I had conversation with a good friend about his struggle with his two kids.
He made a comment containing something we encounter very often, that is, the lack of obvious guidance in front of life situations.
I find this most acute among those entering adulthood.
After turning 18 it does seem it is time for moaning things of the past and few have a clear path to life and there is not book of "errors and bull-eyes."
I find that after we enter adulthood, there is not much follow-up guidance that relates to people as a part of an evolving society.
We have develop a behavior to be accepted inside one box and individualistic, as if self-drawning is an acceptable behavior.
Most of the education we follow is to ensure is all in one box. Although, the possibilities are there to make this box larger and fuller.
Most information available to us does not portrays these activities as virtues of human interaction.
We are losing the capacity to be responsible to others in the context of group and we are directed to learn in one direction, the ego driven way.
The home alone way of learning. While we continue in this direction we are losing capacity to evolve as humans. We are losing the ability to participate in society in an active way, we have become passive elements in a non-contextual society.
More than 90 per cent of all interaction and decisions of our activities in society are controlled and framed by social rules dictated from policies of interested parties with the only motif been self-promoting.
As this activity continues to grow, it creates apathy. Thus, participation in the social decision process is at its lowest in history.
The base for social harmony is active participation in all institutions. We need to re-build networks of people re-learn to interact with each other and make it part of the natural way of daily life. We need to learn from each other harmonically. We need to invest in each other.
In the context of democracy that is the inclusion of our time putting forward ideas. We must be active in voicing and insistence to those individuals we elect to represent us.
By looking at our life we need to find the harmonic higher interactions with ourselves and society. We cannot provide society with value if we do not educate ourselves, education is a all life process we cannot afford stop educating ourselves, for some silly reason as been adults.
The understanding of human needs must be the first step to practice social interaction and integration. We have put too much emphasis in structures such as corporations and other fictitious organizational systems. We need to explore partnerships, cooperation and other forms of value added capital interactions with solidarity as principia modus operandi.
We need to start value-added activities that enhance human relations in society in ways that break the mold and make the box bigger and better and still satisfy the need for profits.
We are getting surrounded by a poisonous dialectic approach that is dangerous to humans as a species that needs to survive in a limited/finite environment. The influence of one line sound bites has drained the possibility of dialogue and curtailed some of the most fun and enhancing qualities of dialogue as dissent and cynicism.
To make society better we need to start with the basics.
As you open your eyes you see your body and feel your body waking up, we realize we need to understand our bodies, thus we need to learn and become practitioners of body healing. This activity will enhance the life of those who practice healing. Becoming a doctor and healer in our society is one of those activities that demand the qualification of “a higher calling” but it is also an important part to make society a better place for all its members. Part of this healing must include the soul we need to re-introduce soul healing activities in our daily lives and practices. We will not be able to fulfill our social duty if we disregard the soul well being.
As we continue our day, our relation with the accepted structures of behavior become part of “laws” that allow all of us with all our differences to interact in a manner that is respectful. Thus, we must practice the art of “law” this is in the form of training and practice and in the creation of laws, this is in the form of becoming a member of the elected cadre or becoming a versed trained attorney.
As we progress in our activities we encounter the need to exchange our talents, thus, the need to understand finances. Becoming an able financier is part of the qualities we need to enhance the social environment. We must train ourselves to be able to make decisions that are sounds and profitable to our society.
As a binding practice of the above we should practice public debate and presentation, if our ideas cannot be present to the public at large we might lose our efforts to the void. Learning to be a good public speaker is a bidding ability to help society understand new ideas.
Learning logic, mathematics and philosophy are also binding abilities that will need to be practice during the rest of our lives if we want to be able to evolve.
It is said that if you enjoy what you get do and it becomes effortless you have reached satisfaction. By first exploring the above activities one must engage any activity one enjoys without limits.
Practice to the physical limits is the only way to find out satisfaction and sense of accomplishment.
From here all other activities as much important as they are they are supporting roles of the above.
We have some manuals for life all in the form of books and great authors. Being in the twenty first century, I prefer to start with authors that are still alive.
My first choice will be Riane Eisler, specially her dissertation: The Chalice and the Blade. All her books are giving us a new path, therefore groundbreaking ideas.
You can get a glimpse to her thinking at : http://www.partnershipway.org
In the subject of books, some one said that books are the main course for the brain, essays are the
Appetizers, discussions dessert and magazines/newspapers are junk food for the brain.
My second choice will be a reading of distant evolved philosophies starting with someone like Deepak Chopra. www.intentblog.com All his works have ground breaking ideas and its debates are reformatted and evolved ideas that present a very interesting alternative future.
Third will be, read mathematical logic and practice decision making. Here the amount of authors is so large that I will start by reading David Berlinski who has the capacity to present complex ideas in a fun way with ground breaking science.
There is not a book that will teach you how to live but you can make your own if you find a path to practice, practice, practice what you love to the point exhaustion, then you will be exhaling.
Sunday, May 28, 2006
Thursday, May 18, 2006
Best Minds
Losers: Why We Invest With Them
By Doug Wakefield with Ben Hill
One thing that didn’t change much after the 2000 to 2002 decline is the misperception that, when selecting investment managers, the most important thing to look for is how they did last quarter or last year. It’s an obsession that never seems to change much. But then again, in today’s culture, why should it change? The advantages of capitalism have, unfortunately, led us to consumerism and the belief that we can get anything, at any price, at any time. With the advent of the internet, easy credit, and the sense of entitlement our prosperity as a nation has fostered, many have come to believe that they can have it all and they can have it all, right now.
It is not my intention to debate whether this has served us well as a nation. What I do know is that this mentality does not serve the investor and, as such, must be discarded before we can attain to any lasting success. As evidence to this fact, I offer the stories of some of our investment icons in days when they may not have been so warmly embraced.
