Entries Tagged 'investing' ↓

Learn with Stupid (me)

In a world of never-ending lists, I figured why not make one of my own?  I am pretty sure, in the next 5-10 years, all writing whether it be factual or fictional will just be pages of lists.  That way everyone can read the first couple points on each page, make an incorrect inference, and form an opinion that misses the point of the list.  But I digress…

So for MY list, I wanted to lay out 4 concepts I am currently actively following while trading.  These are just loose concepts that help me follow some rules when I am making plays.  And yes it’s beginner crap, but its still stuff I didn’t know when I started adding portfolio positions.

1. Average INTO your positions. I used to just blanket plop down an allotted amount on a particular play, which is really dumb when you think about it. Averaging into a position helps smooth out that crazy volatility that you fight daily.  It also lets you think about whether your making a smart play if the primary or any other trend goes against you before you’ve put your chips in that basket.

2. Monitor your portfolio beta. If you don’t know what Beta is, look it up and learn about it.  Its simple to understand. Its a correlation of sorts to the S&P500 (really whatever underlying you want). If the S&P is going up or down, how is your money going to react.  REALLY helps you understand where you might be on a daily basis by taking a quick glance at the SPY.

3. Speculate smartly. It’s sort of an oxymoron to say something like that, but it’s important. Start to watch how stocks react to events. Ask yourself twice (or 3 times) if you want to go along with the trend of what the crowd is betting on.  I have been burned many a time on this.  Just overall be smart and play low limits when making these bets, that’s all I can say.

4. Sell insurance. I’m at the fledgeling point of my career in this, but I have added it as a tennant of my portfolio.  I have shaved off about 20% of my money to put to work in selling index spreads with defined risk. Its a complicated topic, but there is much to be gained by getting into this game.  It adds an income stream of some sort by collecting premiums from those that are hedging bets. No better way to define it.

So there you go, some of my stock trading principles. Be waiting with baited breath for my next list.

Elephant Gun Blasted

I’ll admit it.  I got my a@# handed to me on my most recent foray into options.  I’ll also admit that I totally stole the title of this post from a phrase my friend Andy uses. I can’t help it, as it sums up BEAUTIFULLY what happened to me today.

Here’s a quick synopsis:

I have been following Visa (V) hard for the last couple months. So going into earnings I decided to speculate a bit, being extremely bullish on the quarter and place a 75/85 bull vertical spread. It wasn’t expensive, and I had defined risk on the downside and playing a spread kept the costs manageable. I was, like MANY, MANY others out there expecting a good 3Q earnings report. All they did was blow their numbers away, AND reaffirm 4Q guidance. All is great right? The aftermarket pops, I go to sleep thinking I nailed it.

Except it didn’t go that way. Futures turned overnight and then V tanked. The bottom fell out. I traded out of my position with a marginal loss when the stock rebounded to 76 or so during intraday.

Easy reminder of where we are economically. Things aren’t behaving irrationally. Tug of war between the bulls and bears is leaving positions hung out to dry. When you think things are going up, they go down.

For now, I’m going back to being safe in the market. Cautious is a difficult card to play, though ;)

Knock, Knock

Who’s there?  Opportunity probably.

It’s something that I am constantly searching for.  It’s around almost every door you peek behind.  I tend to think there is one coming up with GOOG releasing earnings.  The markets in the tank for sure, and people are all over the place, but yesterday was promising.  The Freddie, Fannie situation is still looming large in terms of impact on the financial system as a whole, and its hard to be positive about it.

I’m almost always wrong (at least lately), but I am going to put a position out there to make some dough. Liking the 550-580 options ranges.  My play will be some sort of spread there this morning.  Risking a bit of money on the chance that google kills it to make some scratch on premium.

If I can’t be an optimist, I don’t want to invest.  This bear stuff is causing me to go home and kick my dog and yell at random people in the streets.  That’s gotta stop.

Also, on the value side, I strongly suggest you take a look at TEX.  It is starting to trend upward, and a 1.2 billion dollar stock buyback should draw big money interest. I’m in around 44 a share (dollar averaged).  The ride up will be fun.

Feeling Sentimental

Everyone seems to have figured out the top and the bottom of the Market lately…er wait, its the top . Its a constant reminder to me of how complex the economy is and how most everyone is dead WRONG. It’s probably why value strategies have withstood the test of time against all detractors as well. It can weather the fact that in the short term, you don’t know which direction the market is moving. Your betting on a longer term trend. The sentiment is so tough to nail down.

