Wednesday, November 26, 2008
How to Cope With Today’s Volatile Bear
By Van K Tharp PhD
I’ve been getting a lot of questions about this market. I actually am putting on an extra Blueprint for Trading Success workshop which answers a lot of these types of questions, but it is already sold out. As a result, I thought I'd give you some of the answers you’ve been requesting in a dialogue format.
I’m retired and much of my retirement income has been wiped out. I still work and need to know what I can buy to still make a little extra money.
If I directly answered that question with recommendations it would be high risk for me. I don’t give recommendations… I teach people how to generate their own. People who are asking me for recommendations are not taking personal responsibility, so they’d also be likely to blame me if my recommendations did poorly. Giving recommendations is just not what we do.
First, there are newsletters out there that are excellent. The two best are True Wealth and the Weber Report. Don’t expect any recommendations out of Chris Weber right now because he believes, as I do, that the bear will not end until PE ratios for the DOW and S&P 500 get well into single digits and yields are around 7%. We have a long way to go down before we achieve that.
Steve Sjuggerud has been giving recommendations and getting slaughtered over the last year. He tends to buy things that are hated, but his idea of an extreme doesn’t include 10 standard deviation extremes and that’s what’s happening in this market. Nevertheless, Steve’s track record over many years is still excellent, and I expect him to do well once the carnage is over.
There was another newsletter that ranked really high when I wrote the second edition of Trade Your Way to Financial Freedom. However, that newsletter doesn’t take profits. And over the last two years all of the profits that his recommendations had generated have now been wiped out. In fact, three weeks ago he said that his best recommendation was a stock that they still had a huge profit in. And he said it was dirt cheap at its current price. Yesterday, that stock was down about 65% from the level three weeks ago when he said it was the best deal out there.
So what should I do?
In Safe Strategies for Financial Freedom, I recommended several strategies that are appropriate for this market. The inverse mutual fund strategy would have done very well. In addition, the Graham’s number strategy is getting to the point where there will be lots of qualifying stocks. However, that strategy will still lose money if you don’t wait until the market turns around. For example, I recently bought a stock at $27.50 that had $23 in cash and $119 in total liquid assets. The cash seemed like a good protector for the stock. However, it’s now selling at about $20.
Watch my market type indicator and don’t invest until it turns bullish. And even then keep 25% trailing stops.
What about the advice that I keep hearing that stocks are now bargains and I should hold on if I don’t need my investment soon?
Interesting, I heard that advice at the beginning of this year when we were clearly in a downturn. Now you have to make 100% on your money to break even from those levels. You are not likely to make 100% any time soon. In fact, the stock market to the best of my knowledge has never been up 100% in one year. That’s why 25% trailing stops are the intelligent alternative to buy and hold. When those are broken, and they were broken a long time ago, you need to get out.
Nothing is a bargain now and I would not consider buying until my market type switches from bear volatile to bullish. And that’s probably at least three to six months away. And even that is not indicative of a long term buy. We could still have another very nasty leg down to this market.
Short term traders (day and swing traders) who have mastered themselves are doing quite well in this market. Most are not at that level.
Where do you expect this market to go?
Well I’m not sure what the current PE ratio is on the S&P 500. Perhaps it’s finally reaching its normal level of 15. If that’s the case, with the current S&P 500 at 750, you could probably expect another 50% decline from here—at least before we can reasonably expect a bottom to this market.
When you hear the talking heads on television saying that maybe you should sell out, that’s when we’ve probably hit a bottom. As long as they are saying, “don’t sell at these prices,” we’re near a bottom now… then we are probably a long way away.
How bad can it get?
Well the average American family (who had some wealth) has probably seen their net worth drop by about 50% in the last 12 months. Part of that is due to the drop in real estate prices and part of that is due to the drop in equities.
However, U.S. banks are in fairly good shape now compared to some European banks with huge exposure to emerging markets in East Europe. I expect many countries to have a huge problem because they are in worse condition than the U.S., but they cannot borrow. And many banks in Europe have lent money to those countries. Right now, in contrast, the U.S. can and is printing all the money it needs and that money is still the world’s reserve currency.
Steel mills are cutting back to 50% capacity or more. International shipping has dropped 80% or more. Those effects have not been felt in the economy and in the market yet. What if the revenues of the major U.S. companies drop 50%? Then we could see a DOW at 1000-2000. And at that point, pension funds will be saying they will never again invest in the stock market.
This information is way too negative for me. Can you give me something positive?
I actually agree. If you start thinking too negatively, then your world will turn upside down. You attract into your life what you think about. So here is what I recommend for most of you.
First, consider doing the 365 lessons of A Course in Miracles (ACIM). You’ll basically learn that all of this stuff about the economy is meaningless because it only has the meaning that you give it. In addition, you will learn that “Nothing real can hurt me and nothing unreal exists… Herein lies the peace of God.” Start doing those exercises regularly—get through the first 100 lessons and watch your life change.