A Trip Down Memory Lane
Think back, if you will, to 1974. If we put ourselves in that era, it’s been just 3 years since the dollar was removed from the gold-exchange standard, and our national debt has already topped $474 billion. 1 The Arab Oil Embargo is in full swing and Americans are waiting in long lines for gas as prices continue to rise. Plans for busing black children to white schools in Boston, has set off a series of race riots. Under intense public and Congressional pressures, Richard Nixon has become the first President of the United States to resign.
The Dow has lost 45 percent, falling from 1051, in January of 1973, to 577, in December of 1974. Fund managers, who had been eager to buy just a few years earlier, have now taken a “batten down the hatches” approach to the markets. Consider the words of Eric T. Miller, a manager at Oppenheimer at the time.
“I wish we could say that we have strong preferences for areas that are unique right now, but we don’t, partly because we don’t think it’s time to try to be a hero… to be terribly venturesome, unless you could put me on [an] island and we were taking a three-year view.” 2
In the same vein, Howard Stein, the Chairman of Dreyfus at the time notes,
“Price-earnings ratios, historic gains in earnings, projections of earnings per share, and many other analytical devices that you and I work with seem to have little relevance of late.” 3
In the midst of all this, imagine that you’re shopping money managers. You’re excited about one in particular, because you’ve heard he’s really good, but he’s lost 23 percent in 1973 and he’s down 50 percent by 1974. Incredibly, as the losses have mounted, he’s actually getting more confident!
If we’re like most people, we’re thinking to ourselves, “If I invested $1 million with this guy at the beginning of 1973, I’d have had $500,000 left by late 1974.” We extrapolate the current trajectory. “At this rate, I’ll be broke in 2 years! I don’t care how brilliant he thinks he is; I’m going pass on this one.”
“Oh, that was Warren Buffet? Well, of course I would’ve stayed with him.” But, we didn’t know today’s story at that time. Clearly, those who stayed with him and endured the losses over those two years were handsomely rewarded.
“By early 1986, Berkshire had broken $3,000 a share. In the twenty one years that Buffet had been turning the veritable dross of a textile mill into gold, the stock had multiplied 167 times; meanwhile, the Dow had merely doubled.” 4
Now, if the only thing we learn from this story is that we need to go invest in Berkshire Hathaway shares, we miss the point. This was yesterday’s story and yesterday’s returns.
Over the last 32 years, how much of every investor’s success has come from inflating the money supply? Clearly to increase the money supply [and debt] in circulation from $474 billion, in 1974, to $10.2 trillion, by March of 2006, has influenced asset prices around the globe. Over the last two decades the Fed Funds rate has been reduced from over 20 down to 1 percent. Clearly, this story is not going to be repeated any time soon. This is the reality that all of us must accept. The circumstances that helped make this possible, do not, and could not, exist in our current economic and market environment. We would do better to ask ourselves, “What things can we learn from this story that could help us become better investors?”
In the late 1990s, the “losers” were those managers who refused to index or to benchmark their portfolios to the overall markets. In seeking to steer clear of risky stocks and sectors that had become historically overvalued, their portfolios “underperformed” the markets. It is not coincidental that, in 2000, as the markets began their steep descent, these same portfolios “outperformed” their benchmarks.
One management company, which made the “mistake” of avoiding high-risk investments, was considered by some of its institutional investors as a “loser” at the time. During the 24 months leading up to 2000, this company’s assets under management declined from $30 billion to $20 billion. Still, their unwillingness to compromise and follow the herd, in the late 90s, proved a valuable asset. By the end of 2004, their assets under management had grown to $75 billion. This story, of the cash flows in to and out of GMO, shows us that even large institutional investors tend to chase yesterday’s returns. 5
Michael Covel’s book, Trend Following: How Great Traders Make Millions in Up or Down Markets, focuses on trend following hedge fund managers. If the book title sounds a bit out of your league, let me encourage you to read it anyway. The knowledge and insights contained within would be benefit to investors at all levels of the game.
One of the managers discussed in Covel’s book is Bill Dunn, of Dunn Capital, who manages over $1 billion for investors. Since first opening in 1974, his long-term track record is enviable by any measure. However, Dunn has had several drawdowns, (temporary losses). One such drawdown lost him his largest client at the time. When asked how he deals with pressure from clients to change how he trades, Dunn responded:
“A person must be an optimist to be in this business, but I also believe it’s a cyclical phenomenon for several other reasons. In our 18 years of experience we’ve had to endure a number of long and nasty periods during which we’ve asked ourselves this same question [whether he should change his model]. In late 1981 our accounts had lost about 42% over the previous 12 months, and we and our clients were starting to wonder if we would ever see good markets again. We continued to trade our thoroughly researched system, but our largest client got cold feet and withdrew about 70% of our total equity under management. You guessed it. Our next month was up 18% and in the 36 months following their withdrawal our accounts made 430%!”
When we read about successful investment managers like Buffet, Grantham, and Dunn, we see vast differences in approach and one commonality. They were all willing to accept short-term losses. Investors who looked at these losses, or periods of underperformance (some of which lasted up to a couple of years), and decided to sell, missed out on large gains in the years that followed.
And, it’s not just individual and institutional investors who get this wrong. Again and again, even the largest brokerage houses quite often make the same mistakes. Consider the words of Barton Biggs in his new book, Hedgehogging. Biggs, who recently retired from the position of Chief Global Strategist at Morgan Stanley, spoke of the atmosphere at Morgan Stanley in the year 2000.