It’s not that you CAN’T make money right now trading. It’s just that its a bit harder. People telling you that they called being short today, will loose their arse tomorrow, and hand it all back because they probably were lucky being short in the first place. Anyone that tells you any different is probably not telling the truth. Hell, I can tell how much of a rookie I am as I wanted to be long SPY and short Oil. I couldn’t have been more wrong. Glad I am being overly cautious before putting money out there.

I am going to follow that mantra because sentiment is all over the place.

Of Markets and Music Theory

I usually don’t post about music, and talk about artists I like or dislike, and I’m not going to here.  I do, however, like to relate similar concepts that I understand to things that are difficult to grasp. As I can see it, right now the markets are in a period of dissonance.

If you’ve never heard this term before, its a simple explanation. Listen to some Jazz music, and you will hear all kinds of notes that sound terrible. Like they don’t relate to the notes that were played before. This is dissonance in a nutshell. It’s always been the hardest thing for me to grasp when listening to jazz. It always sounds like they are playing the wrong notes. I mean how hard is that for me to play the wrong notes on MY guitar? I would be an AWESOME jazz artist.

However, it’s also what makes up the genius of some of these artists. Some are able to take these unrelated dissonant tones and create beautiful pieces that are cohesive when listened to as a whole. Therein lies the analogy with the market. In a period of dissonance where things are “unstable”, you need to search harder for options and look deeper for trends that are making sense (called consonance in music). Their tough to find with oil dominating the world as it is, but I assure you this trend will slow or lesson at some point. The market will demand it with exponential increases.

So this is what I’m looking for in the market right now, a small sense of stability that a trend may be building in. But remember, there are tons of companies (notes) that are sounding terrible right now, and the market as a whole is like a bad jazz artist. Search out the Coltrane’s and the Miles Davis’s and you might get rewarded in the long term.

Trading For Me Is Hard. Really Hard.

I’m learning the hard way that trading to make money in the short term is far from easy.  I feel like I know about 20-33% of what I need to know.  That makes me feel really, really uneasy.  I feel decent analyzing companies for value and investing on a play that needs some time to work itself out, be it 3-6 months or a couple years.

Coming from a technical background, I am usually in the 80% camp of what people talk about.  I have been around enough where even if I don’t know the exact technical concept someone is speaking of, usually there is a lower level abstraction that I have been privy to. I know the lingo, the insider talk, the jargon. Its important.

Days like today are constant reminders of my need to learn as much as possible in a short amount of time. It’s what I need to compete if I want to trade to improve my monetary position.  For me, being in the game is the biggest thing.  I would rather have plays working during a bloodbath to learn aspects of the market I didn’t understand.  Learning these nuggets through experience will make me better much faster than reading any book or following any blog.

So cheers to a GOOD day. The sun will come up, and hopefully the market will follow suit at some point.

Grey Hair Advancing

Yeeesh. I did this with BW3′s (BWLD).  I watched it happen again with Research In Motion (RIMM).  I held them through some impossible earnings expectations. I have since turned sour on BW3′s, because their CEO can’t successfully navigate increasing chicken prices.  Hard to believe while Southwest (LUV) seems to be dealing with a commodity that is seeing exponential price increases and still navigating the waters, but I digress.

These earnings announcements are a constant reminder for me that I am investing for value in the mid to long term with these plays. If I look back at my portfolio I am doing very well in this strategy when I bought Wal-mart (WMT) and Anhesier-Busch (BUD) at around 40 bucks a share. It just took them time to get to the valuations that I was aiming for.  NOTHING happens overnight in value.

It’s good to remember this when we are in negative sentiment, sell the news type markets.

Humpty Dumpty

If you have lost on significant amounts of dough on positions in the market, it’s worthwhile to look back and ask yourself “Why did that happen?”.  A lot of times you’ll find answers in the numbers in the short or long term.  Sometimes the answers will tell you that you would have had a hard time predicting as huge a downward move as had been established. That’s what is happening in lots of sectors in the market today. Particularly in banking.

A super-prime example of this right now is Fifth Third Bank (FITB).  Just take a look at their chart here. Its an AMAZING testament that if your not careful the market can erase you in a matter of moments. I follow them pretty heavily since it is a former employer of mine and I have written copious amounts of software that is still in use. It was trading at $70 bucks a share when I started there, now they’re down under 10 bucks. All it took was creative financial instruments that people didn’t fully think through in the long term and WHAM! Another reminder that following the money is probably the easiest thing to do if you work in finance.

Lots of the people that I follow on twitter and through their blogs talk a lot about sticking and moving during tough market times. Nothing could be truer of having positions right now. Be active in the positions you take, even if your long. Sometimes it’s tough to see the secondary trends that follow the overall market ripple, but paying attention can get you out of positions that are going to get hammer you.

