Friday, November 29, 2013

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Wednesday, November 27, 2013

Paradigm Shifts for Trading Success

By Dr. Van Tharp Trading Education Institute

When the topic of paradigm shifts came up at a workshop, I suddenly started talking about the all the paradigm shifts that were in my book Trade Your Way to Financial Freedom. I had never before thought about the book in terms of paradigm shifts, but suddenly all of the information about the shifts discussed in my book was pouring out of my mouth. After being totally amazed, I decided to spend some time thinking about what I’d said. At the time of the workshop, I remarked that there were four major paradigm shifts in my book. I have no idea where that number came from, but I was able to elucidate four of them very well. Since that time, with considerable thought, I’ve only been able to come up with two more. Nevertheless, these are major paradigm shifts for most traders and investors.

Trading success has very little to do with what’s outside of you, such as what the market does. Instead, you must determine who you are and what your objectives are. Once you have done that, you can design a trading system that fits you.

Most people believe that trading success has to do with the markets, with indicators and analysis, and with finding some magical edge that will help them perform slightly above their competitors. This is totally wrong! Instead, trading success is an inner search. It has to do with finding yourself. Who are you and who do you choose to be? When you’ve answered those questions, you can then decide how to express the new you through the markets. However, this is a major decision. Most people give it no credence or, even when they are aware of it, no time.

There is no Holy Grail in the markets outside of you. But there is a Holy Grail and that comes from developing a trading system that fits you. When you do this you can do much more than outperform the majority of market players. You can achieve levels of performance that others might think are impossible.

Academic psychology is full of people who have done marvelous research studying the shortfalls of the average trader. As a result, economists are beginning to say perhaps the markets are not efficient. And, perhaps by studying human frailties, one can begin to predict how the markets are not efficient. Thus, the field of behavioral finance has been born.

I consider myself to be a student of behavioral finance and one of the few people who is really helping others to apply it. However, applying behavioral finance doesn’t mean predicting the inefficiencies in the market. Applying it means working on yourself to make sure you don’t have these inefficiencies. However, that is too much of a major shift for most people who are into what the markets are doing. But, when I talk about traders making consistent 50-100% returns in the market with little risk, the people who believe it is all outside of themselves think we’re doing the impossible.

You don’t have to predict the market to make money. Instead, making money comes from controlling your exits.

I’ve discussed this one extensively many times. The golden rule of trading is “Let your profits run and cut your losses short.” What does that have to do with prediction? Absolutely nothing. Instead, it has everything to do with getting out of the markets using a systematic plan. Enough said! However, this one can stimulate an argument in many of my students—even those who have read Trade Your Way to Financial Freedom several times and think they understand it.

The fourth paradigm shift is simply an elaboration of the third.

You don’t have to be right to make money. Instead, you must understand R-multiples, expectancy and opportunity.

Suppose you trade high priced stocks that are going up consistently. You get into the stock, but get out immediately if it goes against you by more than $1. Thus, your risk per share is $1, which I’ve defined as 1R.

Suppose you enter a rising stock and get stopped out. You’ve lost a dollar or 1R. Suppose this happens five more times. You’ve now had six 1R losses. On the seventh trade, the stock takes off on you. You ride the stock for a $30 profit. That’s a 30R profit.

You’ve now had seven trades—six 1R losses and one 30R profit for a net of 24R. Let’s even say that your transaction costs amount to 0.5R per trade, so we must subtract another 3.5R. Even now, we still have a total profit of 20.5R. If that’s your average for seven trades, what if you make 21 trades each month? You’d have a profit of 63R while being right on only about 14% of your trades.

If you have not made this paradigm shift yet, you’ll probably find all sorts of reasons to refute the logic of my example. I’ve heard them all. And all of them have come from people who were having trouble with this paradigm shift and needed to defend their position.

Big money does not come from any of the factors that most investors and traders focus their attention upon. Instead, big money comes from having a position sizing strategy that is designed to meet your objectives.

