether price is more probable to go up, down or continue sideways from any bar forward. We need to know whether visible clues give odds of probability for pending direction, or not. We need to know this information inside all market conditions: low volatility, normal volatility and high volatility. Intraday traders will commonly face all three varied conditions one or more times daily. We especially need to know when we cannot know what is probable to happen next. When price movement goes from favorable to unfavorable per your method or approach, we need to know that through the shift of change.
#2 - Ability to determine where high-odds trade entry locations exist. Mastery of step #1 makes this process possible. There are no shortcuts... no red arrow/green arrow, no automated systems, no blind following dual indicators, no shortcuts exist to overcome ignorance of reading market action. Everything the market knows at any moment in time is reflected in its chart(s). The ability to weigh = measure = read that collective information determines our ability to identify exactly where long or short entry signal locations with greater than 50% odds to succeed exist in front of us.
#3 - Ability to determine your own method of trade management. I can promise you this: no one on earth can teach you how to manage your trades when your real money is live in the market. When your real money is ebbing & flowing in your account, anything else that anyone tells you will be forgotten. The only thing that will matter to you is making yourself feel good about the end results of that individual trade. That is not an opinion... it is an absolute law of human-nature fact.
#4 - Ability to manage yourself through all aspects of reading market action, determining trade entry and managing live trades from entry through execution to exit. That includes self-honesty of admitting when price action appears measured and predictable versus unruly. Honoring and acting on trade entry signals when confirmed, instead of succumbing to trigger-shy hesitation and/or chasing trade fills well past ideal entry locations due to fears of loss on both counts. Holding stop-loss orders to contain risk at predetermined levels based on logic and reason rather than crowded too close or pulled to avoid loss out of emotional fear.
Those are the four separate legs of our profession that overlap but stand apart. The first two aspects can be taught by someone to others. Managing live trades and managing ourselves through the entire process are learned on your own, because they can't be taught by anyone else.
Survival Instincts
The very moment someone places a live trade in their account, mental = emotional mode shifts from objective gathering of information to tunnel-vision focus on outcome results of the trade. All else ceases to matter from there as survival mode instincts kick in. Voices are tuned out, text is ignored and advice doesn't even almost begin to reach closed minds. The only thing that trader cares about then is exiting this trade in a manner which makes him (her) feel good about the whole experience. That's it... all about the feelings. Any type of profit beats any type of loss, obviously. The measures a trader will take in managing or mismanaging their trade is directly related to emotional comfort needs at that stage of their development.
For these core human instincts, any attempts for one trader to follow another through the process of trade management and exit verbatim will always fail to meet the objective. No two traders, let alone any group of traders will ever hold all of their trades through the same curve of stop management and exit for profit or loss result. Never has happened, never will happen, cannot happen until nature repeals the human nature of survival instincts.
Summation
Too many traders never get past the shallower thinking levels from the point where beginners begin. Yes the technical nuts & bolts aspect of trading is important. Fancy charts filled with arrows, pointers and text instructing someone on where to get in a trade and why always hold everyone's attention. And for good reason. But then what? What do you do once that trade, the next trade and the next ninety-eight to follow all behave somewhat differently from one another? That is where the real measure of success or failure begins to unfold.