Second, watch and listen to the video The Secret. In fact, watch and listen to it about three times or more. When you’ve finished it, then start a gratitude journal and notice how that thinking changes your life. Rhonda Byrne, the author of The Secret, has an excellent gratitude journal.
Third, consider doing the 40 exercises in the Abundance Book by John Randolph Price. Do those exercises more than once.
Do at least 100 exercises in ACIM, complete a full Gratitude Journal, and do the 40 exercises in the Abundance Book at least three times. When you do, assuming that it totally changes your thinking, I can pretty much guarantee that your life circumstances will improve dramatically.
Click here to get ACIM and the Abundance Book through our web site.
Click here to get the Secret video and Gratitude Journal.
Tuesday, November 25, 2008
The Law of Investing - investigate before you invest. This is one of the most important of all the laws of money. You should spend at least as much time studying a particular investment as you do earning the money to put into that particular investment.
Check Every Detail
Never let yourself be rushed into parting with money. You have worked too hard to earn it and taken too long to accumulate it. Investigate every aspect of the investment well before you make any commitment. Ask for full and complete disclosure of every detail. Demand honest, accurate and adequate information on any investment of any kind. If you have any doubt or misgivings at all, you will probably be better off keeping your money in the bank or in a money market investment account than you would be speculating or taking the risk of losing it.
Money is Easy to Lose
The first corollary of the Law of Investing is: "The only thing easy about money is losing it." It is hard to make money in a competitive market but losing it is one of the easiest things you can ever do. A Japanese proverb says, "Making money is like digging with a nail, while losing money is like pouring water on the sand."
The Best Rule of All
The second corollary of this law comes from the self-made billionaire, Marvin Davis, who was asked about his rules for making money in an interview in Forbes Magazine.
He said that he has one simple rule and it is, "Don't lose money." He said that if there is a possibility that you will lose your money, don't part with it in the first place. This principal is so important that you should write it down and put it where you can see it. Read it and reread it over and over.
Time Equals Money
Think of your money as if it were a piece of your life. You have to exchange a certain number of hours, weeks and even years of your time in order to generate a certain amount of money for savings or investment. That time is irreplaceable. It is a part of your precious life that is gone forever. If all you do is hold on to the money, rather than losing it, that alone can assure that you achieve financial security. Don't lose money.
Be Smart About Investing
The third corollary of the Law of Investing says: "If you think you can afford to lose a little, you're going to end up losing a lot."
There is something about the attitude of a person who feels that he has enough money that he can afford to risk losing a little. You remember the old saying, "A fool and his money are soon parted." There's another saying, "When a man with experience meets a man with money, the man with the money is going to end up with the experience and the man with the experience is going to end up with the money." Always ask yourself what would happen if you lost one hundred percent of your money in a prospective investment. Could you handle that? If you could not, don't make the investment in the first place.
Here are two things you can do to apply this law immediately:
First, think back over the various financial mistakes you have made in your life. What did they have in common? What can you learn from them? Accurate diagnosis is half the cure.
Second, invest only in things that you fully understand and believe in. Take investment advice only from people who are financially successful from taking their own advice. Play it safe. It's better to hold onto your money rather than to take a chance of losing it, along with all the time it took you to earn it.
Third, have a plan. Start with gaining the right knowledge, then apply realistic investment goals to attain that fit your style and risk tolerance, then create a low-risk high-reward investing trading plan of price entry, take-profit stop-loss, then take action on those elements. Following a systematic approach to investing in the financial markets will provide more and better successful results.
Fourth, click here to review investing trading information education training software and advisory services that can help you be a successful investor and trader.
Monday, November 24, 2008
I’m a big believer of the growth in agriculture, but the rest of the market may not agree with me right now. Another way to play this stock is to take small positions over time. So in case it does go down, you could average in at lower prices. Don’t over leverage yourself on this stock or any other for that matter, and don’t put all your money on only one stock. Get information, set your investment trading goals, have a price plan where to get in, where to take profit, and where to take stop-loss in case the market moves against you and don’t deviate from that plan. You are now a successful trader who will gain in the long-term.
Buy Compass Minerals International. Ticker CMP
Buy Entry: 42.93 to 47.14
Take Profit Areas:
55.56 to 59.77
60.34 to 64.65
64.97 to 69.61
84.53 to 90.56
105.61 to 113.15
October 29 - Compass Minerals Reports Record Third Quarter
By Kansas City Business Journal
Higher prices for its products and increased sales volume helped Compass Minerals International report the strongest third-quarter financial performance in its history.
In a release Tuesday, the Overland Park-based company (NYSE: CMP) reported earnings of $28.7 million, or 87 cents a share, for the quarter that ended Sept. 30. This is a more than fourfold increase from $6.7 million, or 20 cents a share, last year.
Revenue for the quarter was $237.4 million, up 70 percent from $139.5 million last year.
The company’s stock closed on Wednesday at $52.68, up $10.16, or 24 percent, on volume of 1.6 million shares, according to Yahoo Finance. The stock’s average daily volume the past three months is 879,100 shares.