Let’s use the example given above. Suppose you risked 0.5% of your equity on every trade. After six losers in a row, you’d be down about 3%. However, after your 30R gain, you would be up 12%. And in the scenario above (even assuming huge transaction costs of 0.5R or 0.5% of your portfolio), you’d be up over 30% in a single month on 21 trades.

Again, if you haven’t made this paradigm shift, you’ll find lots of flaws in my logic to support your position. That’s okay and it won’t bother the people who regularly make big profits while giving up being right.

Let’s assume that three 30R trades in a month is unrealistic. Three 15R trades is not. It would still give you a net profit of 27R per month. That’s 13.5% with our 0.5% risk per trade scenario. And, let’s add in the unrealistic transaction costs. That would give you a net return of 16.5R per month—or 99% per year. And again, you are still only right 14% of the time and not risking more than 0.5% of your account per trade.

While my purpose in writing this article has simply been to get you to think and step outside of your own perspective, I’d like to point out that I’ve only scratched the surface on the paradigm shifts most of you could make. There are probably at least five major paradigm shifts (not covered in this article) in each of the volumes of my Peak Performance Course for Traders and Investors.

How to Make Your Own Paradigm Shifts

One of the greatest skills I can give you is the ability to make your own paradigm shifts—to look at the box you’ve put yourself in by your thinking and then step out. For those of you who would like maximum benefit and are really willing to “go for the moon,” here is a five-step program for creating your own paradigm shifts.

Step 1: Examine who you are and what you are doing from multiple perspectives. NLP (Neuro Linguistic Programming) suggests that there are at least three perspectives of every event: your perspective, another involved person’s perspective, and the perspective of an outside observer watching what is going on during the event. If you were to continually observe yourself from perspectives two and three, then it would not take long at all to jump out of the box.

A simple exercise you might do is to simply replay each day at the end of the day from the perspective of an outside observer. Amazing changes will occur in you when you do so.

Step 2: Examine your beliefs. Your beliefs might form a set of concentric circles. In the middle are the beliefs that you know are true. Around that are the beliefs you think are true. The next circle contains beliefs that might be true. The fourth circle contains the beliefs that you have real doubts about—things on the fringe like the existence of ghosts or UFOs. And the final circle might be beliefs that you know are not true.

Most people tend to spend their lives rejecting beliefs on the outside of the circle and finding evidence to support the beliefs on the inside. There is even a journal called The Informed Skeptic, which devotes itself to debunking fringe beliefs. While I’m all in favor of questioning fringe beliefs, I think the beliefs that are probably the most damaging are the beliefs in the inner circle—those we know to be true. Spend time questioning those beliefs and you’ll begin to make major paradigm shifts. In fact, try questioning one or two of your major assumptions about life that you know are true. What would life be like if those assumptions were not true? Questioning of this sort is what would be most profitable and evolutionary for most people.

Step 3: Notice your projections. One of my true beliefs that is on the “fringe” for most people, has deep psychological underpinnings. It is that what you see “out there” really reflects what is going on inside of you. If you operate as if the world is a mirror to your own mind, then you will really begin to find out what your boxes are. And when you know where a box is, it is a simple step to get out of the box and make a paradigm shift.

Step 4: Keep a daily journal of your emotions and experiences. One of the best ways to observe yourself is to look at the way you were at some prior point in time and to compare that version of you with another version. You can do this through journaling and reading your journal on a regular basis. Doing so will really help you observe your paradigms and then step out of them.

Step 5: Meditate regularly. Meditation is all about listening. When you listen, you get intuition and immense guidance. As a result, twenty minutes of quiet meditation is probably the best thing you can do for yourself. Simply pay attention to your breathing for twenty minutes. Think of breathing in as “inspiration,” for it very well may be that. And when any thoughts come to you, simply notice them and let them go. If you get stuck in your thoughts, when you notice that, let it go and return to watching your breath.

These five steps should help you to make immense paradigm shifts on a regular basis. Plan to do it for the next 30 days.