Friday, March 20, 2009
Baring It All: The Truth about Naked Trading Part 1
By Tyler Craig (Columnist for Rich Dad Education)
A common misunderstanding in the minds of rookie traders in the options market is that covered calls are one of the safest option strategies, and selling naked options is one of the riskiest. Although naked-option selling sometimes gets a bad rap, don't be too hasty to dismiss this strategy. There are numerous advantages to naked-option selling that merit your attention. Before we delve too deeply into naked-option selling, let's first recap the objective of most traders. The majority of traders use technical and fundamental analysis, market sentiment, or any other method they deem valuable in an effort to predict where the market is going. This applies whether or not the trader is using the stock or options market to place his bets. However, when we venture into naked-option selling, we adopt a different approach and mentality to trading. We are not so much trying to predict where the market is going to go, but where the market is not going to go.Buying either a call or put option gives the option owner limited risk and unlimited reward for calls, and limited reward for puts. Naked-option selling, on the other hand, brings limited rewards and unlimited risk (for naked calls at least). This begs the question: why would anyone want to place themselves in a position of unlimited or substantial risk? The answer is twofold. First, selling naked options can have a much higher probability of success than buying options. Which do you think is easier, predicting where a stock will go in the future, or predicting where it won't go? It is possible to enter naked-option trades that have greater than 90 percent probability of success. Secondly, although naked-option selling has substantial risk, that risk can be mitigated by proper trade and money-management techniques.Another important point to remember is that option buyers have a right to either buy (call) or sell (put) the stock, and option sellers have an obligation to either buy (put) or sell (call) the stock. The following table has helped me to remember which actions are bullish and which are bearish:Bullish: Long Stock, Long Calls, Short PutsBearish: Short Stock, Long Puts, Short CallsNaked Puts:Selling naked puts is considered a mildly bullish-to-bullish strategy. However, they can also be used in stagnant-market environments. By selling a put option you obligate yourself to buy 100 shares of stock at the strike price. Most traders who use naked puts sell out-of-the-money, short-term put options. There are two primary reasons for selling short-term options. First, the shorter the amount of time we are in the trade, the less exposure we have to a potential adverse move in the stock price. Think of time as risk: the longer you are in the trade, the more there is that can go wrong! Additionally, because of the acceleration of time decay, short-term options decay in value quicker than long-term options. The rationale behind selling out-of-the-money options is simple: out-of-the money options have a higher probability of expiring worthless than do in-the-money options.
An illustration will help us understand the naked-put strategy.
NAKED PUT EXAMPLE
Figure 1
October 31st- After experiencing a precipitous fall in its stock price, NOV has begun to show signs of stability and the potential beginnings of an uptrend. To take advantage of the expected sideways to mildly bullish move in the stock price, we could sell an out-of-the-money November put option. Currently the November 20 put option is trading at $1.00 with a Delta of 15. By selling the 20-strike put, we are essentially betting that the stock won't fall below $20 between now and its November expiration.Max Reward = $1.00Max Risk/ Breakeven = 20 - 1 = $19Probability of Profit = 1 - .15 = .85, or 85
Figure 2
Trade Management IThere are two scenarios that could play out at expiration: either the stock will be above the short-put strike price and our put option will remain out-of-the-money, or the stock will fall below the strike price and our put option will expire in-the-money. If the put option is out-of-the-money at expiration, it will expire worthless, enabling us to keep the premium and net our max reward. If the put option expires in-the-money, it will be automatically exercised and we will have to buy 100 shares at the strike price. Obviously, the best-case scenario is that the put option simply expires worthless. Your success with naked puts, however, is not dependent upon your management of winning trades; rather, it is a direct result of your management of the trades that go against you. You never want to realize your max risk, so let's explore a few techniques on how to manage naked puts that go awry. One technique would be to exit the trade when the stock breaks support. Breaking support would signify that the stock is going into a downtrend; consequently, it may be wise to buyback the put to minimize the loss. A second technique would be to exit when you lose a certain percentage of your max risk. For example, if your max risk is $20, you could exit when you lose 25 percent, or $5. These two techniques are efficient techniques for stopping the bleeding. However, they don't really give you a chance to make back any money you have lost. In next month's article we will discuss a few adjustment strategies that have the capability of turning your losing trade into a profitable one.Probability of ProfitBy using the Greek Delta, we can quantify our probability of profit. One of the definitions of delta is that it measures the probability of an option expiring in-the-money. Using a little arithmetic, we can calculate the probability of an option expiring out-of-the-money. Let's assume stock XYZ is currently at $50 and the 45-strike put option is trading at $1.00 and has a Delta of -40. We know that there is a 40% probability of the put expiring in-the-money, or