“Continued strong demand for our products drove robust sales, earnings and cash flow in the third quarter, and we expect our business to remain strong,” CEO Angelo Brisimitzakis said in the release. “Demand for highway deicing salt and sulfate of potash specialty fertilizer has continued to exceed supply. Our strategic investments in additional production capacity at our advantaged facilities will allow us to address supply imbalances while fueling long-term profitable growth.”
Compass Minerals produces minerals, including salt, sulfate of potash specialty fertilizer and magnesium chloride. It provides highway deicing salt to customers in North America and the United Kingdom and specialty fertilizer to growers worldwide. It also produces consumer deicing and water-conditioning products, ingredients used in consumer and commercial foods, and other mineral-based products for consumer, agricultural and industrial applications.
Compass Minerals Company Profile
Compass Minerals International is a leading salt and specialty fertilizer company based in Kansas City. We operate the largest, most productive and some of the longest continually run salt mines in North America and the United Kingdom, with histories that stretch back as far as 1844. The company’s product lines include salt for highway deicing, consumer deicing, water conditioning, consumer and industrial food preparation, agriculture and industrial applications. Our sulfate of potash is used in the production of specialty fertilizers to improve the yield and quality of high-value crops and to improve the durability of turf grasses. Compass Minerals International began trading on the New York Stock Exchange on December 12, 2003 under the ticker CMP.
Click here to review and Trial the Trading Software I used in determining my by long position on CMP. Enter I2S in the "coupon code" field to receive a 5% discount.
Click the Compass Minerals Stock Chart for a larger view.
Friday, November 21, 2008
Van Tharp Trading Workshops
The goal of my Super Trader program is to help people develop a full time trading business that produces consistent, above average profits under various market conditions. This means that you can perform profitably in up markets (both quiet and volatile), in down markets (both quiet and volatile), and sideways markets (both quiet and volatile). And to help traders reach this goal, I’ve designed a five step approach. If you are reading this, then you probably would like that sort of performance, even though you may not be part of the Super Trader program. My objective here is to familiarize you with the five steps.
1. Work on yourself and your personal issues so that they don’t get in the way of your trading. This step must be accomplished first; otherwise, it would interfere with each of the other steps.
2. Develop a business plan as a working document to guide your trading. This business plan is not to raise money, which is the purpose of many business plans. Instead, it’s designed to be a continual work-in-progress to guide you throughout your trading career. The business plan actually helps you with all five of the steps. The plan also includes an overview of the big picture influencing the markets you will be trading and a method for keeping on top of those factors so that you will know when you are wrong. My view of the big picture is updated in the first issue each month of Tharp’s Thoughts.
3. Develop several strategies that fit your view of the big picture and understand how each of these strategies will perform under various market types. The ultimate goal of this step is to develop something that will work well under every possible market condition. It’s actually not that hard to develop a good strategy for any particular market condition (including quiet, sideways). What’s difficult is to develop one strategy that works well under all market conditions—which is what most people attempt to do.
4. Thoroughly understand your objectives and develop a position sizingSM strategy to meet those objectives. Probably less than 10% of all traders and investors understand how important position sizing is to trading performance and even fewer understand that it is through position sizing that you meet your objectives. Thus, the fourth step is to develop position sizing strategies for each system that will help you meet your objectives.
5. Monitor yourself constantly and minimize the number of mistakes that you make. I define a mistake as not following your rules. Thus, for many people who have no written rules, everything they do is a mistake. But if you have followed the first four steps, then you will have rules to guide your trading and you can define a mistake as not following those rules. And, of course, when you repeat the same mistake over and over again, then that is self sabotage. However, by monitoring your mistakes and continuing to work on yourself, you can minimize the impact of such mistakes. People who do this, in my opinion, will tend to produce consistent, above average profits.
Part I: Working On Yourself
This part of the program is so important because everything you do is shaped by your beliefs – in fact, your reality is basically shaped by your beliefs. What’s a belief? Every sentence I’ve written (including this one) reflects my beliefs. Every sentence that comes out of your mouth reflects your beliefs. And your beliefs shape your reality. Who you think you are is shaped by your beliefs.
Let me give you an illustration of how that works. My niece from Malaysia came to live with us when she was 19 years old (my wife and I were putting her through college in the United States). After she’d been with us for a year, one day she said to me, “Uncle, in my next lifetime, I would like to be born beautiful and talented.” Let’s see, she is very artistic. My wife has become a professional painter, but my niece actually completed the initial art course faster than my wife did – she was so good. In addition, she sings like an angel. Also, coming from a liberal arts background she got a degree in biomedical engineering, graduating cum laude. I think she passes the talent criteria with flying colors. As far as beauty, I’d describe her as one of the most stunningly beautiful women I’ve ever seen. And everyone that meets her comments on how beautiful she is. Here was an incredibly beautiful and talented woman, who because of her beliefs, didn’t think she had those qualities at all. Your reality is shaped by your beliefs. By the way, I’ve been working on those beliefs of hers since she’s been living here, and she’s finally coming around.