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Monday, November 25, 2013

Investing in China Automotive and Internet Industries




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There are many ways to play the growth of China's middle class and BitAuto Holdings (BITA) may offer a combination of two of the best: cars and the Internet reports Zacks Investment Research.

BitAuto provides Internet content and marketing services for the automotive industry in China. Its bitauto.com and ucar.cn websites provide consumers new and used automobile pricing information, specifications, reviews and consumer feedback.

New Name, Experienced Player

Since China overtook the US as the world's largest automobile market in 2010, Chinese companies have of course been scrambling to capitalize on the boom. While you may have never heard of BitAuto and you may be skeptical about "another Chinese Internet company," their roots in the auto industry go back more than a decade.

BitAuto was originally an advertising agency focusing on the automobile sector before they expanded into an integrated online vertical/portal model. They operate bitauto.com and taoche.com websites for dealers, automotive advertisers and consumers to converge.

According to analysts at Oppenheimer, "With China's emerging auto sector coupled with strong secular tailwinds of increasing Internet ad spend, rising domestic consumption, Internet penetration growth, and greater reliance by consumers on the Internet for car information, BITA is positioned to maintain its leading position in the automotive online advertising and agency business."

The BitAuto Model

The company operates in three segments: bitauto.com business, ucar.cn business and digital marketing solutions business. Bitauto.com business provides subscription services to new automobile dealers and advertising services to dealers and automakers on the bitauto.com website.

Bitauto's ucar.cn business provides listing and advertising services to used automobile dealers on ucar.cn website. And their business services division provides automakers with digital marketing solutions, including website creation and maintenance, online public relations, online marketing campaigns and advertising agent services.

High-Speed Growth

In 2010 through 2012, BITA grew revenues at average annual pace of 57%. And while 2013 looks to be slowing down quite a bit to 38%, that's still taking the company from 2012's topline of $170 million to an estimated $234 million this year. And 2014 full year estimates are for 29% revenue growth to top the $300 million mark.

After a strong 3rd-quarter report, Oppenheimer analysts raised estimates for the this quarter and next year citing "BITA’s ad sales continued to benefit from robust auto sales growth in China and marketing dollar shifts from offline to online by auto OEMs and dealers."

Encouraged by gross margin expansion of approximately 122bps year-over-year to 74.4% on a mix shift to higher margin bitauto.com and EP businesses, the analysts raised Q4 EPS estimates to 34-cents from $0.31 and full year 2014 EPS estimates to $1.18 from $1.10.

Innovation and Partnership

The Chinese have made it clear they like to build their own dominant companies in key industries, like the Internet for instance. For this reason, hedge fund manager John Burbank of Passport Capital has major investments in Baidu (BIDU), Qihoo 360 (QIHU), which specializes in Internet security, search, and mobile apps, and SouFun (SFUN) which he calls the "Zillow of China."

On November 7, the day of their last quarterly report, BitAuto also announced a joint venture with Kelley Blue Book and the China Automobile Dealers Association (CADA) to provide data on the Chinese used car market. But not only did BITA pick a great US partner, they are also launching these services in mobile applications to meet the country's increasingly high-tech consumer demand.

"Bitauto is delighted to cooperate with Kelley Blue Book and CADA to bring innovative vehicle valuations to China's used car market," said Mr. William Bin Li, chairman and chief executive officer of Bitauto in the company press release. "We see increasingly strong demand for vehicle valuation products particularly in China's used car market which is currently under-served and is now entering a period of rapid development.

"We believe that consumers will greatly benefit from the joint venture's products and services which will offer quick and easy access to the most market-reflective vehicle valuations, helping them make informed decisions on their vehicle transactions. We are confident that these will become the starting point for consumers and dealers seeking used vehicle pricing information."

Mr. Li added, "Our combined experience, technology and brand will drive the development of this joint venture and allow us to deliver trusted values to China's used car market. We believe this joint venture will further solidify Bitauto's leading position in China's online used car market."

The new Web and mobile-based products will be the direct access point for China's most comprehensive and up-to-date car valuation information and is expected to serve as a central hub for the development of China's new and used car industries.