“Secular cycles, both in markets and sectors of the market, make a big investment management firm a very conflicting enterprise to manage if you are a businessperson, because the rational things to do to maximize short-term profitability are exactly the wrong things from both an investment and a long-term profitability point of view. For example, during 2000, even as the bubble was bursting, Morgan Stanley Investment Management, which has a business-dominated management, acted like businessmen: they heavily promoted the underwriting of technology and aggressive growth stock funds because those were the funds the salespeople could sell and that the public would buy. Management was not evil; they were doing what they thought was right. Large amounts of public money were being raised and very quickly lost. Short-term sales profits were collected at the expense of, not only the public, but the firm’s long-term credibility and profitability.”
As Biggs points out of the short-term focus at the top of a market, he also points out the short-term view at market bottoms.
“The firm erred in the other direction in the spring of 2003 when it shut down its
Asian Equity Fund, which it had invested exclusively in the Asia ex Japan markets. The fund had shrunk from $350 million 10 years earlier when the Asian Miracle was on everyone’s lips, to less than $10 million. At that level of assets, it was a clear money-losing proposition, so it was the right, short-term business decision to close it down. At the time, there didn’t seem to be any interest in Asia. I argued vociferously to keep the fund open, and maintained that, as the markets rallied, new assets would come. To no avail. No one agreed with me, and the fact that they didn’t was a buy signal.”
In April of 2006, the Asian markets of Singapore, India, and Hong Kong, are up 116 percent, 328 percent, and 94 percent (respectively) from where they were in October of 2002.
It should be plain to see that at every level of investing, we are our greatest enemy. And while learning about ourselves as investors is one of the best things we can do to ensure our success, this never has been, and never will be, the primary message of industry marketing and media. As Biggs points out, there are business decisions and investment decisions, and short-term business decisions often seem to take precedence over long-term investment concerns. If we are to become successful investors, we must understand our inherent weaknesses as instinctual beings trying to ensure our (money) survival, and continuously build our resolve to avoid the comfort that can only be found in the herd.
This predicament cannot be overstated. If we invest correctly, we most often take actions opposite of the herd and usually experience temporary losses. We then have to deal with strong instincts and emotions that shout to us, “You’re wrong! Go back and do what everybody else is doing. They made money on their last statement. They must be right!” To some extent, we all experience these thoughts, and if we are to succeed, we must learn to overcome them.
So now, we turn our attention to three character traits that we must develop to increase our probability of long-term success in the game of money. I do not expect that these tenets will produce a “Eureka!” moment for us, but we should be warned: These views are easy to academically ascend to, yet nigh unto impossible to sustain when we are experiencing strong emotional or mental stress, such as the kind caused during periods of drawdowns.
To read the entire April Newsletter, you can sign up, at no cost, through our website. If you would like a copy of our research paper, Riders on the Storm: Short Selling in Contrary Winds, visit our website. This will also give you access to archives of the same monthly newsletter titled, The Investors Mind: Anticipating Trends through the Lens of History.
Sources:
http://b3308-adm.cl.uh.edu/egret/fall2004/historyviewpoint1974.html
Buffet: The Making of an American Capitalist (1995), Roger Lowenstein, page 157
Ibid, page 159
Ibid, page 275
Quarterly meeting with institutional investors, 4th quarter 2004, www.gmo.com
Trend Following: How Great Traders Make Millions in Up and Down Markets (2006), Michael W. Covel, page 39
Hedgehogging (2006), Barton Biggs, page 119 & 120
Ibid, page 120
By Doug Wakefield with Ben Hill
One thing that didn’t change much after the 2000 to 2002 decline is the misperception that, when selecting investment managers, the most important thing to look for is how they did last quarter or last year. It’s an obsession that never seems to change much. But then again, in today’s culture, why should it change? The advantages of capitalism have, unfortunately, led us to consumerism and the belief that we can get anything, at any price, at any time. With the advent of the internet, easy credit, and the sense of entitlement our prosperity as a nation has fostered, many have come to believe that they can have it all and they can have it all, right now.
It is not my intention to debate whether this has served us well as a nation. What I do know is that this mentality does not serve the investor and, as such, must be discarded before we can attain to any lasting success. As evidence to this fact, I offer the stories of some of our investment icons in days when they may not have been so warmly embraced.
A Trip Down Memory Lane
Think back, if you will, to 1974. If we put ourselves in that era, it’s been just 3 years since the dollar was removed from the gold-exchange standard, and our national debt has already topped $474 billion. 1 The Arab Oil Embargo is in full swing and Americans are waiting in long lines for gas as prices continue to rise. Plans for busing black children to white schools in Boston, has set off a series of race riots. Under intense public and Congressional pressures, Richard Nixon has become the first President of the United States to resign.
The Dow has lost 45 percent, falling from 1051, in January of 1973, to 577, in December of 1974. Fund managers, who had been eager to buy just a few years earlier, have now taken a “batten down the hatches” approach to the markets. Consider the words of Eric T. Miller, a manager at Oppenheimer at the time.
“I wish we could say that we have strong preferences for areas that are unique right now, but we don’t, partly because we don’t think it’s time to try to be a hero… to be terribly venturesome, unless you could put me on [an] island and we were taking a three-year view.” 2
In the same vein, Howard Stein, the Chairman of Dreyfus at the time notes,
“Price-earnings ratios, historic gains in earnings, projections of earnings per share, and many other analytical devices that you and I work with seem to have little relevance of late.” 3
In the midst of all this, imagine that you’re shopping money managers. You’re excited about one in particular, because you’ve heard he’s really good, but he’s lost 23 percent in 1973 and he’s down 50 percent by 1974. Incredibly, as the losses have mounted, he’s actually getting more confident!
If we’re like most people, we’re thinking to ourselves, “If I invested $1 million with this guy at the beginning of 1973, I’d have had $500,000 left by late 1974.” We extrapolate the current trajectory. “At this rate, I’ll be broke in 2 years! I don’t care how brilliant he thinks he is; I’m going pass on this one.”