So who you are is basically shaped by your beliefs about yourself. In addition, you do not trade the markets. Instead, you trade your beliefs about the market. So one of the key aspects of working on yourself is to examine most of your beliefs to determine if they are useful. And if they are not useful, then find beliefs that are more useful. This is one of the key aspects to working on yourself.
You probably will never be free of limiting beliefs and some aspects of self-sabotage during your lifetime, but I consider this step to be complete when you transform about five very limiting aspects of your life and you feel very different about each. Once you’ve accomplished five such transformations, then I consider you capable of generally overcoming future roadblocks that might come up in your trading.
Part II: Developing a Working Business Plan
The business plan part of trading includes step one. In fact, a good business plan includes a thorough examination of the person who is doing the trading – beliefs, issues, strengths, weaknesses, goals – everything you can possibly think of about yourself should be included in this document.
However, the plan should also include many other important things:
Your assessment of the big picture and how you’ll keep up with it. For example, I wrote about the possibility of a huge secular bear market in 2001 when I first started working on Safe Strategies for Financial Freedom. I decided that the big picture should include a) a general assessment of the stock market in the U.S. and world wide; b) a general assessment of the strongest and weakest areas of the world for investments; c) a general assessment of the strength of the dollar (or your home currency if you are not using the U.S. dollar); and d) a general assessment of inflation or deflation potential in the future. I also developed ways to measure each of these and my way of keeping up with them is to write a market update on the first Wednesday of each month.
Other strategies, such as how you will do research, monitor your data, market yourself (to your family or clients), monitor yourself, manage your cash flow, keep track of your trades and your performance. Basically, running a trading business involves many systems other than trading systems. And to have a successful trading business you’ll need to master those others systems.
You’ll need several strategies that fit the big picture and that work when conditions change. For example, strategies that work in volatile bear markets (e.g., 2008) are quite different than those that work in quiet bull markets (e.g., 2003).
A worst-case contingency plan so that you’ll be prepared for anything major that could upset your trading business. This sort of planning often takes as long as six months to complete.
Part III: Develop Trading Strategies That Work Under Various Conditions
In 1999, everyone in America seemed to be a stock market expert. For example, we were giving a stock market workshop at the Embassy Suites at Cary and one of the bartenders said to the other, “Perhaps we should take Dr. Tharp’s Stock Market Workshop.” The other one responded, “No, I don’t need that. I could teach a workshop like that.” Similarly, a waiter in a high class steak restaurant informed us that he was really a trader, but that he just works as a restaurant part time at night. He’d already made over $400,000 trading and he considered himself to be an expert trader. However, my guess is that those people didn’t survive 2000-2002 much less the market we’ve been through in 2008. Why? They are different markets, and a strategy of buying and holding high tech stocks, which worked in 1999, had mixed to horrible results in the years since 1999. However, a strategy of buying inverse index funds as soon as the market signaled a clear bear market in 2007 has worked wonders in 2008. The basic idea is that you have to know what kind of market we are in:·
Up volatile (11%)
Up quiet (19%)
Sideways volatile (20%)
Sideways quiet (38%)
Down volatile (10%)
Down quiet (2%)
These are the six market types and the percentage of time we’ve been in them (rolling 13 week windows) since about 1950. Down quiet markets very seldom occur (about 2% of the time), but the other five market types do occur often enough that you need to be able to find something that works profitably when it does happen.
Typically, most people attempt to develop one strategy that works in all kinds of markets. The waiters and bartenders, and most others for that matter, usually fail. However, there is good news. It’s not that hard to develop a strategy that will work well in each kind of market. What’s difficult is to find one that will work well under all conditions. However, you don’t have to do that if you simply monitor the market condition.
Part IV: Develop a Position Sizing Strategy to Meet Your Objectives
In our workshops we typically play a marble game. Marbles are placed into a bag to represent a trading system. For example, a trading system might include 20% 10R winners, meaning that when one of those marbles is drawn, you make 10 times what you risk. The system might also include 70% 1R losers, meaning that when one of those marbles is drawn you lose whatever you risk. And lastly, the system might also include 10% 5R losers, meaning when those marbles are drawn, you lose five times what you risk. By the way, the marbles are always replaced after they are drawn so that your odds remain the same after each draw.
Now some of you might be thinking, "But you’ll lose 80% of the time. How can you possibly make money?" Let’s say there are 100 marbles in the bag. If you total the R value of all the marbles in the bag, you’ll find that they total to +80R. That means that on the average you’ll make 0.8R per pull over many, many marble draws. Thus, the expectancy of the system is 0.8R (after 100 trades, you’ll probably be up about 80R). And if you risked about 1% on each marble pull, then after 100 pulls you’d probably be up more than 80%. Perhaps now the system doesn’t seem so bad.