If you are looking for a high-growth play on the Chinese consumer, BitAuto may be a good option. While the forward P/E looks pricey at 33X, dips below 30X look worth accumulating for this key player in the Chinese automarket.

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Wednesday, November 20, 2013

What the Low Stock Market Volatility is Indicating

Why is Market Volatility So Low? By Dr. Van Tharp Trading Education Institute

“Complacency is a state of mind that exists only in retrospective: it has to be shattered before being ascertained.” — Vladamir Nabokov, Russia-born U.S. novelist

Volatility Measures at the “Bottom of the Page”

Complacency in the markets is most often measured using the CBOE’s Volatility Index, or VIX. To simplify the concept, VIX really measures how much option premium is being paid for S&P 500 options. If options buyers and sellers think the market will be jumpy (volatile), then they bid up the price of options — market pundits call this a fear premium. On the other hand, if options buyers and sellers foresee smooth markets, then the price paid for options drops and complacency rules.

Over time, markets cycle from higher to lower volatility and back again. But over the past two years, the range of those swings (the amplitude of the cycles) has been severely reduced. In fact, since December of 2011, the VIX has never been above 30 — the traditional “line in the sand” that classically defined an oversold or “volatile” market. Let’s look at a long term chart:



As you can see, we’re in our 23rd month of volatility contraction. Now for all those perma-bears who are screaming that this is a long time and we should expect a massive correction soon — I direct your attention to the period on the chart from April 2003 through July 2007 (a massive 52 month stretch!) when there wasn’t a single VIX reading anywhere close to 30.

Here’s another graph from Lance Roberts of STA Wealth Management that tells the volatility story in a slightly differ manner:



ere we see that Roberts breaks the VIX readings into three categories: Capitulation, Complacency and a Greenspan-esque “Irrational Exuberance”. Again, notice that from 2003 to 2007 the market stayed “irrational”, calling to mind the quote from John Maynard Keynes that most everyone has heard, “The market can remain irrational longer than you can remain solvent”.

So volatility is really low already and then, early this week, it approached its lowest point of the last few months. In fact, VXX and similar volatility exchange traded funds/notes did reach their all-time lows due to contango issues with the instruments they hold.. Note: an all-time volatility low does not point to an immanent market top because this low VIX environment (what I’ve called a grinding bull market) can last for very long periods as recent history shows. There are some trading implications, of course, which we’ll discuss below. But for now, let’s discuss why this period of low volatility persists.

What’s Keeping VIX Depressed?

As we discussed above, low VIX shows a high level of complacency in the market. A simple explanation might be the so called Bernanke Put. The Fed chairman has essentially given investors a put option (the right to buy the market at a particular price at some time in the future), thus backstopping the market. Indeed, after markets had stabilized following the Great Recession of 2007-2009, Operation Twist plus QE’s 3 & 4 seemed to convince market participants that the Fed in particular and central banks in general would keep the liquidity train chugging at full speed. This has led to ongoing and ever-increasing complacency in the markets.

As traders and investors, what are the effects of this low volatility environment? Most obviously, anyone who has a strategy that includes selling options has issues to deal with right now. Covered calls, credit spreads, iron condors and the like are producing much smaller returns for those writing them. Players in this end of the trading world that I know are either using extreme caution or standing aside completely.

For those with a shorter-term time horizon and a small grasp of recent history, you’ll recall that, for the last three years we have had market drops either in the week before or the week of the U.S. Thanksgiving holiday. With VIX at a very low point relative to even the past 22 month’s depressed rates, one might look for a low-risk way to play a potential short term expansion in volatility.

Next week we’ll dig back into our series on monetary policy.

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Monday, November 18, 2013

Investing in Property and Casualty Insurance




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Although recent troubles with the Affordable Care Act’s rollout have called into question some in the insurance world, companies in the property and casualty segment are looking quite strong. And with some positive trends on the interest rate front, this could definitely continue into the near future.