“Oh, that was Warren Buffet? Well, of course I would’ve stayed with him.” But, we didn’t know today’s story at that time. Clearly, those who stayed with him and endured the losses over those two years were handsomely rewarded.
“By early 1986, Berkshire had broken $3,000 a share. In the twenty one years that Buffet had been turning the veritable dross of a textile mill into gold, the stock had multiplied 167 times; meanwhile, the Dow had merely doubled.” 4
Now, if the only thing we learn from this story is that we need to go invest in Berkshire Hathaway shares, we miss the point. This was yesterday’s story and yesterday’s returns.
Over the last 32 years, how much of every investor’s success has come from inflating the money supply? Clearly to increase the money supply [and debt] in circulation from $474 billion, in 1974, to $10.2 trillion, by March of 2006, has influenced asset prices around the globe. Over the last two decades the Fed Funds rate has been reduced from over 20 down to 1 percent. Clearly, this story is not going to be repeated any time soon. This is the reality that all of us must accept. The circumstances that helped make this possible, do not, and could not, exist in our current economic and market environment. We would do better to ask ourselves, “What things can we learn from this story that could help us become better investors?”
In the late 1990s, the “losers” were those managers who refused to index or to benchmark their portfolios to the overall markets. In seeking to steer clear of risky stocks and sectors that had become historically overvalued, their portfolios “underperformed” the markets. It is not coincidental that, in 2000, as the markets began their steep descent, these same portfolios “outperformed” their benchmarks.
One management company, which made the “mistake” of avoiding high-risk investments, was considered by some of its institutional investors as a “loser” at the time. During the 24 months leading up to 2000, this company’s assets under management declined from $30 billion to $20 billion. Still, their unwillingness to compromise and follow the herd, in the late 90s, proved a valuable asset. By the end of 2004, their assets under management had grown to $75 billion. This story, of the cash flows in to and out of GMO, shows us that even large institutional investors tend to chase yesterday’s returns. 5
Michael Covel’s book, Trend Following: How Great Traders Make Millions in Up or Down Markets, focuses on trend following hedge fund managers. If the book title sounds a bit out of your league, let me encourage you to read it anyway. The knowledge and insights contained within would be benefit to investors at all levels of the game.
One of the managers discussed in Covel’s book is Bill Dunn, of Dunn Capital, who manages over $1 billion for investors. Since first opening in 1974, his long-term track record is enviable by any measure. However, Dunn has had several drawdowns, (temporary losses). One such drawdown lost him his largest client at the time. When asked how he deals with pressure from clients to change how he trades, Dunn responded:
“A person must be an optimist to be in this business, but I also believe it’s a cyclical phenomenon for several other reasons. In our 18 years of experience we’ve had to endure a number of long and nasty periods during which we’ve asked ourselves this same question [whether he should change his model]. In late 1981 our accounts had lost about 42% over the previous 12 months, and we and our clients were starting to wonder if we would ever see good markets again. We continued to trade our thoroughly researched system, but our largest client got cold feet and withdrew about 70% of our total equity under management. You guessed it. Our next month was up 18% and in the 36 months following their withdrawal our accounts made 430%!”
When we read about successful investment managers like Buffet, Grantham, and Dunn, we see vast differences in approach and one commonality. They were all willing to accept short-term losses. Investors who looked at these losses, or periods of underperformance (some of which lasted up to a couple of years), and decided to sell, missed out on large gains in the years that followed.
And, it’s not just individual and institutional investors who get this wrong. Again and again, even the largest brokerage houses quite often make the same mistakes. Consider the words of Barton Biggs in his new book, Hedgehogging. Biggs, who recently retired from the position of Chief Global Strategist at Morgan Stanley, spoke of the atmosphere at Morgan Stanley in the year 2000.
“Secular cycles, both in markets and sectors of the market, make a big investment management firm a very conflicting enterprise to manage if you are a businessperson, because the rational things to do to maximize short-term profitability are exactly the wrong things from both an investment and a long-term profitability point of view. For example, during 2000, even as the bubble was bursting, Morgan Stanley Investment Management, which has a business-dominated management, acted like businessmen: they heavily promoted the underwriting of technology and aggressive growth stock funds because those were the funds the salespeople could sell and that the public would buy. Management was not evil; they were doing what they thought was right. Large amounts of public money were being raised and very quickly lost. Short-term sales profits were collected at the expense of, not only the public, but the firm’s long-term credibility and profitability.”
As Biggs points out of the short-term focus at the top of a market, he also points out the short-term view at market bottoms.
“The firm erred in the other direction in the spring of 2003 when it shut down its
Asian Equity Fund, which it had invested exclusively in the Asia ex Japan markets. The fund had shrunk from $350 million 10 years earlier when the Asian Miracle was on everyone’s lips, to less than $10 million. At that level of assets, it was a clear money-losing proposition, so it was the right, short-term business decision to close it down. At the time, there didn’t seem to be any interest in Asia. I argued vociferously to keep the fund open, and maintained that, as the markets rallied, new assets would come. To no avail. No one agreed with me, and the fact that they didn’t was a buy signal.”
In April of 2006, the Asian markets of Singapore, India, and Hong Kong, are up 116 percent, 328 percent, and 94 percent (respectively) from where they were in October of 2002.
It should be plain to see that at every level of investing, we are our greatest enemy. And while learning about ourselves as investors is one of the best things we can do to ensure our success, this never has been, and never will be, the primary message of industry marketing and media. As Biggs points out, there are business decisions and investment decisions, and short-term business decisions often seem to take precedence over long-term investment concerns. If we are to become successful investors, we must understand our inherent weaknesses as instinctual beings trying to ensure our (money) survival, and continuously build our resolve to avoid the comfort that can only be found in the herd.