As a product of this trend in regional banking, I look for these markets to have some consolidation. No one has the leverage right or the cahones to take someone on their balance sheet, but as things continue to shake out its going to happen. Good time to be trolling for some strong upstart banking companies looking to grow who were smart enough not to loan to every Tom, Dick and Harry out there.

Don’t Stop Me. I’m on FIRE!

I just finished reading Tim Sykes article on Limit v. Market orders over here. He writes *A LOT* so its tough not to see something he has going on out there on twitter, or his blog. It of course prompted my own thoughts on this concept of stops. He’s been trading a lot longer than me and seems to have worked out a small, risky niche that’s profitable, so take my beginner talk for what its worth.

Stops are a necessary part of any investors arsenal. There are always times where you want to put plays on cruise control, and have safe stops so that when your investment dips, a trade is executed that keeps you from loosing a ton. If your in a youngling phase of your investing career like me, though, and investing in longer term plays, focus on using your stops for protecting GAINS, not losses. Don’t ignore stops, just put them on the back burner when your getting started.

Intraday swings can really eat away at you if your not careful and you will have exited a positon that you didn’t want to get out of. I’m not saying ignore downward movements in your stocks. They can definitely send signals to you to get out. Concentrate on using stops to protect PROFITS. Set an overall loss % for each play (something like 8-10% is prolly good but I tend to question that number with smaller caps), and monitor it best you can. I don’t get hung up in micromanaging short term moves unless something major goes out of whack with the company. That way you aren’t hugging your position and getting stopped out of longer term plays.

I recently had a good example of this recently with SIMG. I bought into the company at $4.47, and watched it dip the next day to around 4 bucks, where I actually added to my position. If I would have set my stop religiously, I would have been out of the play for a nice solid loss. Since then its been on a good run, moving up over 7 bucks. While that move has been happening I have been setting and adjusting my stop about .25 points under the closing price, thus protecting my profits. Now I’m making money with each move up. I believed in the work I did before I put my money in.

So spend your time on your front end analysis, not “overwatching” your value plays. Remember we’re talking about longer term plays, and short term volatility might bounce them around during the longer term trend that you are playing.

Earn Me.

I just finished pairing down my portfolio which means that I am selling off the terrible plays that I had a hard time letting go of. This will free up some cash to put into good companies and get away from these naive plays that I made when I first started investing. This is leading me into a quick newbie lesson if your like me.

The first thing is get rid of companies when they dip 8-10% below your original investment. It’s a really, really difficult thing to do, especially considering you are really smart and made a nice pick on a value play that “seems” underpriced, only to watch it sell off. The problem here is you might wait a very, very long time for that play to recover, if it does at all. I was bad about this when I started investing and was holding on for dear life in numerous positions. For example, I held a position in NOOF and one in OPMR when they were almost double where they are now. Both of these were relatively speculative plays, especially with OPMR and I never should have been sniffing around them anyway. In a nutshell, they both started a nice downward trend with OPMR becoming a total massacre. I should have seen the signs and gotten out of the initial downward move and saved myself money in the further pullback. But you don’t learn those lessons until your out there trading.

The second important lesson I have learned is to research everything as best I can. A *lot* of people will invest following analyst recommendations, or blog posts like mine (Don’t do it, I am just learning :) ) and make plays based on these people. That’s a big mistake. Analyst recommendations are usually something to take into account and note, but they often are priced into the market already, or might not be giving an accurate picture. People writing about the companies on blogs or through twitter might have different investment objectives than you. It’s good to get exposed to what they are talking about to get an idea of the strategies that they are following, but don’t fall in love with their recommendation until you’ve done your homework. Remember this:

–Its a bit like getting to watch Texas Hold’em on TV where you see how the pros play their hands when you see the cards they have. The intarwebs, particularly in blogs and micro-blogs, like twitter, are opening up avenues of transparency that have never existed. Use this transparency as chances to learn.–

So in light of not following these two lessons, how are you going to find companies to invest in? Earnings. Earnings, I would argue, is the place where you can glean the most out of a company. This is capitalism, and if companies aren’t growing and turning over solid double digit growth, why even get involved? Even mediocre management has a tough time screwing up good products that are generating good revenue growth.

Stick with investing in good companies that are posting good earnings per share numbers of 20% growth or so. Don’t turn a blind eye to everything else and research the crap out of them, but use this earnings growth as a good screen to tuck away the crap and focus on companies that worth investing in.

This is just a simple way to start finding better companies to put your money into. But once you start here. quickly you will be eliminating the noise and picking up on the signals before the analysts and bloggers turn their eyes towards the companies you are getting into. That will pay off in returns that you would have missed if waiting for someone else to tell you what to do.