However, when I play the game I usually provide the audience with different incentives. For example, I might say that if you go bankrupt, you are out of the game and have to pay a fine of $10. I might also say that if you end the game down 50%, you have to pay a fine of $5. I could also say that if you lose money by the end of the game, it will cost you $2. On the positive side, I might say that if you make money, you’ll win $2. If you make 50%, you’ll win $5. And I might also say, if you make the most money, you’ll win whatever is left in the pot – let’s say $100. Notice how my incentives set up a number of objectives for the game. For example, here are three possible objectives:
To win the game at all costs, including risking bankruptcy. The person who wins the game will usually have this objective.
To win at least $2 and to make sure that you don’t lose more than $2. Notice how this is an entirely different objective.
To win the game, but to make sure that you don’t go bankrupt. Again, this is an entirely different objective from the first two.
When I tell people how to strategize about the game, I suggest that they answer the following questions:
Who are you?
What are your objectives?
What is your position sizing strategy to reach your objectives?
Under what conditions might you be willing to change your position sizing strategy?
If 100 people play the game (starting with $100,000) and they all get the same trades (i.e., the same marble pulls randomly done and replaced), then chances are there will be 100 different equities at the end of the game. You will also be able to group people according to their objectives. For example, those who are trying to make money and have minimal losses will have a minimal fluctuation of equity around a 5-10% gain. However, those trying to win the game will have huge equity fluctuations ranging from bankruptcy to making millions.
My point here is that the game illustrates what is really important to trading success – the “how much” variable of position sizing. Thus, a key step for anyone wanting consistent profits is to develop a strategy with a positive expectancy and then develop a position sizing strategy that maximizes the probability of meeting your objectives. This hugely important step is largely ignored by most traders and investors, including most professionals.
Definitive Guide To Position Sizing
How to Evaluate Your System and Use Position Sizing to Meet Your Objectives. 90% of the Performance Variation of Professional Traders Is Due to Position Sizing. And Position Sizing Is the Key to Meeting Your Trading Objectives.
Part V: Taking Steps to Minimize Your Mistakes
What happens when you don’t follow your rules? You make a trade when your system didn’t tell you to trade. You are supposed to get out when your stop is hit, but you don’t get out. Your position sizing is way too big on one particular trade. Those are all mistakes. And mistakes can be very costly.
We’ve done some preliminary research on the cost of mistakes and results suggest that for leveraged traders, mistakes can run as high as 4R per mistake. If that person makes ten mistakes in a year, then that person could find his or her profits dropping by about 40R. That means that if he or she made 50% on the year – they could have made nearly 100%. If he or she lost 20%, then mistake free trading could have made that person profitable.
For long term investors with wide stops, mistakes probably cost about 0.4R per mistake. The total cost per year is about 4R. However, the average investor is lucky to make 20% per year so 10 mistakes could easily cost them 20% of their profits.
The final step that you must concentrate on is to minimize the impact of mistakes on your trading. This amounts to developing a disciplined routine in your trading and continuing step one – working on yourself.
About Van Tharp: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling book Trade Your Way to Financial Freedom and his outstanding Peak Performance Home Study program - a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at Intertnational Institute of Trading Mastery.
Thursday, November 20, 2008
If inflation is a quiet thief, then deflation is an armed burglar. You wouldn’t invite either into your home, yet chances are that one of the two is stealing your money right now.
The free 8-page report is adapted from Bob Prechter’s New York Times best-seller, Conquer the Crash, which was published far before the latest headlines warned of inflationary and deflationary dangers.
With October 2008 consumer prices plunging at a record rate not seen in more than 6 decades, now is hardly the time to ignore Prechter’s prescient message of how to survive and prosper in the today’s market environment.
Protect yourself and your loved ones.
Click Here Download Your Free Report on Inflation and Deflation.
Tuesday, November 18, 2008
If you're serious about getting rich, now is the time. We've entered a period of mass-produced pessimism, when bad news is everywhere, and the best time to invest is when optimists become pessimists.
The Weird Turn Pro
Journalist Hunter S. Thompson used to say, "When the going gets weird, the weird turn pro." That's true in investing, too: At the height of every market boom, the weird turn into professional investors. In 2000, millions of people became professional day traders or investors in dotcom companies. Mutual funds had a record net inflow of $309 billion that year, too.
In an earlier column, I stated that it was time to sell all nonperforming real estate. My market indicator? A checkout girl at the local supermarket, who handed me her real estate agent card. She was quitting her job to become a real estate professional.
As a bull market turns into a bear market, the new pros turn into optimists, hoping and praying the bear market will become a bull and save them. But as the market remains bearish, the optimists become pessimists, quit the profession, and return to their day jobs. This is when the real professional investors re-enter the market. That's what's happening now.
Pessimism vs. Realism
In 1987, the United States experienced one of the biggest stock market crashes in history. The savings and loan industry was wiped out. Real estate crashed and a federal bailout entity known as the Resolution Trust Corporation, or the RTC, was formed. The RTC took from the financially foolish and gave to the financially smart.