This predicament cannot be overstated. If we invest correctly, we most often take actions opposite of the herd and usually experience temporary losses. We then have to deal with strong instincts and emotions that shout to us, “You’re wrong! Go back and do what everybody else is doing. They made money on their last statement. They must be right!” To some extent, we all experience these thoughts, and if we are to succeed, we must learn to overcome them.
So now, we turn our attention to three character traits that we must develop to increase our probability of long-term success in the game of money. I do not expect that these tenets will produce a “Eureka!” moment for us, but we should be warned: These views are easy to academically ascend to, yet nigh unto impossible to sustain when we are experiencing strong emotional or mental stress, such as the kind caused during periods of drawdowns.
To read the entire April Newsletter, you can sign up, at no cost, through our website. If you would like a copy of our research paper, Riders on the Storm: Short Selling in Contrary Winds, visit our website. This will also give you access to archives of the same monthly newsletter titled, The Investors Mind: Anticipating Trends through the Lens of History.
Sources:
http://b3308-adm.cl.uh.edu/egret/fall2004/historyviewpoint1974.html
Buffet: The Making of an American Capitalist (1995), Roger Lowenstein, page 157
Ibid, page 159
Ibid, page 275
Quarterly meeting with institutional investors, 4th quarter 2004, www.gmo.com
Trend Following: How Great Traders Make Millions in Up and Down Markets (2006), Michael W. Covel, page 39
Hedgehogging (2006), Barton Biggs, page 119 & 120
Ibid, page 120
Friday, May 12, 2006
Gaps After The Storm
Yesterday was a very turbulent day and today looks alike.
CHC was a buy. After yesterday all looks grim but is normal.
Teh MSNBC commentars and other talking heads were in unison calling for six year highs for the dow, two days after all teh front pages, the dow takes a dip and makes everybody 2% poorer.
Today might be one of those profitable days for gaps, my screen dumped 120 stocks, so today, I need to re-screen a little and I will go for the 9 and 10 risk grade only.
Long >7
9 blk<135
9 bmo<53
9 ckh<81
9 cnc<22.8
9 cpsi<41.9
10 enr<47.5
9 lxp<19.9
9 mxim<30.6
9 o <21.4
9 ori<21
9 pkg<21.4
9 pl<44.9
9 uhco<12
9 ust<41.3
9 vsta<13.1
10 wgl<27.9
Long >4
8 brcm<36
8 mchp<34
8 osk<50
8 apcc<21
CHC was a buy. After yesterday all looks grim but is normal.
Teh MSNBC commentars and other talking heads were in unison calling for six year highs for the dow, two days after all teh front pages, the dow takes a dip and makes everybody 2% poorer.
Today might be one of those profitable days for gaps, my screen dumped 120 stocks, so today, I need to re-screen a little and I will go for the 9 and 10 risk grade only.
Long >7
9 blk<135
9 bmo<53
9 ckh<81
9 cnc<22.8
9 cpsi<41.9
10 enr<47.5
9 lxp<19.9
9 mxim<30.6
9 o <21.4
9 ori<21
9 pkg<21.4
9 pl<44.9
9 uhco<12
9 ust<41.3
9 vsta<13.1
10 wgl<27.9
Long >4
8 brcm<36
8 mchp<34
8 osk<50
8 apcc<21
Thursday, May 11, 2006
More on My gaps
The amount of speculation and high risk distributed in the market by pension funds and insurance companies is creating a very dangerous situation, and it might not be far away teh day like in 2001 when England pension system was at peril becuase insurers and pension funds were invested in the stock market at levels that they should not, part of the opposition to Blair in england comes from pensioneers.
The Soros nightmare was coming back to the englishman in the form of lost retirements by gambling managers.
Due to the large size of this accounts, managing the positions is 100% done by computerize formulas with individuals calling the depth of the trades.
With this in mind you might see trickle 100 lots non-stop in the level II screens, stocks like CSCO and MSFT that are part of the favs of this crowds show the most clear pattern of what it means hedging.
The speculation is good for gaps, it creates larger entry points, and when prices are programed in computers to have reduced risk creating hedging with options/short positons that also accelerates the gap size. Sometimes as yesterday TEVA was sold at 12% dsicount to news today to buy TEVA one will have to put a buy price in the <5% range of yesterday closing for a >4% not a bad idea but the risk range is 70% reason why I shy away today.
I will suggest to read charts with technical and fundamental analysis to grasp this idea of selling in 4 to 7 % ranges.
As I said this fits me and it is not intended for anyone else.
If you want to follow it set up in any of teh financial sites around a portfolio
and paper play it.
The Soros nightmare was coming back to the englishman in the form of lost retirements by gambling managers.
Due to the large size of this accounts, managing the positions is 100% done by computerize formulas with individuals calling the depth of the trades.
With this in mind you might see trickle 100 lots non-stop in the level II screens, stocks like CSCO and MSFT that are part of the favs of this crowds show the most clear pattern of what it means hedging.
The speculation is good for gaps, it creates larger entry points, and when prices are programed in computers to have reduced risk creating hedging with options/short positons that also accelerates the gap size. Sometimes as yesterday TEVA was sold at 12% dsicount to news today to buy TEVA one will have to put a buy price in the <5% range of yesterday closing for a >4% not a bad idea but the risk range is 70% reason why I shy away today.
I will suggest to read charts with technical and fundamental analysis to grasp this idea of selling in 4 to 7 % ranges.
As I said this fits me and it is not intended for anyone else.
If you want to follow it set up in any of teh financial sites around a portfolio
and paper play it.
May 11 Gaps
Yesterday bought mxim for a 4% at <33.1
For today I have for >Seven%
risk-/symbol-/limit buy price
9 abt<39.3
8 bdx<59.4
8 chc<18.5
9 cnc<22.9
8 epl<22.4
8 erts<44.3
8 ford<4.7
8 fss<17.4
8 hni<50.1
8 msft<22
9 mxim<31.2
9 ofc<37.1
9 ori<21.1
8 osk<48.8
9 pkg<21.4
9 pl<45
8 rbnc<10.8
8 snps<20.4
9 uhco<12
9 ust<41.4
9 vsta<13.5
8 vz<31.2
For the four retracement same as yesterday except mxim that was bought.