in other words, there is a 40% probability of stock XYZ residing below 45 at expiration. Let's assume we enter a naked put by shorting the 45-put option. To net our maximum reward, we would want the stock to be above 45 at expiration. Since the probability of the stock being below 45 is 40 percent, then there is a 60 percent (1 - .40) chance of the stock residing above 45 at expiration. This is our probability of success. Since Delta gets smaller as you move further out-of-the-money, selling far out-of-the-money put options has a higher probability of success than selling close to the money options. However, the trade-off to raising the probability of profit is that you don't bring in as much premium. In the example above, the 45-strike put was worth $1.00 and had a Delta of -40. We may have also considered selling the 40-strike put which was trading at $..50 with a Delta of -20. This would have increased our probability of profit to 80 percent (1-.20) and decreased our max profit from $1.00 to $.50.Margin RequirementThe amount of margin required to sell a naked put will vary from broker to broker. Furthermore, knowing the formula is not imperative because your broker will calculate it for you. However, for those that are interested, here is one broker's margin requirement:
1. 25 percent of the underlying market price + the premium - amount out-of-the-money
OR
2. 10 percent of the underlying market price (or strike price for OTM puts) + the premium
The greater of these two formulas will be required in order to enter the trade. Using the above formulas, we can calculate how much margin would be required for a naked put on the United States Oil Fund (USO). Let's assume the USO is currently trading at $53 and we short a November 43-strike put for $.85 credit.
($53 x .25) +($.85 - 10) = $4.10
($43 x .10) +$.85 = $5.15
The second method for calculating the required margin is higher, so that is the amount that would be held by your broker. An $.85 return on an investment of $5.15 is a 16.5 percent return. Not too shabby! Keep in mind the margin requirement may increase if the stock were to drop and get closer to the put strike price. To ensure you are able to maintain your naked put position, make sure to have extra capital available in the event of an adverse move in the stock and increase in margin required.Selling naked puts can serve as an alternative to buying stock or call options in a mildly bullish-to-bullish environment. Naked puts can widen your range of profit as well as increase your probability of profit. At the beginning of the article, I mentioned the erroneous notion that covered calls are "safe" and naked-option selling is "risky." Next month, we will dispel this notion by illustrating the similarities between these two strategies, as well as highlighting a few more adjustment techniques for naked puts, finding potential trade candidates, and implied volatility.
A common misunderstanding in the minds of rookie traders in the options market is that covered calls are one of the safest option strategies, and selling naked options is one of the riskiest. Although naked-option selling sometimes gets a bad rap, don't be too hasty to dismiss this strategy. There are numerous advantages to naked-option selling that merit your attention. Before we delve too deeply into naked-option selling, let's first recap the objective of most traders. The majority of traders use technical and fundamental analysis, market sentiment, or any other method they deem valuable in an effort to predict where the market is going. This applies whether or not the trader is using the stock or options market to place his bets. However, when we venture into naked-option selling, we adopt a different approach and mentality to trading. We are not so much trying to predict where the market is going to go, but where the market is not going to go.Buying either a call or put option gives the option owner limited risk and unlimited reward for calls, and limited reward for puts. Naked-option selling, on the other hand, brings limited rewards and unlimited risk (for naked calls at least). This begs the question: why would anyone want to place themselves in a position of unlimited or substantial risk? The answer is twofold. First, selling naked options can have a much higher probability of success than buying options. Which do you think is easier, predicting where a stock will go in the future, or predicting where it won't go? It is possible to enter naked-option trades that have greater than 90 percent probability of success. Secondly, although naked-option selling has substantial risk, that risk can be mitigated by proper trade and money-management techniques.Another important point to remember is that option buyers have a right to either buy (call) or sell (put) the stock, and option sellers have an obligation to either buy (put) or sell (call) the stock. The following table has helped me to remember which actions are bullish and which are bearish:Bullish: Long Stock, Long Calls, Short PutsBearish: Short Stock, Long Puts, Short CallsNaked Puts:Selling naked puts is considered a mildly bullish-to-bullish strategy. However, they can also be used in stagnant-market environments. By selling a put option you obligate yourself to buy 100 shares of stock at the strike price. Most traders who use naked puts sell out-of-the-money, short-term put options. There are two primary reasons for selling short-term options. First, the shorter the amount of time we are in the trade, the less exposure we have to a potential adverse move in the stock price. Think of time as risk: the longer you are in the trade, the more there is that can go wrong! Additionally, because of the acceleration of time decay, short-term options decay in value quicker than long-term options. The rationale behind selling out-of-the-money options is simple: out-of-the money options have a higher probability of expiring worthless than do in-the-money options.