That is why investors might want to consider this impressive industry for exposure, as it currently has earned itself a top five (out of over 250) industry rank, putting the property/casualty space into the top 2% of all industries. While there are a number of great choices in this space, one company, CNA Financial (CNA), stands out as a great pick at this time.

CNA in Focus

CNA is a Chicago-based firm (which is actually a Loews (L) subsidiary) that provides insurance products to businesses and middle market organizations both in the U.S. and internationally. It focuses on property insurance, management and professional liability insurance, and also risk management services as well.

This has been a pretty solid combination for the company, and CNA had another great quarter at its latest quarterly earnings release. In this release, the company easily beat estimates, reporting earnings of $1.00/share, crushing our consensus estimate of 76 cents a share.

"CNA's third quarter results reflect improved earnings and sustained progress in our core P&C business performance," said Thomas F. Motamed, Chairman and CEO of CNA Financial Corporation. "We are pleased with these results and are encouraged by the margin improvement, the ongoing favorable rate trends, and the continued shift in our book of business toward focus customer segments."

Can this continue?

Given the positive trends in the P&C corner of the insurance market, there is plenty of hope that CNA can continue to increase earnings and push its stock to new heights. And if you look at the recent earnings estimate trend, analysts are clearly believers as well.

All the estimates we have on the company have gone higher in the past 60 days, with not a single estimate going lower. This has pushed the consensus sharply higher too, with the current year earnings consensus moving from $3.11/share 30 days ago to $3.36/share today.

Investors should also note that while the company doesn’t have a spotless track record at earnings season, it is definitely on the right track as of late. It has put up three consecutive (and solid) beats at earnings season, suggesting that the issues of last year are far behind this surging company which appears well-positioned for further growth.



Other factors

Investors should also note that 2013 has been pretty kind to insurers in general, as there have been few major disasters in the U.S. which would cause a hit to claims. This is in sharp contrast to last year, and it is one of the chief reasons for why CNA is going to see such solid earnings growth for the current quarter when compared to last year.

CNA also has an extremely low forward PE suggesting that it is a pretty solid value, as this comes in at just 12.2. This is especially impressive considering that earnings are expected to grow by double digits this year, while the dividend yield here is a robust 2%, suggesting it could be an interesting pick for investors looking for a lower risk play.

Bottom Line

Events are shaping up pretty nicely for the insurance industry thanks to rates, few payout events, and surging investment portfolios. There are certainly a number of companies that play off of this trend, but one that you may have overlooked is CNA Financial.

Thanks to the above factors, CNA has earned itself a top Zacks Rank #1 (Strong Buy), and could definitely continue to outperform.So while CNA might not be as famous as some other insurers in the space, its solid earnings outlook and value characteristics could make it a great buy to close out the year for investors who want to get on this impressive trend.

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Wednesday, November 06, 2013

Where Does the Fed’s Stimulus Money Go? Part V

Where Does the Fed’s Stimulus Money Go?

Part V – A Bigger Picture

By Dr. Van Tharp Trading Education Institute


My high school chemistry class was actually a lot of fun. Half of the students in the class were my good friends and I liked chemistry very much (hence the subsequent chemical engineering degree). I vividly remember one class when the teacher and one of the sharpest guys in school were debating a point — okay, arguing really — about a completely inconsequential topic and the whole class was becoming annoyed.

The teacher, Ms. Duncan, was seriously smart. The student arguing with her was even smarter (he’s now the radiology Chair at Boston Children’s Hospital and a Professor at some Medical School up there that goes by the name of Harvard). They only were arguing to top the other, hold their ground and prove a point. Meanwhile, the rest of us were bored stiff. So I stepped in and offered a baseball analogy — the rest of the class had just made a clean base hit straight up the middle, and those two were arguing over where the foul lines were drawn. Ms. Duncan said, “That has nothing to do with the base hit!” I said, “Exactly.”

I love the saying “can’t see the forest for the trees” because it applies so often in real life. People just naturally seem to get caught up in the minutiae, the immediate problem at hand or their own little problems and fail to recognize the big picture. See where I’m going with this?