My selling target for mxim will be >36.7 the price shows larger than average retracement for a gap-up in the =+10% range.
For today I have for >Seven%
risk-/symbol-/limit buy price
9 abt<39.3
8 bdx<59.4
8 chc<18.5
9 cnc<22.9
8 epl<22.4
8 erts<44.3
8 ford<4.7
8 fss<17.4
8 hni<50.1
8 msft<22
9 mxim<31.2
9 ofc<37.1
9 ori<21.1
8 osk<48.8
9 pkg<21.4
9 pl<45
8 rbnc<10.8
8 snps<20.4
9 uhco<12
9 ust<41.4
9 vsta<13.5
8 vz<31.2
For the four retracement same as yesterday except mxim that was bought.
My selling target for mxim will be >36.7 the price shows larger than average retracement for a gap-up in the =+10% range.
Wednesday, May 10, 2006
May 10 Gaps
35 days >7%
Symbol Rank Limit Buy Price
blk 9 135.9
chc 8 18.46
cnc 9 22.85
dspg 8 24.7
epl 8 22.28
erts 8 44.2
ford 8 4.7
fss 8 17.6
hni 8 50
msft 8 22
mxim 9 32.41
osk 8 50.15
snps 8 20.79
uhco 9 12
Long 25 days >4%
Limit < than
osk 9 50.5
apcc 8 21.3
mxim 9 34
sbib 9 16.55
umpq 8 26
Yesterday one entry and exit with 7% = UHCO
Symbol Rank Limit Buy Price
blk 9 135.9
chc 8 18.46
cnc 9 22.85
dspg 8 24.7
epl 8 22.28
erts 8 44.2
ford 8 4.7
fss 8 17.6
hni 8 50
msft 8 22
mxim 9 32.41
osk 8 50.15
snps 8 20.79
uhco 9 12
Long 25 days >4%
Limit < than
osk 9 50.5
apcc 8 21.3
mxim 9 34
sbib 9 16.55
umpq 8 26
Yesterday one entry and exit with 7% = UHCO
Tuesday, May 09, 2006
Gapping the Gaps
Part One
I am going to try to share one of my favorites trading strategies, the one that has allowed me to stop sweating the small things.
I subscribe to different data services for the simple reason that each one has something that interests me a little better to screen for what I am looking to trade.
After years producing a consistent returns it is time to share some of the basic ideas.
There is high risk in any strategy nor strategies are static, they need constant changes in their algorithms and active capital management.
My main strategy after the human design is done, the output has 90% mathematical base and 10% common-sense decision-making component.
As disclosure, this is only for my own use and consumption and it is not inteded to provide any financial advice nor should be use without consulting expert advice. If you choose to do anything with the content I post here it is at your own risk.
I do not trade all year, so I will no post all year, but I will try to post as much as possible before the market opens all my possible trades for the day.
I am not greedy, so I stop trading at the moment the strategy allows me to reach the six figures, that is what I need to have fun.
I will be trading every single stock that I post here, as long as I am not vacationing or I have reach my goal!
As informational bechmark my returns are clean >27% (after tax and trading costs) in good or bad markets. Actually, the worse the market conditions are better it performs this strategy.
It is here for anyone who wants to know how I do it.
The idea of the strategy is simple:
due to news or market conditions a series of stocks react sharply to those news selling-off dramtically and then after a consolidation period those same stocks will come back above their initial trading price.
This is call a gap in pricing, thus gapping the gaps.
Some gap techniques focus in the first 30 minutes of market trading.
Other focus in one full day retracements of 1.5% to 2%.
My strategy focuses in a wider retracement band and in a larger waiting period for the retracement.
I have two series of trades that I entry "the short band trade" of 4% with up to 25 trading days and "the long trading band" with retracements of 7% or more with up to 35 trading days.
You have to follow and consistently stay in the strategy. Everytime I try to deviate from the strategy and tinker with new ideas that are off the main purpose I get nailed. Staying focus is boring but it pays big time.
All stocks I trade have consistent patterns:
1) In all cases over a period of >20 trades they produce at least 16 retracements, in other words, they have at least 80% probability of making the target price. In all cases stop-loss is a must. Retracments are best followed with an Elliott Wave software.
2) All stocks trade at a ratio of at least -10% to +10% from the initial entry. Consequently my stop-loss is 11.5% from the entry point. If you calculate the stop loss to the gains you will find out that the actual risk is less than 2% in the down side, 10% neutral returns and 88% positive trades (all including trading costs of < than $30 per round trade).
3) All selected stocks fluctuate in the upside as much as they fluctuate in the downside. Some days you might wonder if you are better off going long with the selection. I keeps me wonder many days, but I know better and I continue to stay focus. A good japanese candle charting software will put an image on what I am describing.
4) All stocks show a pattern of probability in the downsize after the set holding period of less than 5% and my average is 90% winning trades on trading days, and 95% if I see the rational to extend the holding days for a new cycle.
5) The open positions can be large, a few times when the market was in a flat pattern I hold up to 25 stocks. My average is to hold up to 7 stocks at any given time.
6)I use a discount broker, I add the trading costs and I deduct taxes after each trade to calculate the algorithm profitability. I use a scale to qualify each stock performance for a number of trades -usually 20 trades or more. The scale is 8, 9 or 10. This means the stock was profitable in the algorithm 80%, 90% or 100% in the last 20 trades. Consequently, every 3 months the stocks I follow changes.