An illustration will help us understand the naked-put strategy.
NAKED PUT EXAMPLE
Figure 1
October 31st- After experiencing a precipitous fall in its stock price, NOV has begun to show signs of stability and the potential beginnings of an uptrend. To take advantage of the expected sideways to mildly bullish move in the stock price, we could sell an out-of-the-money November put option. Currently the November 20 put option is trading at $1.00 with a Delta of 15. By selling the 20-strike put, we are essentially betting that the stock won't fall below $20 between now and its November expiration.Max Reward = $1.00Max Risk/ Breakeven = 20 - 1 = $19Probability of Profit = 1 - .15 = .85, or 85
Figure 2
Trade Management IThere are two scenarios that could play out at expiration: either the stock will be above the short-put strike price and our put option will remain out-of-the-money, or the stock will fall below the strike price and our put option will expire in-the-money. If the put option is out-of-the-money at expiration, it will expire worthless, enabling us to keep the premium and net our max reward. If the put option expires in-the-money, it will be automatically exercised and we will have to buy 100 shares at the strike price. Obviously, the best-case scenario is that the put option simply expires worthless. Your success with naked puts, however, is not dependent upon your management of winning trades; rather, it is a direct result of your management of the trades that go against you. You never want to realize your max risk, so let's explore a few techniques on how to manage naked puts that go awry. One technique would be to exit the trade when the stock breaks support. Breaking support would signify that the stock is going into a downtrend; consequently, it may be wise to buyback the put to minimize the loss. A second technique would be to exit when you lose a certain percentage of your max risk. For example, if your max risk is $20, you could exit when you lose 25 percent, or $5. These two techniques are efficient techniques for stopping the bleeding. However, they don't really give you a chance to make back any money you have lost. In next month's article we will discuss a few adjustment strategies that have the capability of turning your losing trade into a profitable one.Probability of ProfitBy using the Greek Delta, we can quantify our probability of profit. One of the definitions of delta is that it measures the probability of an option expiring in-the-money. Using a little arithmetic, we can calculate the probability of an option expiring out-of-the-money. Let's assume stock XYZ is currently at $50 and the 45-strike put option is trading at $1.00 and has a Delta of -40. We know that there is a 40% probability of the put expiring in-the-money, or in other words, there is a 40% probability of stock XYZ residing below 45 at expiration. Let's assume we enter a naked put by shorting the 45-put option. To net our maximum reward, we would want the stock to be above 45 at expiration. Since the probability of the stock being below 45 is 40 percent, then there is a 60 percent (1 - .40) chance of the stock residing above 45 at expiration. This is our probability of success. Since Delta gets smaller as you move further out-of-the-money, selling far out-of-the-money put options has a higher probability of success than selling close to the money options. However, the trade-off to raising the probability of profit is that you don't bring in as much premium. In the example above, the 45-strike put was worth $1.00 and had a Delta of -40. We may have also considered selling the 40-strike put which was trading at $..50 with a Delta of -20. This would have increased our probability of profit to 80 percent (1-.20) and decreased our max profit from $1.00 to $.50.Margin RequirementThe amount of margin required to sell a naked put will vary from broker to broker. Furthermore, knowing the formula is not imperative because your broker will calculate it for you. However, for those that are interested, here is one broker's margin requirement:
1. 25 percent of the underlying market price + the premium - amount out-of-the-money
OR
2. 10 percent of the underlying market price (or strike price for OTM puts) + the premium
The greater of these two formulas will be required in order to enter the trade. Using the above formulas, we can calculate how much margin would be required for a naked put on the United States Oil Fund (USO). Let's assume the USO is currently trading at $53 and we short a November 43-strike put for $.85 credit.