Right on schedule 20 years later, Dow Industrials and Transports struck their last highs together in July 2007. Since then, nothing but bad news has emerged. In August 2007 a new word surfaced in the world's vocabulary: subprime. That October, I appeared on a number of television shows and was asked when the market would turn and head back up. My reply was, "This is a bad one. The worst is yet to come."
Many of the optimistic TV hosts got angry with me, asking me why I was so pessimistic. I told them, "The difference between an optimist and a pessimist is that a pessimist is a realist. I'm just being realistic."
As we all know, things only got worse in early 2008, with the demise of Bear Stearns and the Federal Reserve stepping in to save investment bankers. In February, many of those optimistic TV (and print) reporters became pessimists -- and when journalists become pessimists, the public follows. By March, mutual funds had a net outflow of $45 billion as investors fled the market.
Surviving the Bad Times
Back in 1987, as savings and loans closed and investors' stock and real estate portfolios were wiped out, my wife, Kim, and I were living in Portland, Ore. Many people were depressed and hiding from the truth. The following year, I said to Kim, "Now is the time for you to begin investing."
In 1989, she purchased a two-bedroom, one-bathroom house for $45,000, putting $5,000 down and earning $25 a month in positive cash flow. Today, she owns over 1,400 units and -- because more people are renting than buying -- she earns hundreds of thousands a year in positive cash flow.
The period from 1987 to 1995 was a rough one, even for the rich. In his book "The Art of the Comeback," my friend Donald Trump writes about being a billion dollars down at the time. Rather than give up, he kept on fighting to survive. He and I often talk about how that period was great for character development.
I believe we're through the worst of the current bust. I know there will be more aftershocks, and the news will continue to be pessimistic for at least two more years, possibly until the summer of 2010.
But the upside to this is that it gives us at least two years to do our market research and find the next big stock or real estate bargain. Before buying, I strongly suggest you study, read books, and take courses on your asset of choice. If your choice is stocks, take a course on stocks or options. If it's real estate, take a course on real estate. Now is the time to learn; not only will you know more than the average person and be in a good position when the market turns, but you'll also meet people with a similar mindset.
You have about two years to get into position. Opportunities this big don't come along often, so this is your time to get rich.
Climbing Bulls, Flying Bears
Am I optimistic for the long-term? Absolutely not. I still believe we're due for the mother of all market crashes, and that the U.S. economy is running on borrowed time -- and I do mean borrowed. I think most baby boomers are in serious financial trouble, and that oil will climb above $200 a barrel. Inflation will also increase, causing more pain for the poor and middle class.
The Fed is flooding the market with nearly a trillion dollars of liquidity, which is why I believe gold under $1,200 an ounce and silver under $30 an ounce are bargains. Gold and silver should peak and decline before 2020, completing two 20-year cycles. My exit is to sell silver around 2015. I plan to hold onto gold, income-producing real estate, oil wells, and stocks.
Most of us know the bull climbs slowly up the stairs, but the bear jumps out the window. I believe the bull is still climbing the stairs, and the bear hasn't jumped yet. But rest assured that it will.
Click here to use Robert Kiyosaki's financial intelligence to survive the economic crisis and even profit from it.
Monday, November 17, 2008
After watching Michael Moores movie called "Sicko", it reminded me of what Bill and Hillary Clinton tried to do before and during their term as President. To provide more affordable health care for the American public, and get rid of the waste, fraud, mis-management, and downright embezzlement that is now built into the USA health care system. Three weeks before Bill Clintons first election, he stood in front of the board of directors at Merck Pharma, and stated that if he was elected he would be going after the HMO’s, health insurance, and drugs companies to bring down the their costs. After Bill said that, Wallstreet promptly sold off the entire medical sector big time no matter what kind of company it was. I see the same thing coming sometime soon for the medical sector, and I’m betting it will take no prisoners.
Short Sale on Hologic. Ticker HOLX
Sell Entry: 14.93 to 14.00
Take Profit Areas:
12.14 to 11.21
10.09 to 9.86
7.97 to 7.79
Analysis on this Hologic Sell Position
None fundamentally. All technically. If you haven't noticed the market lately, its tanking big time. Don't stand in front of this train if you want to invest and trade another day. Short selling is the place to be right now.
Hologic Company Profile from their website.
Hologic, Inc. (NASDAQ: HOLX) is a leading developer, manufacturer and supplier of premium diagnostics, medical imaging systems, and surgical products dedicated to serving the healthcare needs of women throughout the world. Historically, Hologic developed, manufactured, and marketed products focused on mammography, breast care, and osteoporosis assessment. In 2007, we expanded our focus and now provide a comprehensive suite of technologies with products for mammography and breast biopsy, radiation treatment for early-stage breast cancer, cervical cancer screening, treatment for menorrhagia, osteoporosis assessment, preterm birth risk assessment, mini C-arms for extremity imaging, and molecular diagnostic products including reagents for a variety of DNA and RNA analysis applications. We are proud of this achievement, and conscious of the responsibility that our leadership position brings with it. We believe that the health issues facing women today deserve and demand the singular dedication of a passionate company. Our core business units are focused on breast health, diagnostics, GYN surgical, and skeletal health.