7) The trading days pattern I follow can be as short as hours up to 35 days. Look at UHCO today5/9/06. I bougth it and sold it in three hours with 7% profit.
But that is not the norm. The norm is holding any stock for a few weeks. I resort to have a holding average day for each stock, but this is only informational. The rational is that a stock that passes the average holding days, and is trading the upside has > 90% provability to be profitable and the contrary is also true.
How I work the trades:
1) Before the market opens I screen for the daily trades and do a print out. If I have a large amount of stocks I choose those with the highest return grade -9 or above.
2) I set the the buy price and the amount of shares.
3) The amount of speculation in the market is so large that sometimes my buying price is off and far higher than the initial volatility prices, it is not the norm, I do not worry if it occurs until the stock settles after a few days.
4) Imnmeditely after I buy. I write the stop loss on my trade list book (I do not auto entry the auto stop- loss, that's just my habit) and put the selling price with the broker. If it is a short entry the sellign point will be 4% above the purchase price if it is long entry I add 7% to the purchase price.
5)The amount of weekly trades averages 2.5, so it is boring but profitable.
Let me know your comments.
I am going to try to share one of my favorites trading strategies, the one that has allowed me to stop sweating the small things.
I subscribe to different data services for the simple reason that each one has something that interests me a little better to screen for what I am looking to trade.
After years producing a consistent returns it is time to share some of the basic ideas.
There is high risk in any strategy nor strategies are static, they need constant changes in their algorithms and active capital management.
My main strategy after the human design is done, the output has 90% mathematical base and 10% common-sense decision-making component.
As disclosure, this is only for my own use and consumption and it is not inteded to provide any financial advice nor should be use without consulting expert advice. If you choose to do anything with the content I post here it is at your own risk.
I do not trade all year, so I will no post all year, but I will try to post as much as possible before the market opens all my possible trades for the day.
I am not greedy, so I stop trading at the moment the strategy allows me to reach the six figures, that is what I need to have fun.
I will be trading every single stock that I post here, as long as I am not vacationing or I have reach my goal!
As informational bechmark my returns are clean >27% (after tax and trading costs) in good or bad markets. Actually, the worse the market conditions are better it performs this strategy.
It is here for anyone who wants to know how I do it.
The idea of the strategy is simple:
due to news or market conditions a series of stocks react sharply to those news selling-off dramtically and then after a consolidation period those same stocks will come back above their initial trading price.
This is call a gap in pricing, thus gapping the gaps.
Some gap techniques focus in the first 30 minutes of market trading.
Other focus in one full day retracements of 1.5% to 2%.
My strategy focuses in a wider retracement band and in a larger waiting period for the retracement.
I have two series of trades that I entry "the short band trade" of 4% with up to 25 trading days and "the long trading band" with retracements of 7% or more with up to 35 trading days.
You have to follow and consistently stay in the strategy. Everytime I try to deviate from the strategy and tinker with new ideas that are off the main purpose I get nailed. Staying focus is boring but it pays big time.
All stocks I trade have consistent patterns:
1) In all cases over a period of >20 trades they produce at least 16 retracements, in other words, they have at least 80% probability of making the target price. In all cases stop-loss is a must. Retracments are best followed with an Elliott Wave software.
2) All stocks trade at a ratio of at least -10% to +10% from the initial entry. Consequently my stop-loss is 11.5% from the entry point. If you calculate the stop loss to the gains you will find out that the actual risk is less than 2% in the down side, 10% neutral returns and 88% positive trades (all including trading costs of < than $30 per round trade).
3) All selected stocks fluctuate in the upside as much as they fluctuate in the downside. Some days you might wonder if you are better off going long with the selection. I keeps me wonder many days, but I know better and I continue to stay focus. A good japanese candle charting software will put an image on what I am describing.
4) All stocks show a pattern of probability in the downsize after the set holding period of less than 5% and my average is 90% winning trades on trading days, and 95% if I see the rational to extend the holding days for a new cycle.
5) The open positions can be large, a few times when the market was in a flat pattern I hold up to 25 stocks. My average is to hold up to 7 stocks at any given time.
6)I use a discount broker, I add the trading costs and I deduct taxes after each trade to calculate the algorithm profitability. I use a scale to qualify each stock performance for a number of trades -usually 20 trades or more. The scale is 8, 9 or 10. This means the stock was profitable in the algorithm 80%, 90% or 100% in the last 20 trades. Consequently, every 3 months the stocks I follow changes.
7) The trading days pattern I follow can be as short as hours up to 35 days. Look at UHCO today5/9/06. I bougth it and sold it in three hours with 7% profit.
But that is not the norm. The norm is holding any stock for a few weeks. I resort to have a holding average day for each stock, but this is only informational. The rational is that a stock that passes the average holding days, and is trading the upside has > 90% provability to be profitable and the contrary is also true.
How I work the trades:
1) Before the market opens I screen for the daily trades and do a print out. If I have a large amount of stocks I choose those with the highest return grade -9 or above.
2) I set the the buy price and the amount of shares.
3) The amount of speculation in the market is so large that sometimes my buying price is off and far higher than the initial volatility prices, it is not the norm, I do not worry if it occurs until the stock settles after a few days.
4) Imnmeditely after I buy. I write the stop loss on my trade list book (I do not auto entry the auto stop- loss, that's just my habit) and put the selling price with the broker. If it is a short entry the sellign point will be 4% above the purchase price if it is long entry I add 7% to the purchase price.
5)The amount of weekly trades averages 2.5, so it is boring but profitable.
Let me know your comments.
Saturday, May 06, 2006
Tuesday, May 02, 2006
The Early Bird Makes One Million
This article by Scott Burns has the same jist of the one I wrote about the donut billionaires last year.
The main idea is compound interest over long period of times.
Consistency at anything nets great results. Genius is the compound interest of a life of hard choices.