($53 x .25) +($.85 - 10) = $4.10
($43 x .10) +$.85 = $5.15
The second method for calculating the required margin is higher, so that is the amount that would be held by your broker. An $.85 return on an investment of $5.15 is a 16.5 percent return. Not too shabby! Keep in mind the margin requirement may increase if the stock were to drop and get closer to the put strike price. To ensure you are able to maintain your naked put position, make sure to have extra capital available in the event of an adverse move in the stock and increase in margin required.Selling naked puts can serve as an alternative to buying stock or call options in a mildly bullish-to-bullish environment. Naked puts can widen your range of profit as well as increase your probability of profit. At the beginning of the article, I mentioned the erroneous notion that covered calls are "safe" and naked-option selling is "risky." Next month, we will dispel this notion by illustrating the similarities between these two strategies, as well as highlighting a few more adjustment techniques for naked puts, finding potential trade candidates, and implied volatility.
Friday, February 27, 2009
Predator's Ball: Cashing In Without Getting Fleeced
Article Written By: Robert Kiyosaki (Columnist for Yahoo! Finance)
This will be a politically incorrect article. It may seem unkind, insensitive, and cruel given the fact that so many people are hurting financially. Many have lost their jobs, homes, retirement security, and hope. Yet -- if you can see beyond today and let intelligence, not emotion, rule the day -- now is the time to position yourself for riches.
You see, the biggest predator's ball in history is in its planning stages and invitations are being sent out. For about a year now, friends and associates have been inviting me to join their investment pools. One friend has over a billion dollars in cash sitting on the sidelines. Last night, another friend said that a large bank had invited him to bid on their portfolio of foreclosures. The minimum price: $30 million in cash. He estimated that for that price we could acquire over a billion in distressed properties. For $1 million, I could buy a ticket to the party. I passed on the deal, saying the price was out of my league.
Many people got into trouble when times were good. For example, some of my family's friends placed all their money with a financial planner during the boom years, believing the standard sales pitch that the market goes up an average of 8 percent a year -- even though it doesn't. For over 20 years, I encouraged them to learn about investing rather than blindly turn over their money to a stranger. Today, they have lost over 45 percent of their portfolio in the last two years. They are not rich people. Now they want to know what to do.
Two Types of Predator's Balls
My point is this: There are two types of predator's balls. There are balls when times are good. My family's friends were victims of this type of exploitation -- when predators get you excited about rising markets.
For example, when real estate was soaring in price, predators known as flippers emerged and began selling houses to people at sky-high prices -- many of whom had no business buying a home.
There are also predator's balls for bad times. These take advantage of the exploitations that occurred during the good times. I like the bad-times predator's balls the best because deals are plentiful, people are humble, prices are low, and opportunities abound. I hope this party lasts for at least five years. I am investing more today than I was two years ago.
The Best of Times -- the Worst of Times
In 1859, Charles Dickens wrote in 'A Tale of Two Cities':
"It was the best of times, it was the worst of times; it was the age of wisdom; it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair ..."
For millions of people this is the dead of winter. If any of you who are reading this article are going through tough financial straits, I offer you this article and passage as encouragement to keep going -- to make the worst of times your best of times.
As the economy worsens, I am seeing a new predator's ball emerging - one for suckers. This is the ball for gold and silver. If you have been watching television lately, you will have seen ads advising people to send in their old gold jewelry for cash. Only suckers would do that... but as you know, a sucker is born every minute. I also see ads advertising 100-percent-pure 24-carat gold-plated coins for $29.95. Obviously, the key words are gold-plated. Only a moron would invest in a gold-plated coin. The only way that person can sell that gold-plated coin is by finding another moron -- which I'm sure can be done, especially as the gold and silver markets pick up steam.