Welcome to the world of Washington politics and the high holy keepers of the worst examples of “can’t see the forest for the trees”.

Kicking the Can Down the Road (Again)

The biggest news of the last week was the refunding of the federal government’s day-to-day operations. Non-essential government employees returned to work and the politicians got to delay really debating the debt ceiling again until early 2014. Hear that can a-rattlin’ down the pavement?

If we all step back calmly and look at what just happened without any political party prejudices, we quickly see that we don’t have a budget problem, we have a governance problem. We have lost the ability to efficiently and effectively legislate. And I’m pretty sure I’ll never see a national political body make a difficult decision again in my lifetime. All decisions are vetted through the lenses of entitlement groups — whether they receive a government handout directly (those on the left can yell nasty things about me) or whether they receive special treatment by the government like the financial institutions and the industrial-military complex (those on the right can now say ugly things about my lineage).

The Big Picture in One Cool Graphic

Now, let’s all hold hands and solemnly repeat, “The problem is not about raising the debt ceiling, the problem IS the debt ceiling”. We are in the midst of the largest financial engineering experiment in the history of economics as we know it. The unwinding of this will be ugly, barring some technology / productivity quantum leap that allows the global economy to rapidly expand and grow our way out of part of the problem.

In one graphic we see a startling depiction of the big picture (it’s from the Ricochet blog — a conservative gig, but I did vet the numbers which seem reasonably accurate):



First of all, it’s pretty clear that the debt problem (or more appropriately, the rate of debt growth relative to revenue growth) exists on both sides of the aisle — it is a national problem that doesn’t belong to one political party more than the other.

I now firmly believe that a government that can’t make tough decisions on how to slow spending or increase revenues will have tough decisions thrust upon them by another financial crisis. Whether that crisis is bad, like 2008 or really bad like 1929+, it’s tough to see us getting a resolution that looks or sounds anything like a “soft landing”.

In weeks to come, we’ll look at some things that traders can reasonably do between now and then (like continue to enjoy the stock market climb until price tells you otherwise).

Click Here to Read Parts 1, 2, 3, and 4 of Where Does the Fed’s Stimulus Money Go?

Monday, November 04, 2013

Investing in Solar Power




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Thanks to strong demand and a turnaround in key international markets, solar power investments have been quite strong for much of 2013. ETFs tracking the sector have led the way for much of the year, including nearly a 120% gain for the top fund in the space, (TAN).

And with a series of earnings beats lately, the short term future could be looking very bright for the sector as well. This is particularly true when looking at one of the top names in the space, SunPower (SPWR).

SunPower in Focus

SunPower is California-based company that designs and manufactures solar systems for residential, commercial, and utility purposes around the globe. The company is actually majority owned by European energy giant Total (TOT), but it has been trading on its own for nearly a decade.

While some take strictly a low cost approach, SPWR zeroes in on high efficiency panels. According to their latest 10-Q, the company has among the most efficient panels in the industry, making this a key selling point for SunPower when compared to its competitors. This has been a great approach in the current solar power bull market, especially if you consider the company’s latest earnings results.

Recent SPWR Earnings

At the end of October, SPWR reported EPS of 33 cents a share, compared to a loss of 5 cents a year ago. Meanwhile, the company also crushed the consensus estimate, which called for earnings of 24 cents a share.

Although guidance disappointed some investors, SPWR is laying the groundwork for longer term gains. In fact, the firm announced that it was going to expand solar cell manufacturing capacity by more than 25%, bringing their total capacity to 1.8 GW, and suggesting to many that SunPower’s products remain in high demand.

Outlook

Thanks to this capacity expansion and the strong anticipated demand, SunPower is looking to have another high growth quarter. Year-over-year growth is currently expected to be 182%, while the full year growth is looking to come in at nearly 700% earnings growth when compared to the previous year.

Estimates have also moved higher in recent days, suggesting an increasingly bullish take by analysts. And with a strong history of beats—all of the last four have been beats—there is plenty of reason to believe that SPWR can live up to the hype next quarter as well.