Enjoy it.
_!_!_!_!_!_
Start on your first $1 million at age 16
It's easier than you think to become a millionaire.
The magic combo? Getting an early start saving and having the discipline not to raid the piggy bank.
May 1,2006
By Scott Burns
Here's a simple recipe to become a millionaire:
Work four summers, starting at age 16
Save the income in a Roth IRA account
Invest it in a simple, low-cost equity portfolio
Simmer slowly for 47 years
Serve ungarnished (and untaxed) at age 67This is the first recipe in my new Small Change Millionaire Cookbook, an occasional series of columns with a single purpose -- demonstrating different ways small amounts of money can be turned into a large amount of money. Just as a mere 10 calories a day of additional food can pack on a pound a year, small change can become large amounts of money. The good news is that money grows faster than fat. Calories don't have the benefit of compound annual growth.Many people fail to diet because the end goal seems so far away. So it is with saving and investing: Most people fail because it is nearly inconceivable that a few dollars a day or a well-timed gift can be turned into that magical sum.
It has such a nice sound.So let me show you how four summer jobs can become your first million.Let's suppose that you are 16 years old, in high school, and willing to work. Let's also suppose that you can clear about $2,000 over the course of a summer, if only because a doting grandparent puts money in the Roth while you take your earnings to school. If you invest in a Roth IRA, it will grow, tax-free, for as long as you have the account. All withdrawals from the account after age 59 1/2 will be tax-free.If your money is invested in common stocks and you achieve the average compound annual rate on large-capitalization U.S. stocks, 10.7%, your account will grow to $9,378 at the end of the fourth year. You will be 20 years old. Invested in the same way, with no additional savings, the account will grow to:
$25,917 by the time you are 30
$71,625 by the time you are 40
$197,943 by the time you are 50
$547,037 by the time you are 60
And $1,114,423 by the time you are 67And you will have started and finished all of your saving before turning age 21.Worth the risk Note that this plan does not require investment brilliance. It does depend on two things, an early start and tenacity. If you invested in small company stocks, whose long-term annual return clocks in at 12.5 percent annually, you could have much more money. (Try $2.4 million.) Similarly, you could diversify to reduce your risk and make your 47-year ride more comfortable. But you would do it at the expense of a somewhat lower return.The "Yes, but" crew will be happy to tell you that $1 million isn't what it used to be. I can remember people telling me this in the '60s. It is as true now as it was then. Millionaires are, well, just dreadfully common.Even so, the number of millionaires is relatively small. And being a millionaire is a better choice than being a pauper.The same crew will be happy to tell you that the future won't repeat the past, that SARS, terrorism or some other misfortune will cripple the future, or that we will be crushed by a rising China. Similarly, an actuary might tell you that you have a substantial chance of being dead by 67.Perhaps.But so what?All you've got to risk is four summers.See Scott Burns' Web site.
The main idea is compound interest over long period of times.
Consistency at anything nets great results. Genius is the compound interest of a life of hard choices.
Enjoy it.
_!_!_!_!_!_
Start on your first $1 million at age 16
It's easier than you think to become a millionaire.
The magic combo? Getting an early start saving and having the discipline not to raid the piggy bank.
May 1,2006
By Scott Burns
Here's a simple recipe to become a millionaire:
Work four summers, starting at age 16
Save the income in a Roth IRA account
Invest it in a simple, low-cost equity portfolio
Simmer slowly for 47 years
Serve ungarnished (and untaxed) at age 67This is the first recipe in my new Small Change Millionaire Cookbook, an occasional series of columns with a single purpose -- demonstrating different ways small amounts of money can be turned into a large amount of money. Just as a mere 10 calories a day of additional food can pack on a pound a year, small change can become large amounts of money. The good news is that money grows faster than fat. Calories don't have the benefit of compound annual growth.Many people fail to diet because the end goal seems so far away. So it is with saving and investing: Most people fail because it is nearly inconceivable that a few dollars a day or a well-timed gift can be turned into that magical sum.
It has such a nice sound.So let me show you how four summer jobs can become your first million.Let's suppose that you are 16 years old, in high school, and willing to work. Let's also suppose that you can clear about $2,000 over the course of a summer, if only because a doting grandparent puts money in the Roth while you take your earnings to school. If you invest in a Roth IRA, it will grow, tax-free, for as long as you have the account. All withdrawals from the account after age 59 1/2 will be tax-free.If your money is invested in common stocks and you achieve the average compound annual rate on large-capitalization U.S. stocks, 10.7%, your account will grow to $9,378 at the end of the fourth year. You will be 20 years old. Invested in the same way, with no additional savings, the account will grow to:
$25,917 by the time you are 30
$71,625 by the time you are 40
$197,943 by the time you are 50
$547,037 by the time you are 60
And $1,114,423 by the time you are 67And you will have started and finished all of your saving before turning age 21.Worth the risk Note that this plan does not require investment brilliance. It does depend on two things, an early start and tenacity. If you invested in small company stocks, whose long-term annual return clocks in at 12.5 percent annually, you could have much more money. (Try $2.4 million.) Similarly, you could diversify to reduce your risk and make your 47-year ride more comfortable. But you would do it at the expense of a somewhat lower return.The "Yes, but" crew will be happy to tell you that $1 million isn't what it used to be. I can remember people telling me this in the '60s. It is as true now as it was then. Millionaires are, well, just dreadfully common.Even so, the number of millionaires is relatively small. And being a millionaire is a better choice than being a pauper.The same crew will be happy to tell you that the future won't repeat the past, that SARS, terrorism or some other misfortune will cripple the future, or that we will be crushed by a rising China. Similarly, an actuary might tell you that you have a substantial chance of being dead by 67.Perhaps.But so what?All you've got to risk is four summers.See Scott Burns' Web site.
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