A Sign of Bad Business
In Phoenix, a businessman who was convicted on fraud charges recently opened up a new gold coin shop. He had been banned from being in the gold and silver business for ten years. His timing was good because his ten years were up and now he is sending invitations to his party. Invitations are expensive. He has prime retail space, marketing expenses related to advertising heavily on radio and television, half-page ads in newspapers, major yellow page ads, and a slick Web site. This is how predators send out invitations. Any time an investment company has to spend heavily on advertising, it's probably a bad business in which to invest. You may recall that many mutual fund and real estate companies were sending out plenty of invitations during the last stock and real estate predator's balls.
I believe that gold and silver are good investments -- but their prices are at all-time highs, which means it is time to be cautious, not foolish. Today, I hear financial experts on television advising people to buy gold. These are the same guys who were recommending stocks and mutual funds less than two years ago. So be very careful as the gold and silver markets begin their next climb. I am still buying gold and silver but I did most of my buying when gold was at $300 an ounce in 2000 and 2001.
Many gold and silver experts will recommend you buy numismatic coins -- rare and old coins. If you are not a rare coin expert, I'd encourage you to stay away from them. New investors often pay too much for rare coins that are not really rare. If you are new to gold or silver, I recommend you buy as close as possible to the international spot price of the metals, watching out for premiums and commissions per coin. Buy bars or blanks, rather than coins, if premiums are too high. Watch out for scams. If the person you are buying from makes you uneasy, run. Take delivery when you hand over your money. Keep coins or bars in a bank or safe.
A good book I recommend is 'Investing In Gold and Silver' by Mike Maloney. He is one of my personal advisors on the subject, and his book is worth its price in gold.
In closing, I'll leave you with this thought: Remember that when one predator's ball ends, another is starting. If you plan on attending, be sure you are a predator, not the main course.
This will be a politically incorrect article. It may seem unkind, insensitive, and cruel given the fact that so many people are hurting financially. Many have lost their jobs, homes, retirement security, and hope. Yet -- if you can see beyond today and let intelligence, not emotion, rule the day -- now is the time to position yourself for riches.
You see, the biggest predator's ball in history is in its planning stages and invitations are being sent out. For about a year now, friends and associates have been inviting me to join their investment pools. One friend has over a billion dollars in cash sitting on the sidelines. Last night, another friend said that a large bank had invited him to bid on their portfolio of foreclosures. The minimum price: $30 million in cash. He estimated that for that price we could acquire over a billion in distressed properties. For $1 million, I could buy a ticket to the party. I passed on the deal, saying the price was out of my league.
Many people got into trouble when times were good. For example, some of my family's friends placed all their money with a financial planner during the boom years, believing the standard sales pitch that the market goes up an average of 8 percent a year -- even though it doesn't. For over 20 years, I encouraged them to learn about investing rather than blindly turn over their money to a stranger. Today, they have lost over 45 percent of their portfolio in the last two years. They are not rich people. Now they want to know what to do.
Two Types of Predator's Balls
My point is this: There are two types of predator's balls. There are balls when times are good. My family's friends were victims of this type of exploitation -- when predators get you excited about rising markets.
For example, when real estate was soaring in price, predators known as flippers emerged and began selling houses to people at sky-high prices -- many of whom had no business buying a home.
There are also predator's balls for bad times. These take advantage of the exploitations that occurred during the good times. I like the bad-times predator's balls the best because deals are plentiful, people are humble, prices are low, and opportunities abound. I hope this party lasts for at least five years. I am investing more today than I was two years ago.
The Best of Times -- the Worst of Times
In 1859, Charles Dickens wrote in 'A Tale of Two Cities':
"It was the best of times, it was the worst of times; it was the age of wisdom; it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair ..."
For millions of people this is the dead of winter. If any of you who are reading this article are going through tough financial straits, I offer you this article and passage as encouragement to keep going -- to make the worst of times your best of times.
As the economy worsens, I am seeing a new predator's ball emerging - one for suckers. This is the ball for gold and silver. If you have been watching television lately, you will have seen ads advising people to send in their old gold jewelry for cash. Only suckers would do that... but as you know, a sucker is born every minute. I also see ads advertising 100-percent-pure 24-carat gold-plated coins for $29.95. Obviously, the key words are gold-plated. Only a moron would invest in a gold-plated coin. The only way that person can sell that gold-plated coin is by finding another moron -- which I'm sure can be done, especially as the gold and silver markets pick up steam.