Click here to review and Trial the Trading Software I used in determining my short-sale position on HOLX. Enter I2S in the "coupon code" field to receive a 5% discount.
Click the Hologic Stock Chart for a larger view.
Friday, November 14, 2008
When Paulson came out yesterday and stated that his earlier plan to save the western world was not working, he offered up a plan "C" (or is it "D") to relieve pressure on consumer credit, scrapping his earlier effort to buy the value mortgage assets.
No matter what happens or what the next plan is here, are the 3 reasons I believe stocks are headed lower.
Number One: The trend in most all stocks is down. This trend is likely to persist and last longer than most people imagine.
Number Two: There is no plan. The government is floundering and does not have a plan that is going to work anytime soon.
Number Three: We have a lame-duck president, and nothing is going to happen of any consequence until President-elect Obama is sworn in.
Click here to watch this new video analysis of what could really happen:
Okay, so let's look at the first problem. Most people trading the market today have had no experience in a prolonged bear market like the one we had in the '70s. That bear market was brutal as it did not let anyone out. Over the course of the early '70s, the bear market basically wore people out to the extent they eventually just threw in the towel. We believe the market is going to make another new low and take out the recent lows that were put in place in early October. Unlike a bull market that constantly needs positive news to drive it higher, a bear market just falls under its own weight.
The second problem we have is that there is no concrete plan in place to rescue the economy. In fact, the domestic and global economic issues are so great that they are overwhelming in scope. The Paulson plan, which is being changed and will continue to change, is a major concern and creates significant uncertainty in the marketplace. Only when we see the new regime take! off ice this coming January will we see any meaningful changes.
The third problem we have is a lame-duck president. This is a major problem for the markets as President-elect Obama can not make any sweeping changes until he is sworn into office. Yes, he may hit the ground running, but the reality is, it's not for over two months from now and a lot can happen to the market in two months. The key levels that everyone is going to be watching for are the recent lows we saw in early October. If these lows are taken out, and I expect they will be, it's going to push this market and everything else down to new lows. It will exacerbate the housing situation, the unemployment situation and most of all, the morale of the country.
Having lived through the bear market of the '70s, I know firsthand how difficult the journey we face is going to be. Now this may seem like a very pessimistic outlook and in some ways it is, however there are always opportunities to make mone! y i n the marketplace. These opportunities may not be in stocks! , it may be in forex or the commodity markets.
So buckle your seatbelt. I think we are in for a bumpy ride. Check out the new video analysis:
Thursday, November 13, 2008
What: Practical Applications Class Preview Webinar
When: Wednesday, November 12, 2008 at 9:00 PM EST
Where: Register here:
Why: To discover the "Missing Link" of successful options trading!
There is a very special webinar tonight with options trading expert and educator Ryan Mastro. The information revealed on this webinar leaves options trading 'theory' behind, and gets into the practical, real-world, day-to-day activities of a true options trading superstar.
So if you ever wanted an expert to simply "take you by the hand" and show you what to do each day with your trading, then this is the webinar for you! You may just discover the "Missing Link" to your trading success this evening. In case you haven't registered yet, there's still a little time left, and a few 'virtual seats' remaining.
Here's that webinar registration page again.
In these crazy, up-and-down markets we're in right now, you need all the help you can get to be successful in your options trading. Yet, even in these volatile markets (or maybe ESPECIALLY in these topsy-turvy markets) some of our students are making EXCITING short-term gains! And they've found some of these market-beating trades in the Practical Applications classes (keep in mind the classes are for education only).
Join Ryan Mastro tonight for the F.R.E.E. Practical Applications Class Preview webinar by clicking here.
Wednesday, November 12, 2008
It's one thing to know how something works, but quite another to make it work for you.
The Wave Principle is no exception. Just knowing how it works can give you an edge. But learning how to put it to work in your own trading can really put you ahead of the pack – especially in this unforgiving bear market. Here’s your opportunity.
Click Here To Reserve Your Seat Now
In this intensive, small-group trading course, EWI’s top instructors teach you how to use the Wave Principle and supporting technical tools to capitalize on the unique opportunities – and avoid the dangerous pitfalls – you’ll encounter in this bear market.
Drawing on more than 40 years of combined experience analyzing and trading the markets, Senior Tutorial Instructor Wayne Gorman and “Trader’s Classroom” instructor Jeffrey Kennedy team up to share with you the best techniques, tips and tools they have to offer.
In an intimate classroom setting, Wayne and Jeffrey walk you through carefully selected lessons and hands-on exercises that will send you home with the understanding and confidence you need to begin applying these techniques in your own trading.