Due to these factors, SunPower has earned itself a Zacks Rank #1 (Strong Buy). This means that we are looking for more outperformance from this strong stock to finish up 2013, and for this company to continue to move higher.

Bottom Line

SunPower is looking great from several different angles. Its products are high quality and the industry is booming. The solar power industry is actually ranked in the top 20% overall, so there is pretty strong trend underlying the bull case here.

So if you are looking to get in on solar stocks, this high quality manufacturer—which has plenty of support from Total—could be an excellent choice. It is expanding capacity and if its efficient panels stay in demand, the stock may continue to rise as we end 2013.

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Friday, November 01, 2013

Why Your Wrong About the Stock Market



Why Everything You're Told About the Stock Market is Wrong by Market Authority

This is a picture worth 10,000 media stories...

SPY 5 year



Click Images to Enlarge

Please view the above chart of the SPY (S&P500 index ETF). This is the benchmark of the stock market. In the late 90s, the SPY replaced the Dow Jones Industrial Average as the main benchmark as it included more companies (500 vs 30 for the Dow).

The SPY is now trading 150% higher than the March 2009 lows, ranking it among the best 5 year returns in stock market history. On top of this performance, there are no signs of a significant correction (re: a pullback between 10-20%) in the near future. I will cover these bullish indicators in future missives. Today I want to tell you why you've missed one of the greatest rallies of the past 3 decades.

Please take a moment and ponder this question . . . Why were you not involved?

Well, if you happened to buy the lows and were fully invested - fantastic job! You're in the small minority of investors who saw the panic in early 2009 as a generational buy-signal.

To those of you who didn't catch a big chunk of this move, I have this advice for you...

It's not your fault so don't beat yourself up over it. The information you were given was not only misleading but (at times) blatantly false.

Let me explain by teaching you the Allegory of the Cave. In Plato's Cave, there exists a gathering of people, who for all of their lives, have been chained up and facing a blank wall. On this blank wall, they're only able to see shadows of things passing in front of a fire behind them. As these shadows are all they've ever seen, they represent their reality. According to Plato, the philosopher is a prisoner freed from the cave and realizes that the shadows don't make up reality at all.



You, the average investor, are cave dwellers and the shadows you see on the wall is the misinformation from modern-day media. The signals you are receiving in that cave don't represent the reality of what's happening to the market. What you are seeing on CNBC and reading online is just noise.

There are a few reasons for this:

1. The main goal of the 24-hour cable news cycle is to increase viewership, not to provide accurate information. CNBC only exists to sell 30 second infomercials for Cialis, P90X, and Propecia.

2. The only way to keep viewers engaged is a continuous cycle of fear-mongering that will leave you worried enough to continue watching.

This persistent fear-mongering has kept investors on the sidelines and created a "wall of worry", a necessity for a broad stock market rally. There are many ways to follow this sentiment, so stay tuned for future missives when I explain them.

For now,take a look at the 1-year chart of the SPY to see what I'm talking about.

SPY 1 Year



In Dec 2012, there were fears of going over the "fiscal cliff" and the market pulled back.

Guess what? We went over it and the market went higher.

In February 2013, there were fears of the "Sequester" and the market pulled back.

Guess what happened? We "sequestered" and the market went higher.

In June 2013, there were fears of a Bernanke "taper" and the market pulled back.

Guess what? The fed actually didn't taper and the market continued higher.

Finally, this past month, there were fears of a government shutdown and breaching the debt ceiling and the market pulled back.

See a pattern here?

You will never realize your financial dreams if you stay in that cave and listen to media that exists to sell you Cialis. So forget about all the information you've heard over the past 5 years that hasn't made you money. Stop listening to the "noise", and start learning how to find accurate signals.

How do you find signals? The best place to start is to find a system that fits your investment style and profits in various market conditions.

Click here to review that type of system.

But for now, please contemplate what I said about financial media and "make sure to call your doctor is headaches persist..."