A Sign of Bad Business
In Phoenix, a businessman who was convicted on fraud charges recently opened up a new gold coin shop. He had been banned from being in the gold and silver business for ten years. His timing was good because his ten years were up and now he is sending invitations to his party. Invitations are expensive. He has prime retail space, marketing expenses related to advertising heavily on radio and television, half-page ads in newspapers, major yellow page ads, and a slick Web site. This is how predators send out invitations. Any time an investment company has to spend heavily on advertising, it's probably a bad business in which to invest. You may recall that many mutual fund and real estate companies were sending out plenty of invitations during the last stock and real estate predator's balls.
I believe that gold and silver are good investments -- but their prices are at all-time highs, which means it is time to be cautious, not foolish. Today, I hear financial experts on television advising people to buy gold. These are the same guys who were recommending stocks and mutual funds less than two years ago. So be very careful as the gold and silver markets begin their next climb. I am still buying gold and silver but I did most of my buying when gold was at $300 an ounce in 2000 and 2001.
Many gold and silver experts will recommend you buy numismatic coins -- rare and old coins. If you are not a rare coin expert, I'd encourage you to stay away from them. New investors often pay too much for rare coins that are not really rare. If you are new to gold or silver, I recommend you buy as close as possible to the international spot price of the metals, watching out for premiums and commissions per coin. Buy bars or blanks, rather than coins, if premiums are too high. Watch out for scams. If the person you are buying from makes you uneasy, run. Take delivery when you hand over your money. Keep coins or bars in a bank or safe.
A good book I recommend is 'Investing In Gold and Silver' by Mike Maloney. He is one of my personal advisors on the subject, and his book is worth its price in gold.
In closing, I'll leave you with this thought: Remember that when one predator's ball ends, another is starting. If you plan on attending, be sure you are a predator, not the main course.
Friday, January 30, 2009
As goes January so goes the Market. By Nick Godt(MarketWatch)
I was reading MarketWatch articles and this one in particular caught my eye.
NEW YORK (MarketWatch) -- The market is set for a 7% drop in January, not boding well for the rest of the year, if one believes the old adage.
According to the Stock Traders Almanac's January Barometer, the month of January tends to predict the direction of the market with a 91.4% accuracy ratio, with only five major errors recorded since 1950.
The barometer, created in 1972, is based on the performance of the broad S&P 500 index.
According to broader research from Quantitative Analysis Service, the month of January tends to predict the direction the market will take for the year accurately 65% to 75% of the times.
"That's not an impeccable record," says Ken Tower, market strategist and senior vice president at the firm. "But, along with April, it definitely has a better track record at predicting the year than any other month in the year."
$SPX) , used by most investing professionals as a gauge of the broader market, is currently on track for a 7.3% drop for January.
$INDU) is off 8% for the month. Since 1896, the Dow has gained an average 0.98% in the month of January, for an average yearly gain of 7.41%.
For this January, the Nasdaq Composite (COMP
COMP) is down 5.2%.
Voodoo 'Monthanomics'?
Some market strategists who rely on technical analysis use January's success at predicting market action, not because they believe in astrology, but simply because it's worked historically.
"There's not one set rational explanation for this," Tower says. "But there are special factors found in January. December marks the end of the tax year, which we've set arbitrarily. January can represent the new money committed in the new year."
In addition, at least in the U.S., November and December traditionally are marked by holiday spending, which investors can use to determine future spending patterns, therefore future profits and overall economic activity.
Based on this, market action made sense on Friday, with stocks stumbling for a second day on economic concerns.
The Dow recently fell 75 points, or 1%, to 8,073. The S&P 500 was down 8 points, or 1%, at 836, while the Nasdaq Composite was down 13 points, or 1%, at 1,494.
A survey by the University of Michigan and Reuters showed consumer confidence rose in January, but not as much as expected. And consumer-products maker Procter & Gamble (PG) slumped 5% after warning its sales were slowing.