Here’s what you'll learn:
Elliott Trading Fundamentals
Psychology of Trading and the Markets
Technical Tools that Complement Elliott
Developing a Trading Strategy
Determining Support and Resistance Levels
Entry and Exit Strategies
Placing and Adjusting Stops
Trend Reversals and Pattern Recognition
Over the years Wayne and Jeffrey have probably assembled enough teaching materials to cover a month-long trading course. With just two days, they will narrow their focus on bridging the gap between Elliott wave analysis and trading – between theory and application.
Please note that this course is NOT for beginners. In order to get the most out of this trading course, you should have a working knowledge of the Wave Principle and some experience trading.
The entire two-day trading course takes place at the beautiful, convenient Atlanta Airport Marriott, just minutes from the airport.
Seating is limited, so click here to reserve yours now.
Tuesday, November 11, 2008
These brave ones raised a hand;
No hesitation held them back;
They were proud to take a stand.
They left their friends and family;
They gave up normal life;
To serve their country and their God,
They plowed into the strife.
They fought for freedom and for peace
On strange and foreign shores;
Some lost new friends; some lost their lives
In long and brutal wars.
Other veterans answered a call
To support the ones who fought;
Their country had requirements for
The essential skills they brought.
We salute each and every one of them,
The noble and the brave,
The ones still with us here today,
And those who rest in a grave.
So here’s to our country’s heroes;
They’re a cut above the rest;
Let’s give the honor that is due
To our country’s very best.
By Joanna Fuchs
Monday, November 10, 2008
Buy Long Costco. Ticker COST
Buy Entry: 49 to 55
Take Profit Areas:
59.16 to 59.88
Costco October Net Sales Up
Costco reported net sales of $5.30 billion for the month of October, the four weeks ended November 2, 2008, an increase of two percent from $5.21 billion in the same four-week period last year.
For the first nine weeks of its reporting period ended November 2, 2008, the Company reported net sales of $11.97 billion, an increase of six percent from $11.26 billion during the similar period last year.
Excluding the negative effect of foreign exchange (particularly in Canada, the U.K. and Korea), international comparable sales for October increased 9% in local currency, and total Company comparable sales would have increased by 3% for the month. Gasoline price changes year-over-year had no material impact on sales for the month.
Costco currently operates 546 warehouses, including 400 in the United States and Puerto Rico, 76 in Canada, 20 in the United Kingdom, six in Korea, five in Taiwan, eight in Japan and 31 in Mexico.
Costco Company Profile from Google Finance
Costco Wholesale Corporation (Costco) operates membership warehouses-based offering its members products in a range of merchandise categories. It buys the majority of its merchandise directly from manufacturers and route it to a cross-docking consolidation point (depot) or directly to its warehouses. The Company’s depots receive container-based shipments from manufacturers and reallocate these goods for shipment to its individual warehouses, generally in less than 24 hours. The Company’s warehouse format averages approximately 140,000 square feet. Its warehouses operate on a seven-day, 69-hour week. It carries an average of approximately 4,000 active stockkeeping units (SKUs) per warehouse in its core warehouse business. Many consumable products are offered for sale in case, carton or multiple-pack quantities only. As of August 31, 2008, Costco operated 512 membership warehouses.
Click here to review and Trial the Trading Software I used in determining my buy long position on COST. Enter I2S in the "coupon code" field to receive a 5% discount.
Click the Costco Stock Chart for a larger view.
Tuesday, November 04, 2008
Do Politicians Move the Markets?
If you need proof that politicians will say anything to get elected, simply consider the sort of stuff they say when they KNOW they can't lose. In one of his three successful runs for governor in Louisiana, Edwin Edwards was so far ahead in the polls that he served up this gem on the day before the vote:
"The only way I can lose this election is if I'm caught in bed with either a dead girl or a live boy."
And if "say anything to get elected" is true of politicians, it's usually more true of what their supporters and other partisans will say to help "their guy" defeat an opponent. That includes a recent claim that the bear market is due mainly to apparent investor fears about the policies of the front-runner in the U.S. presidential race.
Now, since election day for that race is only days away, nearly anything I say runs the risk of sounding like I'm in the tank for candidate McCain or for candidate Obama. To be clear, the ONLY thing I'm "in the tank for" on THIS page is the proposition that news does not and cannot create or reverse the dominant trend in the stock market.
That said, a New York Post columnist obviously believes otherwise. Under the headline "An Obama Panic?" he says:
"Just how low can the markets and economy go? It could be a lot lower - it all depends on the policies of the next president. And, as it looks increasingly likely that Obama will be that man, the markets are casting a vote of 'no confidence.'"
Now, anyone who looks at the facts and evidence objectively will see that, if anything, this columnist has it exactly backwards: the economy & market drive politics, not the other way around. The polling data shows that by the weekend of September 13-14, the presidential race had narrowed to a statistical dead heat. Yet that was also the weekend when Lehman Brothers declared bankruptcy -- and the already-bearish economic/market trends dramatically accelerated.
Watch the video clip then click here to see What the NEW Elliott Wave Financial Forecast Says About What Happened in October and What's Next!