January in history
There are key historical factors that have made January hold so much sway over the market's yearly performance, according to Jeffrey Hirsch, the editor of the Stock Traders Almanac.
Back in 1933, the U.S. Constitution was amended and moved Inauguration Day from March 4 to Jan. 20. In addition, since 1934, new Congresses meet the first week of January instead December.
The market, in fact, has regained some ground over the past week, as the House of Representatives passed the Obama administration's $819 billion economic stimulus package.
The administration and lawmakers are also trying to come up with a plan to cure the financial system of the toxic assets that have brought the global economy to its knees over the past year and a half.
With January still being firmly down, the market might be sending the signal that any economic benefits from government action won't be felt until after the end of this year, says Tower of Quantitative Analysis Service.
"People thought the economy would start to recover in the second half of this year," Tower said. "But our forecasts is now for the economy to bottom at the end of the year, if not in early 2010."
The market, which tends to anticipate economic recoveries well ahead of time, could start to recover in the second half. But according to the January Baromoter, that won't be enough for stocks to end 2009 in positive ground.
NEW YORK (MarketWatch) -- The market is set for a 7% drop in January, not boding well for the rest of the year, if one believes the old adage.
According to the Stock Traders Almanac's January Barometer, the month of January tends to predict the direction of the market with a 91.4% accuracy ratio, with only five major errors recorded since 1950.
The barometer, created in 1972, is based on the performance of the broad S&P 500 index.
According to broader research from Quantitative Analysis Service, the month of January tends to predict the direction the market will take for the year accurately 65% to 75% of the times.
"That's not an impeccable record," says Ken Tower, market strategist and senior vice president at the firm. "But, along with April, it definitely has a better track record at predicting the year than any other month in the year."
$SPX) , used by most investing professionals as a gauge of the broader market, is currently on track for a 7.3% drop for January.
$INDU) is off 8% for the month. Since 1896, the Dow has gained an average 0.98% in the month of January, for an average yearly gain of 7.41%.
For this January, the Nasdaq Composite (COMP
COMP) is down 5.2%.
Voodoo 'Monthanomics'?
Some market strategists who rely on technical analysis use January's success at predicting market action, not because they believe in astrology, but simply because it's worked historically.
"There's not one set rational explanation for this," Tower says. "But there are special factors found in January. December marks the end of the tax year, which we've set arbitrarily. January can represent the new money committed in the new year."
In addition, at least in the U.S., November and December traditionally are marked by holiday spending, which investors can use to determine future spending patterns, therefore future profits and overall economic activity.
Based on this, market action made sense on Friday, with stocks stumbling for a second day on economic concerns.
The Dow recently fell 75 points, or 1%, to 8,073. The S&P 500 was down 8 points, or 1%, at 836, while the Nasdaq Composite was down 13 points, or 1%, at 1,494.
A survey by the University of Michigan and Reuters showed consumer confidence rose in January, but not as much as expected. And consumer-products maker Procter & Gamble (PG) slumped 5% after warning its sales were slowing.
January in history
There are key historical factors that have made January hold so much sway over the market's yearly performance, according to Jeffrey Hirsch, the editor of the Stock Traders Almanac.
Back in 1933, the U.S. Constitution was amended and moved Inauguration Day from March 4 to Jan. 20. In addition, since 1934, new Congresses meet the first week of January instead December.
The market, in fact, has regained some ground over the past week, as the House of Representatives passed the Obama administration's $819 billion economic stimulus package.
The administration and lawmakers are also trying to come up with a plan to cure the financial system of the toxic assets that have brought the global economy to its knees over the past year and a half.
With January still being firmly down, the market might be sending the signal that any economic benefits from government action won't be felt until after the end of this year, says Tower of Quantitative Analysis Service.
"People thought the economy would start to recover in the second half of this year," Tower said. "But our forecasts is now for the economy to bottom at the end of the year, if not in early 2010."
The market, which tends to anticipate economic recoveries well ahead of time, could start to recover in the second half. But according to the January Baromoter, that won't be enough for stocks to end 2009 in positive ground.
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